Who Has To Pay PAYG instalments?
Save tax and make the right decisions for your business check out our PAYG Instalments Beginner's Guide in full.
It isn’t just business owners that may be required to pay PAYG instalments, individuals may have to make PAYG instalment payments also. Don’t worry though, the ATO will write to you to let you know that you have to pay PAYG instalments if you are required.
Only under certain conditions will individuals or businesses be required to pay PAYG instalments. There are different conditions for individuals and companies.
Conditions for individuals (including sole traders and partnerships)
You will be required to pay PAYG instalments if:
- “you have reported $2,000 or more of gross business and/or investment income (excluding any net capital gains) in your last income tax return ($1 for non residents).
- your tax payable on your last assessed income tax return is more than $500 (disregarding any voluntary payments or PAYG instalment credits that were applied).
- your notional tax* is more than $250.
- you are not entitled to the Senior Australian or Pensioner Tax Offset.”
*Notional tax is a bit of a tricky way of calculating your tax payable. Check out our Notional Tax Guide to avoid any confusion.
Conditions for Companies
“Generally, companies and superannuation funds will be notified of an instalment rate if:
- their ATO instalment rate is greater than 0%, or
- their notional tax is greater than $250.
However, if the gross business and investment income is greater than $2 million, companies and superannuation funds may only have the instalment rate option available to them.”
When will I stop having to pay PAYG instalments?
Every year when you lodge or amend your tax return the ATO will re-evaluate your situation against the criteria above. If the ATO deems that you are no longer meet the criteria to be required to pay PAYG instalments the ATO will write to you to let you know.
Note that income from investments also counts towards the figures above. This includes income from investment properties and shares.
This is because the core purpose of the PAYG instalment system is to collect tax on income throughout the year rather than at year end. Tax withheld by your employer as part of the PAYG withholding system does not include tax payable on investment income.
How do I register for PAYG instalments?
As stated above the ATO will automatically register you in the PAYG system based on the results of your tax return. You are do not register yourself to pay PAYG instalments. The ATO will send you a letter to inform you if you have been registered. The letter will inform you of how often you have to pay the tax for your business income. Payments are usually made quarterly.
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