Are you feeling confused by an ATO notification asking you to pay PAYG Instalments? No worries, we’ve got you covered! Let's break it down and get an understanding of how the PAYG Instalment system works together. ✨
What is PAYGI?
Pay As You Go Instalments, or PAYGI for short, is a system used by the Australian Taxation Office (ATO) to help you manage your tax payments throughout the year. Instead of paying your tax bill in one lump sum at the end of the year, you make smaller, regular pre-payments each quarter. This system is designed to make it easier for businesses to handle their tax obligations by breaking down the amount of income tax they owe into quarterly instalments and avoid a large tax debt when their tax return is lodged. 😎
Who Enrolls You in PAYGI?
So, you might be wondering, "How did I get signed up for PAYGI in the first place?" Well, once you submit a tax return where the ATO can see you're running a profitable business, the ATO will register you automatically into PAYGI scheme. This means going forward you're required to prepay income tax quarterly based on the amount the ATO expects you to owe in your next tax return.
Who Needs to Pay PAYGI?
You might need to pay PAYGI if you earn income that isn't subject to regular withholding by an employer. This could include:
Business income
Investment income, such as dividends or interest
Rental income
The ATO will notify you if you need to start making PAYG instalments, and they will ask you to prepay income tax based on the amount owed in tax on your latest lodged tax return. 😊
How Does PAYGI Work?
Here’s an overview of the process:
Notification: The ATO will send you a notification if you need to pay PAYG instalments. This notice will include your instalment rate or amount. Once enrolled, you cannot un-enroll from PAYGI.
Instalment Amount: The amount you need to pay can be based on your income (a percentage rate) or a set dollar amount. The set dollar amount is calculated by the ATO based on your previous year’s tax return.
Payment Frequency: PAYG instalments are usually paid quarterly, but some larger businesses may be required to pay monthly, depending on their circumstances.
Change in Business Circumstances: If during the year you feel the PAYGI amount is too high for your current level of business trading, you can choose to pay a different amount by varying your PAYG Instalment before the lodgement due date.
What Happens at Tax Time?
When your tax return is prepared, your PAYG Instalments lodged will be applied against your tax payable to reduce your tax amount owing in your tax return. This gives you credit for any income tax pre-payments you have made through the PAYGI scheme during the year. If you have pre-paid too much tax, you will receive a refund as long as you have no other ATO or government debts. 💸💸💸
How Can I Opt Out of PAYGI?
Once the ATO has enrolled you in PAYGI, you cannot opt-out of the PAYG instalment scheme. Only the ATO can opt you out at their own discretion.
If you think your PAYGI amount is too high compared to what you’ll actually owe, you can vary the PAYGI amount up or down. Just make sure you do this before the lodgment is due (as it cannot be amended after the lodgment date has passed), and only under specific circumstances. The main two reasons are:
Your income significantly dropped, and you believe your future tax obligation will be lower than what the ATO is asking you to pay.
You expect no further income as the business or business structure has ceased trading.
So, if either of these situations applies, you can lower your PAYGI amount to better match what you’ll actually owe. 😎
How Can I Vary the PAYGI Amount?
You can easily vary the PAYG instalment amount by following these steps:
1. Log in to your myGovID account
2. Access the ATO services
3. Navigate to the PAYG instalments section
4. Select the relevant PAYG instalment notice period
5. Access the PAYG instalment variation option
6. Declare the instalment amount you would like to vary
7. Submit the variation
Once you've varied it, click submit. Please make sure you do it before the lodgement due date.
And there you have it! PAYGI might sound a bit complicated, but it's all about making tax time smoother and less stressful. 😊