Pay As You Go (PAYG)

PAYG (Pay As You Go) & SMSF’s

Pay As You Go (PAYG) Instalments is a system for paying instalments during the income year towards your expected tax liability on your business and investment income. Your actual tax liability is worked out at the end of the income year when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.

The ATO will contact entities and individuals who are required to pay PAYG instalments, notifying them of their instalment rate. This is calculated according to information in the last assessed income tax return.

PAYG instalments are generally paid quarterly, however some taxpayers pay two instalments a year and some have an annual instalment option. The annual instalment is a single, lump sum payment of your PAYG liability for the year.

If you are not eligible to pay an annual instalment, you can pay PAYG instalments quarterly. Each quarter the ATO will send you an activity statement. The due date for lodging this and paying any amounts due will be printed on the statement. This is also the case if you choose the 2-instalment option, which applies to some primary and special professionals (e.g. sports professionals and authors).

Some entities and individuals pay an instalment amount calculated by the ATO, but most companies work out their own instalment amount based on their instalment rate multiplied by their business and investment income. The main advantage of working out your own instalment amount is that your instalments are based on your income as you earn it, instead of a projection based on your previous tax situation.

We normally do not lodge the PAYG instalment form for our clients, because once we lodge it electronically, the client will no longer receive the paper format PAYG instalment form in mail. For more info on why we do not lodge the PAYG form for the client, please see the ATO brochure.

Vary amount on PAYG Installment payment

As discussed above, the ATO uses previous year’s income tax expense to calculate PAYG for current Financial Year. However, there are some cases that the SMSF does not generate as much income as it did in prior years, Trustees can vary the PAYG amount and submit to the ATO about the changes in the SMSF.

For more info how to vary the PAYG amount, please see the video below:

For More information please read ATO’s Guide on PAYG

Paying Benefits From SMSF Annual PAYG Instalments

 

  • Louie

    Right after I filed my first SMSF tax return with ATO, I received a letter from them regarding PAYG instalment. I do not understand why our SMSF needs to do this. Please explain. Can I advise ATO that I would like an annual PAYG instalment instead of quarterly? Thanks!

    • superannuationwarehouse

      Louie, the PAYG system for SMSF’s work the same as for companies. If you paid $1,000 for the SMSF, the Tax Office assume you will have the same tax next year. They will ask for a quarterly payment of $250. This way, come the end of the year, you would have paid 4 x $250 = $1,000. When we do the tax return for the year, only the difference has to be paid (or comes back as a refund).
      This evens out the cashflow over the period.
      You can elect to pay annually, as these small quarterly payments can be an administrative burden.
      trust this makes sense.

  • Chris

    Correct me if I am wrong, but there would appear that there are two PAYG situations for SMSF, firstly the PAYG for concessional contributions and secondly the PAYG for pensions that are subject to tax (eg TTR Pensions for those less than 60).

    Does the PAYG Payment Summary for 30 June just relate to PAYG associated with pensions and income streams, with the PAYG for concessional contributions being handled separately?
    The reason I ask is that the PAYG Payment Summary does not appear to include a place to enter up PAYG for concessional contributions.

  • Chris

    Correct me if I am wrong, but there would appear that there are two PAYG situations for SMSF, firstly the PAYG for concessional contributions and secondly the PAYG for pensions that are subject to tax (eg TTR Pensions for those less than 60).

    Does the PAYG Payment Summary for 30 June just relate to PAYG associated with pensions and income streams, with the PAYG for concessional contributions being handled separately?
    The reason I ask is that the PAYG Payment Summary does not appear to include a place to enter up PAYG for concessional contributions.

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.

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