Suitable for: Anyone who is unsure on how to treat income and expenses in their BAS or income tax return
Tax Difficulty: Beginner
Airtax Experience: Anyone
Time to read: 2-4 minutes
Paying the ATO what you owe
If you have been earning income from a sole trader business (e.g. ride sharing) and you have not been making pay as you go (PAYG) instalments, you may owe the ATO income tax at the end of the year. If this is the case, you will have to make payment by the due date to avoid penalties.
Once you have lodged your first tax return as a sole trader, in which you have a tax payable, the ATO will likely enter you into the PAYG instalments system. The ATO will notify you if they are entering you into this system.
As a PAYG instalment payer, you may be able to choose between two options to calculate how much to pay:
- By instalment amount.
- By instalment rate.
Each instalment amount will be a reflection of your taxable position for the prior year and be based on an assumption that you will earn similar income in the current year. These will generally be issued quarterly, and are often linked to quarterly BAS.
Alternatively, you may choose to apply the instalment rate provided by the ATO and multiply this by your actual income to determine your quarterly PAYG instalment amount. This method may be preferable where your income fluctuates from quarter to quarter.
These instalments mean that you pay your expected income tax liability incrementally across the income year. Paying your PAYG instalments will mean that you will be less likely to end up with a large tax liability at the end of the income year.
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This document merely provides a broad outline of the subject and is necessarily general in nature. If you require specific advice, which is tailored to your specific circumstances, please do not hesitate to contact us (fees would apply).