ATO’s GIC alert for PAYG instalments a first, says accountant

While the ATO said it is writing to tax professionals and taxpayers about this matter, BAN TACS National Accountants Group Hornsby office principal Deborah Ianchello told Accountants Daily she has not yet received any correspondence.

Noting that PAYG rules commenced in July 2000 as part of the ‘new tax system’ reforms when the government introduced PAYG withholding (generally employees) and PAYG instalments (generally recipients of business and investment income), Ianchello said she has never seen any compliance action or any warning letters from the ATO on this issue.

“I’ve never actually seen the ATO take any compliance action in this area, but that’s only from my personal experience,” she said.  

“I’m not sure whether other accountants have seen the ATO take action or received warning letters in relation to this matter.

However, she said that she is unsurprised that the ATO is focusing on this matter, given that Commissioner of Taxation Rob Heferen recently said at The Tax Summit in Sydney that the Tax Office will continue to take firmer action on tax debts.

It comes as its debt book figure for the end of June is expected to exceed the $115 billion figure from the previous year. Heferen said collectible debt would remain a major focus for the ATO, as the ATO’s debt book had ballooned from $96.3 billion at the end of June 2023 up to $115 billion at the end of June 2025.

Ianchello said ATO’s alert on varying PAYG instalments reflects a focus on cash flow management and revenue collection given the ATO’s debt book figure, and “they’ve got this firmly on their radar.”

“Given the size of the ATO’s debt book, it is putting small businesses on alert that they should not be varying their instalments if they have a genuine tax liability at the end of the year, and that they could be penalised for doing so.”

“Some taxpayers may want to vary their PAYG instalments at the moment to keep the cash flow, and perhaps they feel that they shouldn’t be paying income tax until they absolutely have to. The ATO is just reminding taxpayers that they have obligations under PAYG instalments to pay them on time.”

Taxpayers could be penalised through either GIC or potential penalties depending on the circumstances if the PAYG instalment results in them paying less than 85 per cent of their tax liability for the year.

“That to me could pose a big risk,” Ianchello said.

She continued that she typically reminds her clients of their obligations and flags the possibility of penalties if they vary their PAYG instalments.

“If my clients aren’t managing their tax obligations, I’d be concerned about what that may indicate from a business cash flow perspective.”

“Small businesses are aware that they have quarterly obligations or monthly obligations, depending on how they’re registered, and need to manage their cash flow. If they can’t afford to pay their instalments, then that to me is a red flag. Perhaps there are some underlying cash flow issues that I would need to take a look at to address why they’re not able to meet their obligations.”

Varying PAYG instalments could benefit some clients depending on their individual circumstances, Ianchello said, including if the business is winding down or their revenue, turnover, or trading conditions have changed.

“If they have tax losses that they want to utilise, that could also be a reason for varying their instalments, because they’re going to use those available tax losses,” she said.

She added that the Taxation Administration Act sets out a prescribed method for varying instalments, and accountants can project income and estimate tax position to calculate tax as close to the real tax liability for the year as possible.

“It needs to be managed carefully. I think that accountants together with their clients should be monitoring this on a quarterly basis or a monthly basis, depending on what their PAYG instalment obligations are.”