Can I vary my PAYG Income Tax Instalment on my business and investment income?
If you derive income from a business and/or investments, your accountant can vary your PAYG (Pay As You Go) income tax instalment so that you pay either more or less tax during the income year. This is not tax on salaries and wages. This is tax payable on business and/or investment income. The PAYG income tax instalment is the amount recommended by the Australian Taxation Office that is paid towards your expected income tax liability for the current year. The Tax Office determines the amount, based on your last assessment notice. Your actual tax liability will be determined at the end of the year when your accountant prepares your annual income tax return.
If the instalment quoted by the Australian Tax Office does not reflect your actual tax payable then you should discuss your options with your accountant.
The key is to pay the right amount of tax and maintain a good level of cash flow. Paying the right amount of tax is the amount at which you legally pay the least amount of tax.
You can vary your instalments to align with changes in your circumstances. Common reasons include:
- A change in your investments
- A significant change in trading conditions
- An internal business restructure
- A change in legislation or product mix
- Changes in the financial markets
- The cessation of a business structure
- To absorb income tax losses
It’s important that your total PAYG tax paid over the year is in line with your total tax liability at the end of the year. The Tax Office will charge you interest, called general interest charge, if your varied amount is more than 15% away from your actual tax liability.
Your accountant can also remove you from the PAYG system if you happen to cease all business or investment activities. However, if you vary your instalment amount to nil and you derive income from business and investments during the year, you will pay interest on the tax payable, be liable for any tax to be paid on that income and you may also incur penalties.