The Pay As You Go (PAYG) system replaced the earlier provisional tax system some years ago. The system serves the purpose of boosting the coffers of the Federal Government throughout the tax year. You are required to pay instalments towards your theoretically calculated expected tax bill on your business and investment income. Your actual liability is worked out when you income tax return is prepared. Your actual PAYG insta,emts paid for the nominated tax year are credited against your tax return to calculate if you are due for a tax refund or a bill.
The ATO contacts businesses via mail, and nominates the percentage rate of PAYG you need to be deducting, based on your previous years income tax return.
PAYG instalments are then paid, generally quarterly via your BAS. Some tax payers pay two instalments a year, and some one instalment per year. Please refer to the ATO Annual PAYG fact sheet.
Some businesses pay the instalment amount calculated by the ATO, but many work out their instalment based upon the ATO nominated rate multiplied by their actual business and investment income. The benefit to you of working out your own instalment amount is that your instalments are based upon what is occuring this business cycle rather than what happened in the last tax return.
You will find more information at the ATO PAYG Instalment Essentials.
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Last updated Monday 13th February 2012
© Peter Mulcahy 2011