PAYG instalments are regular prepayments toward the tax you’ll owe on business and investment income that isn’t taxed at source. The Australian Taxation Office generally puts you into the system automatically once your instalment income reaches $4,000 and your tax payable reaches $1,000 on your latest return, then sets a quarterly amount or rate for you to pay. When you lodge your tax return, every instalment you’ve paid during the year is credited against your final tax bill, so you’re not hit with the whole amount in one go.
Who Gets Put Into the System
For individuals, sole traders, and trusts, the ATO enters you automatically when three conditions all apply: instalment income of $4,000 or more on your latest return, tax payable of $1,000 or more on your notice of assessment, and estimated notional tax of at least $500.1Australian Taxation Office. Starting PAYG Instalments Meeting one or two isn’t enough. All three have to be true.
The Commissioner sends a letter confirming you’ve entered, along with the figures you need for your first activity statement. This catches most people running a business or earning meaningful investment income outside of salary and wages.
Entering Voluntarily
You don’t have to wait for the letter. If you’re starting a business or expect to cross the thresholds soon, you can opt in. The ATO recommends voluntary entry because spreading payments across the year avoids a large bill when you lodge.1Australian Taxation Office. Starting PAYG Instalments
What Counts as Instalment Income
Instalment income is your gross business and investment income, excluding GST. Gross matters here: it’s revenue before deductions, not taxable income or net profit.2Australian Taxation Office. Instalment Income A thin-margin quarter can still generate a sizeable instalment obligation.
Income you include:
- Gross sales and fees for services, excluding GST
- Rent from investment properties
- Dividends received or reinvested (but not franking credits)
- Interest received or credited
- Royalties and foreign income
- Your share of partnership or trust distributions
- Farm management deposit withdrawals and fuel tax credits
Income you leave out:
- Salary and wages where PAYG withholding already applied
- GST, wine equalisation tax, or luxury car tax charged to customers
- Capital gains, unless you’re a super fund or SMSF
- Exempt income like family tax benefit or child care benefit
- Franking credits shown on dividend statements
Payments received in cryptocurrency count as ordinary income at their Australian dollar value.2Australian Taxation Office. Instalment Income
How the Amount Is Calculated
You choose between two methods. Pick the one that suits how your income moves through the year.
Instalment Amount Method
The ATO calculates a fixed dollar figure from your last return and sends it to you each period. That figure is adjusted upward each year by a GDP factor to reflect expected growth. For the 2025–26 income year, the factor is 4%.3Australian Taxation Office. PAYG Instalments for Business and Investment Income You just pay the stated amount. It’s simple, but if your income drops, you’ll be overpaying until you lodge a variation.
Instalment Rate Method
The ATO gives you a percentage, and you apply it to your actual instalment income for the quarter. Payments scale with your earnings, which suits seasonal or volatile income. The cost is that you have to track and calculate your gross income each period.
Due Dates and Reporting Frequency
Most participants pay quarterly. The standard deadline is 28 days after quarter end, with one exception for the summer quarter.4Australian Taxation Office. When Are PAYG Instalments Due
- July–September: due 28 October
- October–December: due 28 February
- January–March: due 28 April
- April–June: due 28 July
Monthly instalments are due by the 21st of the following month. If your notional tax was less than $8,000 and you either aren’t required to register for GST or have voluntarily registered and chosen to remit GST annually, you may be eligible to pay annually. Companies in an instalment group, head companies of a consolidated group, and GST joint venture participants can’t use annual reporting. Annual filers who prepare their own return pay by 31 October; those using a tax agent pay by 21 October.4Australian Taxation Office. When Are PAYG Instalments Due
Lodging and Paying
Individuals and sole traders lodge through myGov. Businesses use Online Services for Business. Registered tax agents lodge on your behalf through their own software.5Australian Taxation Office. How to Lodge and Pay PAYG Instalments Once lodged, you’ll get a payment reference number and can pay by BPAY, direct debit, or credit or debit card.
You report on either a Business Activity Statement (BAS) if you have GST or PAYG withholding obligations, or an Instalment Activity Statement (IAS) if PAYG instalments are your only obligation.6Australian Taxation Office. Pay As You Go (PAYG) Withholding Lodging online can earn you a two-week extension on the standard due dates, though the extension doesn’t apply if you pay GST monthly.4Australian Taxation Office. When Are PAYG Instalments Due
Varying Instalments When Your Income Changes
If your income has shifted meaningfully since your last return, you can vary the amount or rate on your activity statement. Common triggers include selling an investment property, closing a business line, or a significant change in trading conditions. You estimate your instalment income and tax for the full year, then apply the revised figures. Variations must be lodged on or before the instalment due date and before you lodge that year’s tax return, with a reason code attached.7Australian Taxation Office. How to Vary Your PAYG Instalments
Watch the 85% rule. If your varied instalments end up covering less than 85% of your actual tax payable for the year, the ATO can charge general interest on the shortfall, and additional penalties may apply.7Australian Taxation Office. How to Vary Your PAYG Instalments Be conservative rather than aggressive when estimating downward.
Penalties and Interest
Missing a due date triggers the general interest charge on the unpaid amount. The rate updates quarterly. For the first half of 2026 it’s 10.65% for January–March and 10.96% for April–June.8Australian Taxation Office. General Interest Charge (GIC) Rates Interest accrues daily.
Lodging your activity statement late attracts a separate failure-to-lodge penalty. The base is one penalty unit for each 28-day period (or part thereof) the document is overdue, up to five penalty units. Medium entities pay double the base amount; large entities pay five times. These penalties sit on top of the interest charge.
If you’ve been hit with a charge and think it should be reconsidered, you can request a remission with supporting evidence. The ATO also reviews your lodgment and payment history when assessing the request. Requests for $2,500 or less can often be handled by phone; larger amounts go to a dedicated team, and each type of charge needs a separate application.9Australian Taxation Office. How to Request a Remission of Interest and Failure to Lodge Penalties
How Instalments Settle Up at Tax Time
Every instalment you’ve paid during the year is credited against your total tax liability when you lodge your return. If your instalments covered the bill, you owe little or nothing extra, and any overpayment comes back as a refund.1Australian Taxation Office. Starting PAYG Instalments If your income grew beyond what the instalments anticipated, you pay the remaining balance. The point of the system is to keep that year-end adjustment small.
Leaving the System
If your instalment income drops below $4,000 or your tax payable drops below $1,000, the ATO should remove you automatically. This tends to happen when a business winds down or income-producing assets are sold. Removal isn’t always prompt. If you’re still receiving activity statements for periods where you clearly no longer qualify, you can request removal through your online ATO account, with evidence like a business closure notice or updated financials to speed things along. Sorting it out promptly avoids penalties on statements you shouldn’t be receiving in the first place.