If a PAYG instalment is higher than you expect, it can feel more than unsettling particularly when your current earnings are lower than the figure used to calculate the estimate. For eligible taxpayers, PAYG instalments are set up to help them pay the amount of their expected income tax but it may not always be a current reflection of your situation.
Check your figures if your business income has changed before you can lodge your next activity statement.
What is a PAYG Instalment?
PAYG instalments are an estimate of your expected tax liability in advance. They usually apply to individuals who earn investment or business income.
Your instalment may be determined by the Australian Taxation Office (ATO) using information from your latest tax return. This means the “amount” can at times depend on earnings from an earlier date.
That pose a problem when your business has evolved considerably from that return.
What to Do When Your Instalment is Too Much?
There are several reasons why your PAYG instalment may be higher than anticipated.
You may have:
- Decline in business income
- Exceptionally high income in the last financial year
- Changed your business structure
- Reduced your investment income
- Discontinuing earning of revenue
The results from previous calendar year have no bearing on what the current calendar year will bring.
Check the Calculation Method
The ATO typically offers a range of methods for calculating PAYG instalments. You either take the instalment amount from the ATO or calculate temporary instalments based on your income for that period (depending on your situation).
It may be time to reconsider the method you use if your income has taken a sharp turn. But that amount can be altered arbitrarily without understanding what the probable tax consequences of such alteration will leave you short down the road.
This is where tax accountants in Berwick might assist you in reviewing your numbers and establishing whether varying your instalment is suitable or otherwise.
The Questions to PAYG Instalment Variation
You may be able to vary your PAYG instalment due if the standard amount does not reasonably reflect your expected tax position.
However, it is a VERY important caveat that varying an instalment is not purely just to lessen your tax payment in the short run.
If you keep it too low, a bigger tax bill when you lodge your annual return. In some cases, this may additionally result in the imposition of interest or other consequences.
And before implementing a change, think about your anticipated income, deductions, as well as your overall tax situation.
Keep Your Business Records Current
Good record-keeping simplifies PAYG decisions considerably. So, check out your sales, expenses, business income, and other important numbers before determining if your current payment plan still remains valid.
Whatever your business position: growth, slow down, or change of direction, tax accountants in Clyde North can help assess the numbers ahead of your next payment.
Avoid Guessing Your Tax Position
Reducing your instalment may be beneficial to short-term cashflow, but it does not delete your underlying tax liability. The objective is that, so that your instalments sufficiently mirror what you hope to be in the position.
Along with preparing for your taxes, maintain copies of your calculations and supporting records. If uncertain about a variation, please seek advice prior to lodging the activity statement.
Final Thoughts
Your PAYG instalment may be incorrect due either to it being based on outdated information or because your income is not the same. Before October, take a good look at your current numbers instead of just rolling over an amount that no longer matches your situation.
As tax accountants in Berwick or tax accountants in Clyde North explain, this will help you make an informed choice to avoid a nasty surprise when tax time arrives later.