ATO issues GIC warning for PAYG instalments

Furthermore, the ATO pointed out that when it receives a tax return, it compares the taxpayer’s actual instalments to the total tax payable on their instalment income for the income year.

“If your varied instalments are less than 85 per cent of your total tax payable, you may have to pay a general interest charge on the difference, in addition to paying the shortfall. Depending on the circumstances, there may also be penalties,” the ATO said.

“If you're not sure, it is best not to vary your instalments. Any overpaid instalments will be refunded to you after you lodge your tax return.”

The ATO will not apply penalties or charge interest on variations for taxpayers impacted by floods or other disasters if they have taken reasonable steps to estimate their end-of-year tax liability, including determining their liability.

“If you're unable to pay your instalment amount, you should still lodge your instalment notice and discuss a payment arrangement with us,” the ATO said.

It explained that PAYG instalments require taxpayers to make regular payments on their business and investment income during the year to ensure they meet their expected tax obligations throughout the year.

PAYG instalments are prepayments of a taxpayer’s expected income tax for the year. If their total PAYG instalments will be more or less than their expected tax for the year, they can change the amount they pay.

Taxpayers can vary their instalments so the amount they prepay is closer to the expected tax for the year. They can make their variation when they lodge their activity statement or instalment notice on or before the day their PAYG instalment is due, or before they lodge their tax return for the year. The varied amount or rate will apply for the remaining instalments for the income year, or until the taxpayer makes another variation.

While it is not compulsory to vary PAYG instalments, the ATO said those who pay PAYG instalments using the instalment amount (option one on their activity statement) may want to vary if their instalment income has changed significantly this year.

However, if they calculate their PAYG instalments using the instalment rate (option two on their activity statement), the ATO said taxpayers don’t need to vary just because their income has changed, as the payment they calculate will go up and down in line with their income.

“You would usually only vary if the taxable proportion of your income has changed – for example, if your income has fallen significantly but your deductions for running costs have stayed the same,” the ATO said.

The ATO urged tax agents to support their clients in several ways, including:

• Guiding them on whether they should vary their instalments.
• Encouraging them to regularly review their PAYG instalment amounts.
• Ensuring clients maintain appropriate records to support variation decisions.
• Remind clients to update their PAYG instalment variations if their financial circumstances change.

“When varying instalments for your clients, ensure their estimates are based on information that is reasonable, current and can be substantiated. Where circumstances change, they should review and update variations as needed,” the ATO said.