In Australia, the Pay As You Go (PAYG) instalment system is a vital component of the country’s tax framework. It is designed to help individuals with investments and businesses manage their tax obligations throughout the financial year.
Today, we will look at five reasons why it’s worth staying on top of these payments.
Yes, You Need to Pay PAYG Instalments – 5 Reasons Why
Paying taxes in Australia can be complex, but one thing is clear: you benefit from staying on top of your PAYG instalments. While it might seem like just another obligation, paying PAYG instalments offers significant benefits for your financial health. Keep reading to review five reasons why fulfilling your PAYG commitments is more important than you might think.
1. Avoid ATO Penalties
One of the most significant risks of not reporting all your PAYG instalment income is the potential for ATO penalties.
If the ATO determines that you have made a false or misleading statement, whether intentionally or unintentionally, you could face substantial fines.
These ATO penalties are designed to encourage accurate reporting and compliance with tax laws. By diligently reporting all your PAYG instalment income, you minimise the risk of receiving penalties.
2. Mitigate Financial Stress
PAYG instalments help you manage your cash flow by spreading your tax payments throughout the year. They save you from the huge financial strain that can occur when a large tax bill is due at the end of the financial year.
Regular PAYG instalments make it easier to budget and ensure you have sufficient funds available to meet your tax liabilities. This proactive approach reduces financial stress and provides stability for your finances.
3. Improve Your Financial Planning
Accurately reporting PAYG instalments is a win-win for you and for the ATO. It increases your ability to plan out your business finances and accurately forecast.
By regularly reviewing your PAYG instalment income and adjusting your payments as needed, you can ensure that your tax payments align with your current financial situation.
This level of oversight helps you avoid underpayment or overpayment of taxes. It also provides a clearer picture of your business’s financial health so that you can make smarter financial decisions all-year round.
4. Build a Positive Relationship with the ATO
Consistent communication is a key element in any relationship. That’s why consistent and accurate reporting of PAYG instalments helps build a positive relationship with the ATO.
When you demonstrate transparency in your PAYG reporting, it can result in a smoother experience when dealing with tax authorities. In the event of an audit or review, having a history of accurate and timely PAYG instalments can work in your favour. It has the potential to reduce scrutiny applied to your financial records.
5. Support the Integrity of the Tax System
Participating in the PAYG instalment system contributes to the overall integrity of the Australian tax system. By fulfilling your tax obligations, you contribute to the government’s ability to provide essential services and infrastructure. This collective effort supports the well-being of the community and the country’s economic stability.
What Happens if You Miss a PAYG Instalment?
Upon receipt of your PAYG instalment notice, you generally have 28 days to action. If you do not action your PAYG instalment notice within those 28 days, this item will automatically lodge with the set amount and the debtor will be added to your ATO portal. If this is to remain unpaid for further periods, there is potential for penalties and interest depending on the amount due.
Can I Change the Set Payable?
During the 28 day period, there is an option to vary your instalment if you meet certain criteria under one of the ATO reason codes listed below.
ATO Reason Codes
- 21 – Change in investments
- 22 – Current business structure not continuing
- 23 – Significant change in trading conditions
- 24 – Internal business restructure
- 25 – Change in legislation or product mix
- 26 – Financial market changes
- 27 – Use of income tax losses
- 33 – Consolidations
For a full description of these codes, see the ATO’s website.
If you do decide to vary your instalments for one of the above-mentioned reasons and you end up with a large end of year debt because of them, the ATO can apply relevant penalties. Remember, it is always better to overpay than under pay since the ATO will refund you any excess at end of year.
If you wish to get a better understanding of pay-as-you-go instalments and the various options available to, contact our expert accounting team.
Disclaimer: The information contained in this newsletter is provided for informational purposes only and should not be construed as legal advice on any subject matter. Readers should not act or refrain from acting on the basis of any content included in this newsletter without seeking appropriate legal or other professional advice. The content of this newsletter contains general information and may not reflect current legal developments, verdicts, or settlements. We expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this newsletter.
Greenhalgh Pickard’s Accounting Team
