In Australia, the Pay As You Go (PAYG) instalment system is a crucial part of the country’s tax system. It is designed to help people with investments and businesses manage their tax obligations throughout the fiscal year. If you are not sure if you should pay PAYG instalments, you can speak to accountants in Melbourne. In this blog post, you’ll learn why you should pay PAYG instalments.
What are PAYG Instalments?
Pay-as-you-go (PAYG) instalments are regular prepayments of tax on your investment and business income. When you lodge your tax return, these prepayments will be credited to your tax liability, minimising the amount you will have left to pay. By understanding these PAYG instalment obligations and making these instalments, you will be able to manage your cash flow and avoid a tax bill after lodging your tax return.
Why Should You Pay PAYG Instalments?
You should pay PAYG instalments if you earn investment and business income. There are various benefits of paying PAYG instalments, such as:
Avoid ATO fines
If you don’t pay PAYG instalments, then you may have to pay potential ATO penalties. If the ATO notices that you have made a misleading or false statement, whether unintentionally or intentionally, you could face potential penalties. These ATO penalties encourage accurate reporting and compliance with tax rules and regulations. By accurately reporting all your PAYG instalment income, you reduce the risk of receiving fines.
Reduce financial stress
PAYG instalments help you improve your cash flow by paying tax payments throughout the year. They prevent you from huge financial stress that can happen when a large tax bill is due at the end of the financial year. Regular PAYG instalments make it easy to budget and ensure you have enough funds available to meet certain tax obligations. This effective approach minimises financial stress and offers stability for your business finances. You must have accurate records of each payment and this is where bookkeeping services come in.
Enhance financial planning
Reporting PAYG instalments accurately will be beneficial for you. It enhances your ability to plan your business finances and accurately forecast. By reviewing your PAYG instalment income regularly and adjusting your payments as required, you can ensure that your tax payments match your current financial situation. This level of oversight helps you avoid overpayment or underpayment of taxes. It also gives you a clear insight into your business’s financial status, allowing you to make smarter financial decisions.
Support the tax system integrity
Paying the PAYG instalment system contributes to the integrity of the tax system. By meeting your tax obligations, you contribute to the government’s ability to offer required infrastructure and services. This will support the well-being of the community and enhance economic stability. You can reach out to a tax agent in Melbourne to pay PAYG instalments.
Quarterly Instalments
At the end of each quarter, the ATO will issue your activity statement. It will show the due date.
Due dates for quarterly instalments:
| Quarter | Period | Due date |
| 1 | July–September | 28 October |
| 2 | October–December | 28 February |
| 3 | January–March | 28 April |
| 4 | April–June | 28 July |
Why is my PAYG instalment so high?
Your instalment may be high prior to ATO’s adjustment if:
- you got income from an employee share scheme
- you mentioned a Higher Education Loan Program (HELP) or Higher Education Contribution Scheme (HECS) debt in your last tax return
- you mentioned income at the wrong label in your previous tax return
- your return is amended to include excess super contributions.
How is the PAYG instalment calculated?
The ATO calculate your PAYG instalment amount using data from your recent tax return. They adjust this amount to consider any chance of growth in your income. The adjustment depends on changes in gross domestic product (GDP) in Australia. Your PAYG instalment amount reflects your estimated tax liability for the year. If you change your instalment amount or file a tax return, the instalment amount on your next activity statement will vary because it will depend on this new information.
Conclusion
The blog outlines reasons for paying PAYG instalments along with quarterly due dates to pay PAYG instalments. If you find it difficult to pay PAYG instalments, you can speak to Reliable Melbourne Accountants.