PAYG stands for 'Pay As You Go', and effectively involves a quarterly prepayment towards your expected tax liability for the financial year. Where you earn income outside of regular employment, the ATO may require you to make instalments of your tax liability once per quarter through your BAS.
The amount of PAYG you are required to include in each BAS is based on an estimate of the amount of personal income tax you will be liable for at the conclusion of the Financial Year. As a Sole Trader, this system spreads out your income tax liability throughout the year to minimise the impact on your cash flow.
If you end up paying too much PAYG throughout the year based on your final tax position, you will be issued a tax refund.
Before you lodge your annual income tax return, you need to:
- Pay all instalment amounts due.
- Lodge activity statements or instalment notices (if required)
How do I know if it affects me?
If you reported $4,000+ of income outside of regular employment on your latest tax return, the ATO will likely contact you to let you know that you are required to start pay PAYG instalments.
It is also possible to enter the PAYG instalment system voluntarily if you are expecting a large tax payable in the financial year, and this can be a useful cash flow management strategy. You can do this by calling the ATO on 13 28 61, or by checking out the information provided here.
How do I report PAYG on my BAS?
It's easy to record your PAYG instalment amount on your Airtax BAS! The PAYG field is one of the last fields on the form, and once complete, you'll notice that the total amount owing for the BAS will increase by the value of the PAYG.
Your final amount payable to the ATO upon lodgement will include both the GST and PAYG components of your BAS.
If you forget to list PAYG on your BAS, a member of our processing team will remind you by email of your PAYG instalment amount - however this could delay your lodgement.