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Pay as you go (PAYG) instalments are payments you can make throughout the year to avoid accumulating a large tax bill to pay at the end of the year. Making these payments is a great way to budget for income tax and keep a healthy cash flow.
To qualify for PAYG instalments, you must earn over a threshold amount from your business or investment income (also known as instalment income).
The amount that you pay in PAYG instalments throughout the year will be offset against any owed tax for the entire year. But it is important to lodge your activity statements and pay all PAYG instalments before lodgment of tax returns if you want these to be included in your tax assessment.
There are two options for calculating and paying PAYG instalments:
- Instalment Amount: Simplest option which involves paying instalment amounts the ATO calculates based on relevant information.
- Instalment Rate: You calculate the instalment amount using instalment rate provided by the ATO and your instalment income. Therefore, dependent on income as you earn it and not predetermined.