What is PAYGI?
PAYG Instalments are provisional tax payments prepaying income tax for the current year in advance.
You will enter the PAYG Instalments scheme where you meet the following thresholds:
|Instalment income from your latest tax return||$4,000 or more|
|Tax payable on your latest notice of assessment||$1,000 or more|
|Estimated (Notional) tax||$500 or more|
1. Business and/or investment income excluding any statutory income
Why do I need to prepay my tax?
If you’re a “normal” employee, your employer withholds your tax and sends it to the ATO every month or quarter. This is the Pay As You Go Withholding (PAYGW) tax. It’s easy for the employee – you may not like that it’s deducted, but at least you don’t need to do anything further.
If you receive business or investment income, then no tax has been deducted throughout the year. You would prepare your tax return and pay the full amount of tax by the due date. This has two drawbacks:
- The ATO doesn’t get paid for a year
- You need to come up with a lot of cash when the tax falls due and it kind of sneaks up on you
To solve this, the ATO has come up with a sort of middle ground. By making regular payments throughout the year you won't have to pay a large tax bill when you lodge your tax return.