ATO PAYG tax instalments
Q1- My personal tax return has just been prepared and I am getting a tax refund of $2,000 but I still have an activity statement debt of $8,000. Why is that?
A- When we prepare your individual tax return we must included tax instalments which have been raised by the ATO whether or not they have been paid
Example:
Taxable Income $50,000
Tax payable $6,000
less Instalments raised $8,000
Equals $2,000 refund
If the tax instalment had never been raised the tax payable would have been $6,000
But as the instalments had been raised you need to pay $8,000 (activity statement debt) less $2,000 (income tax refund) = $6,000 net
Same result overall
Q2- Why does the ATO want me to pay tax instalments
A- because you received untaxed business or investment income the last time you lodged. The ATO assumes the same will happen the following year (until you lodge again) and they want their money now as opposed to waiting until you lodge
Assuming you had to pay $6,000 tax last year then the ATO will ask you to pay $6,000 (plus a small increase) during the following year in quarterly instalments (30/9 & 31/12 & 31/3 & 30/6) i.e. 4x $1,500
In saying that if this is the first time you had untaxed business or investment income and you don't lodge until May of the following year then that only leaves the ATO with only 1x quarter to ask you for next year's tax in advance i.e. The June instalment will be $6,000 (as opposed to 4 quartlery instalments of $1,500 each)
Entry Thresholds
If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following:
- instalment income from your latest tax return of $4,000 or more
- tax payable on your latest notice of assessment of $1,000 or more
- estimated (notional) tax of $500 or more.
Q3- Can I vary the ATO instalments?
Yes, but you need to know 2 things
1- deadline to vary is 20 July
2- if you know that the instalment amount is correct (i.e. you'll have to pay that amount of tax when you lodge) then don't vary it as the ATO can charge you interest for varying it when you weren't supposed to