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Do You Need To Vary Your PAYG Instalment?

Do You Need To Vary Your PAYG Instalment?

  • Friday, 23 December 2022 04:46

Pay as you go (PAYG) instalments are regular prepayments of tax on your business and investment income. When you pay regular instalments throughout the year, you should not have a large tax bill when you lodge your tax return.

If you think the amount, you pay now will be more or less than your expected tax liability for the year, you can vary your PAYG instalments. The varied amount or rate will apply for all your remaining instalments for the income year, or until you make another variation. You can lodge your variation through myGov or Online services for business. You need to make variations on or before the payment due date.

If you are a PAYG instalment amount payer, your instalments have been increased by the gross domestic product (GDP) adjustment factor. For the 2022–2023 income year, this is 2%.

The Australian Taxation Office (ATO) encourage you to review your tax position regularly, so your PAYG instalments reflect your expected tax for the year. You may want to get advice from a tax agent on whether you should vary your instalments.

SHOULD YOU VARY

If your financial situation has changed, your expected tax may also change. This means your current PAYG instalments may add up to more, or less, than your tax at the end of the year. You can vary your instalments so the amount you prepay is closer to your expected tax for the year.

You do not have to vary your PAYG instalments at all. It will not change how much income tax you pay for the year. After you lodge your tax return, if your instalments were:

  • too high, the excess is refunded to you
  • too low, you pay the shortfall.

If you pay PAYG instalments using the instalment amount (option 1 on your activity statement), you may want to vary if there has been a significant change in your instalment income this year.

If you calculate your PAYG instalments using the instalment rate (option 2 on your activity statement):

  • you do not need to vary simply because your income has changed – the payment you calculate will go up and down in line with your income
  • you would usually only vary if the taxable proportion of your income has changed – for example, if your income has fallen significantly but your deductions for running costs have stayed the same.

WHAT HAPPENS IF YOU UNDERESTIMATE

When you vary your PAYG instalments, it is important to not underestimate your instalment amount or rate. If you underestimate, you could be left with a substantial tax bill when you lodge your tax return at the end of the year.

Also, when the ATO receive your tax return, they compare your actual instalments to the total tax payable on your instalment income for the income year.

If your varied instalments are less than 85% of your total tax payable, you may have to pay a general interest charge on the difference, in addition to paying the shortfall. Depending on the circumstances there may also be penalties.

If you are not sure, it is best to not vary your instalments. Any overpaid instalments will be refunded to you after you lodge your tax return.

 

 

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