Update: PAYG Income Tax Instalments

PAYG instalments are essentially quarterly tax prepayments for individuals and businesses with business or investment income. Rather than paying all of your tax when your annual tax return is lodged, the ATO may require you to make regular instalment payments during the year.

The ATO enters you into the system automatically when you meet specific thresholds on your latest assessment:

• Individuals/Trusts: Instalment income ≥ $4,000, tax payable ≥ $1,000, and notional tax ≥ $500.
• Companies/Super Funds: Instalment income ≥ $2 million or notional tax ≥ $500.

The ATO sets your PAYG instalments automatically using information from your most recent income tax return, and uses one of two methods to set your payment:

• Instalment Amount Method:
  • Based on your latest tax return’s notional tax.
  • Adjusted for economic growth using an ATO gross domestic product (GDP) factor (5% for the 2026–27 income year).

• Instalment Rate Method:
  • Calculated as (Estimated notional tax ÷ instalment income) × 100.
  • Multiplied against your actual current income each period.

If your income drops or rises significantly, you can vary your instalment amount or rate before the due date.

Varying too low without a valid reason may trigger general interest charges (GIC) or penalties, and up until now we have found the ATO have not been too concerned with applying these charges.

The ATO has recently put us on notice regarding understated PAYG instalments, and is actively issuing warning letters to tax professionals and taxpayers to combat a growing trend of using downward variations purely as a cash-flow management or tax-deferral strategy.

On this basis, the simplest and safest thing to do is to accept the ATO’s set amount where appropriate and where possible. Any potential variation to that requires serious consideration and may have negative consequences.

We would also like to point out that one of the challenges with the PAYGI system is that the ATO can add you to or remove you from the system without us necessarily being notified. For example, you may no longer have PAYGI obligations for a period, but then be automatically re-entered by the ATO following the lodgement of a future tax return.

For this reason, we strongly recommend that you make every effort to monitor your PAYGI obligations, and don’t rely solely on reminders from our office or the ATO.

Key PAYGI Due Dates

If you are in the PAYGI system, instalments are generally due:

If you have other quarterly tax obligations then your PAYG instalment will form part of your Business Activity Statement (BAS) and you may get additional time to lodge and pay, and also depending on whether the BAS is lodged by your Tax Agent.

Our Recommendations

✅ Set up recurring calendar reminders for each of the above due dates.

✅ Regularly check your ATO Online Services (for individuals) or Online Services for Business to see whether any PAYG instalment notices have been issued.

✅ Ensure your contact details with the ATO are up to date.

✅ Contact us if you receive a PAYGI notice and would like assistance reviewing the amount payable.

If you have linked your ATO account to your online services, you should generally receive notifications directly from the ATO. However, emails, SMS notifications and activity statements can occasionally be overlooked or missed, so a quarterly review is always worthwhile.

A few minutes spent checking each quarter can help avoid missed lodgements, late payment penalties and unexpected tax debts.

As always, if you’re unsure whether PAYGI applies to you, or you’ve received a notice you don’t understand, please contact our office and we’ll be happy to assist.

Please note that if you require tax planning/tax estimates then additional professional fees may apply.