What are PAYG instalments?

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The Pay As You Go (PAYG) instalment system is a system for both individuals and businesses to pay tax on their business and/or investment income in instalments throughout the year.[1]

As a business owner or investor you are responsible for paying the tax on the income your business and/or investments makes. This is done through the PAYG instalment system. This is different from the PAYG withholding system where an employer is responsible for paying their employees taxes from their pay.

Just like buying something expensive on an instalment plan, business owners and investors pay their yearly tax in instalments. A tax return must still be submitted every year. In the end of year tax return any differences between the tax paid from the instalments and the tax liability calculated in the tax return will be calculated. Any differences can result in a further tax liability or a tax refund.

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[1] PAYG instalments - fact sheet for individuals, Overview, ATO, 2011