Pay as You Go (PAYG) instalments
Pay as You Go (PAYG) instalments help you and your business to meet your income tax obligations.
PAYG instalments are regular payments you make throughout the year (usually quarterly) towards your expected annual income tax liability. They help you reduce the chance of having to make a large tax payment after you lodge your tax return.
PAYG instalments are generally paid by business owners, investors and sub-contractors who earn a certain amount of income.
You report your PAYG instalments on your business activity statement (BAS) if you're registered for Goods and Services Tax (GST). If you're not registered for GST, you will report on an instalment activity statement (IAS).
If you pay PAYG instalments, you’ll still need to lodge an annual income tax return.
How to start paying PAYG instalments
There are two ways to start paying PAYG instalments:
After you lodge an income tax return, you’ll be entered into the PAYG instalment system if your business and investment income is over the threshold. The Australian Taxation Office (ATO) will let you know if you need to start paying PAYG instalments, how often and how much you need to pay.
The ATO will automatically remove you from the PAYG instalments system if you no longer meet the entry thresholds.
If you’ve been entered into PAYG instalments and you want to exit the system because your situation has changed (for example, your income has reduced), contact the ATO on 13 28 66.
If you’re new to business and not already in the PAYG instalments system, you can plan ahead and reduce the chance of having to pay a large tax bill after you lodge your income tax return by voluntarily entering the PAYG instalments system:
- online via myGov (if you’re a sole trader)
- by phoning the ATO on 13 28 66
- through your registered tax or BAS agent.
Visit the ATO website for more information about how to start paying PAYG instalments.
Changing how much you pay
If your circumstances change, so your business or investment income has reduced or increased, you can vary your PAYG instalment amount or rate on your BAS.
It’s important to be careful when varying your instalments as interest may apply if your variations are too low.
PAYG instalments VS PAYG withholding explained
It's important to note that PAYG instalments are different to PAYG withholding.
If you're an employer, PAYG withholding is your legal requirement to keep a portion of payments made to your employees and other businesses, which you then pay to the ATO.
You complete this on your employee's behalf by withholding some of their pay as tax. Your employees can make a claim against the amount withheld at the end of the financial year.
You may also have to withhold tax from payments you make to other workers, such as contractors. For more information on meeting your requirements as an employer, visit our page on Register for PAYG withholding.
What to do…
- Use the ATO’s PAYG instalments calculator to help you work out your PAYG instalments if you decide to vary the amount you pay, or if you want to voluntarily enter the system.
- See the ATO’s tips for calculating and reporting for PAYG instalments at Getting your PAYG instalments right.
- If you’re an employer and want to know more about PAYG withholding, take a look at our page on Register for Pay As You Go PAYG withholding.
- There are a number of other taxes that you may be required to register for. To understand the different types that may apply to your business, and how to register, swing by our topic on Taxation.
- If you're an independent contractor, your entitlements and obligations differ from an employee in many ways. Save time and money by being aware of your rights and responsibilities. Read our Contractors topic.