Introduction to Pay As You Go income tax instalments

This document provides information about the pay as you go (PAYG) instalments system that is used for paying instalments during the income year towards your expected income tax liability on your business and investment income.

Your actual tax liability is worked out at the end of the income year when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.

The Tax Office writes to tell you if you have to pay PAYG instalments.

Your PAYG letter tells you

The assessment year used in calculations
This is the latest year for which your income tax has been assessed. Your PAYG details are calculated from information in this assessment.

Your PAYG instalment rate
If you work out your PAYG instalment amounts yourself, you use your instalment rate.

This is a percentage figure that approximates the tax payable on your business and investment income. The Tax Office calculates your instalment rate from the information in your latest income tax assessment.

Your tax on business and investment income
If you pay one (annual) instalment per year, the Tax Office will advise you of an amount you can pay – your notional tax.

This is the tax that would have been payable on your business and investment income, excluding net capital gains, in the latest year for which your income tax has been assessed.

Your instalment amounts calculated by the Tax Office
These are the amounts you will be required to pay each period if you choose to pay instalment amounts calculated by the Tax Office. These amounts are based on your latest income tax assessment. If you lodge a new tax return or amend your latest return, these amounts may be different to the amounts printed on your activity statement.

The amount you actually pay will also depend on how often you pay instalments.

You can pay instalments either quarterly or twice a year, depending on your circumstances. The amount that the Tax Office calculates for you takes into account likely growth in your business and investment income (based on growth in Australia’s gross domestic product – GDP).

This option is called the ‘amount’ or GDP option.

Last Modified: Wednesday, 25 July 2007