Understanding PAYG Instalments and BAS: What You Need to Know

Tax in Australia isn’t always a once-a-year event. For many taxpayers, the Australian Taxation Office (ATO) requires tax to be paid in regular instalments throughout the year, rather than waiting until the end of the financial year to settle the full amount. This system, known as PAYG (Pay As You Go) instalments, is designed to help individuals, businesses, companies, and even superannuation funds manage their tax obligations more smoothly and avoid large, unexpected bills when their return is lodged (or perhaps the ATO just want their money a little early).

While the concept is straightforward — pay as you go instead of in one lump sum — the details can sometimes cause confusion, particularly when instalments are first introduced or when they interact with other reporting obligations like the Business Activity Statement (BAS). Understanding how PAYG instalments work, why you may be placed into the system, and how they affect your cashflow is an important part of staying in control of your finances.

What Are PAYG Instalments?

PAYG instalments are prepayments of your expected tax for the current financial year. Instead of waiting until tax time to settle up, the ATO are getting you to prepay tax in smaller amounts throughout the year.

This smooths out cashflow for both the ATO and taxpayers — but it also means that if your circumstances change, it’s important to stay on top of whether your instalments are right for you.

Who Needs to Pay PAYG Instalments?

You may be entered into the PAYG (Pay As You Go) instalment system if you:

• Earn business or investment income (not just wages).

• Have a tax payable of more than $1,000 on your most recent tax return.

• Are expected by the ATO to have similar income in the current year.

PAYG instalments can apply to:

• Individuals

• Sole traders

• Companies

• Superannuation funds

The ATO will notify you via letter or your myGov inbox if you’re required to pay PAYG instalments.

The “Double Up” Trap

One of the most common surprises we see is when someone has tax payable for the first time.

• Scenario: You lodge your return and find out you owe, say, $5,000. The ATO requires you to pay this amount plus start making PAYG instalments for the current year.

• Result: It can feel like you’re paying tax twice — once for last year’s shortfall, and once in advance for the new year.

The Overlap of PAYG Instalments Across Years

When you first fall into the PAYG instalment system, it can feel like you’re paying multiple years of tax at once. Here’s why:

1. Your tax return creates a payable for the year just ended.

2. The ATO then looks forward and sets PAYG instalments for the current financial year (based on your last lodged return).

3. If timing overlaps you can be caught paying:

   • The tax payable for the year just ended, plus

   • Instalments for the next (current) year.

✅ Key Takeaway on Overlaps

👉 The timing can be tough on cashflow, which is why planning ahead is critical.

When Are Instalments Due?

If you’re not registered for GST, you’ll receive an Instalment Activity Statement (IAS) rather than a BAS. Most individual (non-business) and Non-GST registered businesses will be required to pay instalments quarterly, but these dates are different if you are GST registered:

• 28 October (July–September)

• 28 February (October–December)

• 28 April (January–March)

• 28 July (April–June)

Some larger taxpayers may pay their instalments monthly. 

**exact dates vary and depend on weekend / business days.

Effectively PAYG Instalments are paying your expected income tax as you go, instead of a lump sum at the end of the financial year.

PAYG Instalments and BAS

• If GST registered: PAYG instalments are usually included on your BAS alongside GST, PAYG withholding, and other obligations. This keeps reporting streamlined.

• If not GST registered: You’ll generally receive an IAS (Instalment Activity Statement) each quarter for PAYG instalments only.

If you are GST registered, your Instalment will be due with your BAS;

• 26 November (July–September)

• 28 February (October–December)

• 26 May (January–March)

• 26 August (April–June)

**exact dates vary and depend on weekend / business days.

How Does the ATO Calculate Instalments?

The ATO bases your instalments on your most recent tax return. They either set:

1. An Instalment Amount – a fixed dollar figure to pay each period.

2. An Instalment Rate – a percentage applied to your actual income for the quarter.

Varying PAYG Instalments

If your income is significantly different to last year (higher or lower), you can vary your instalments. For example:

• Lower income → reduce instalments so you’re not overpaying.

• Higher income → increase instalments to avoid a big tax bill later.

⚠️ Important: If you vary too low and underpay, the ATO may apply penalties and interest. It’s always best to talk to us before lodging a variation.

Why This Matters

Understanding PAYG instalments is key to managing cashflow. They’re designed to spread the tax burden, but without planning, the first year can be a shock when you’re hit with both a payable and your first instalments.

At MJA Business Solutions, we can help you:

• Review your PAYG instalments for accuracy.

• Plan ahead to manage the “double up” cashflow.

• Vary instalments safely if your income has changed.

• Ensure your BAS or IAS is accurate and lodged on time.

👉 Staying on top of instalments means fewer surprises at year end — and more confidence in your financial position. Remember, we are here to help.

Mel