Quarterly PAYG instalment estimate.
This quarter's instalment
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Annualised (×4)
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Pre-paying tax so the year-end bill is not a shock
PAYG instalments are the ATO's way of collecting tax on income that has no employer withholding behind it, mainly business profits, rent and investment income. Rather than letting a sole trader or investor reach the end of the year owing a large lump sum, the ATO asks for quarterly prepayments through the year. It is the self-employed mirror of the PAYG withholding that comes off an employee's wage. This calculator estimates each quarterly instalment using either of the two methods the ATO offers, and annualises it so you can see the yearly commitment.
Two ways to work out the quarter
The first method is the instalment rate. The ATO gives you a percentage based on your last assessed return, and you apply it to your actual instalment income for the quarter. This flexes with your earnings, which suits businesses with lumpy or seasonal income. The second method is the instalment amount, a fixed dollar figure the ATO calculates for you, which is simply your expected annual tax divided into four even quarters. The amount method is set-and-forget; the rate method tracks reality more closely. The calculator lets you switch between them so you can see which suits your cash flow.
$30,000 of quarterly income at a 12 percent rate
Suppose your instalment income for the quarter is $30,000 and the ATO has given you an instalment rate of 12 percent. The instalment for the quarter is $3,600. Repeat that across four similar quarters and the annualised figure is $14,400. If your income swings, the rate method automatically asks for more in your busy quarters and less in your quiet ones. The table shows the calculation.
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It is a prepayment, not the final tax
The most important thing to understand is that instalments are not your tax bill, they are a credit against it. When you lodge your return, the ATO adds up your real tax for the year, subtracts the instalments you have already paid, and you settle the difference. Pay too much through the year and you get a refund; too little and you top up. That reconciliation is why a rough instalment figure is fine for cash-flow planning. You will not lose money by paying instalments, only the timing of when the cash leaves your account changes.
Common traps for new sole traders
This calculator is for sole traders, contractors, investors and small-business owners who have just entered the PAYG instalment system, often after their first profitable year. A frequent surprise is the first year you enter the system: you can find yourself paying the prior year's tax in a lump sum and your first instalments at roughly the same time, a genuine double-up on cash flow that catches people out. Two practical points: you can vary your instalment rate or amount down if your income has clearly dropped, but get the estimate wrong by too much and the ATO can charge interest. And keep the cash aside as you go, because the instalment is due whether or not you have set the money apart.
When are PAYG instalments due?
For most quarterly payers the instalment is due 28 days after the end of each quarter, so late October, late February, late April and late July. Some taxpayers with smaller or simpler affairs pay annually instead, and the ATO will tell you which cycle applies to you.
Can I vary my instalments if my income falls?
Yes. If you expect to earn substantially less than the ATO's estimate assumes, you can vary the instalment down so you are not overpaying tax you will only get back later. The catch is that if you vary too low and underpay materially, the ATO can apply a general interest charge on the shortfall, so vary based on a genuine estimate rather than wishful thinking.