PAYG instalments are pre-payments towards your income tax, spread across the year so you are not hit with one big lump at tax time. They are NOT an extra tax — every dollar is credited against what you finally owe. Here is when you get put in the system, how the ATO works out the amount, and how to vary it down in a lean quarter without copping a penalty.
What puts you in the system
The ATO enrols you automatically once your latest assessment shows all three of:
- instalment (business + investment) income of at least $4,000, AND
- tax payable on your last notice of assessment of at least $1,000, AND
- estimated (notional) tax for the current year of at least $500.
Once a return crosses all three, the ATO starts PAYG on your BAS (or an IAS if you are not GST-registered) from the next income year.
How the amount is worked out — two methods
- Instalment amount (GDP-adjusted): the ATO takes last year's tax on your business/investment income, applies a GDP uplift factor, and divides by four — a fixed dollar amount each quarter, at label T7. Easiest: you just pay it.
- Instalment rate: the ATO gives you a percentage (last year's tax divided by last year's instalment income); each quarter you report your actual income and pay income times rate, at labels T1 (income) and T2 (rate). Better if your income swings a lot.
Your BAS or instalment notice tells you which one applies.
Due dates
Q1 28 October, Q2 28 February, Q3 28 April, Q4 28 July — the same rhythm as your BAS.
Varying it down in a lean quarter
If your income drops — an injury, a downturn, a quiet winter — you can vary the instalment. Two rules:
- You can only vary before that quarter's due date — you cannot change one that is already past.
- Watch the safe-harbour. The ATO can penalise you if you vary too low and underpay. The working guide is that your varied instalments should still cover at least ~85% of your final tax. Estimate conservatively — if you over-estimate there is no penalty, just a bigger refund.
Year-end reconciliation
Everything you paid in instalments is credited against your final assessed tax. Paid more than the final bill → refund (or applied to other ATO debts). Paid less → you pay the balance on assessment.
Common mistakes
- Ignoring the first instalment notice — it does not go away.
- Not varying down in a bad quarter and starving cashflow.
- Varying too aggressively (under ~85%) and copping a penalty.
- Treating instalments as "extra" tax — they are credited, not added.
Know someone who needs this?
Templates you might need
Was this guide useful?
Didn't find what you were looking for?
Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.
In crisis? Lifeline 13 11 14 ·