Choosing the right PAYG instalment method.

The ATO advises that Pay as you go (‘PAYG’) instalments are calculated using either the instalment amount method or the instalment rate method.  It recently provided the following two case studies to illustrate the two methods:

💼  Case study 1: Kelly the DJ

Kelly is a DJ, working at festivals from November to January.  She chooses to use the instalment rate method, as it suits her seasonal business income. 

Using this method means she needs to work out her business income each period. 

It helps her manage cash flow because the amounts she pays will vary in line with her income.

When Kelly receives her BAS or instalment notice, she calculates the instalment based on her income for that period, multiplied by the rate provided.

💼  Case study 2: David the plumber

David is a plumber with regular monthly business income, so he chooses the instalment amount method.  He won’t need to work out his business income each period to use this method.  David pays the instalment shown on his BAS.  The amount is calculated from information in his last tax return.

Note: If Kelly or David think the instalments they pay will add up to be more or less than their tax liability for the year, they can vary their instalments.

Penalties may be applicable if the variation differs to the actual tax liability at the end of the year.  If you have received a PAYG instalment and you wish to vary, you should contact us for advice.

If you have any questions in relation PAYG instalments or which instalment method may better suit you, please get in touch with us.