PAYG instalments, the cashflow killer!

When I speak to business clients the most common complaint I hear is about quarterly pay as you go tax instalments.

So you’re paying tax quarterly and then come end of financial year – more tax!

This is the old provisional tax system, that is currently known as the pay as you go instalments system. 

The system is structured for making regular payments towards your future expected annual income tax.

Based on your most recent tax return, the ATO calculates an estimate of tax you will need to pay on income in the financial year, and expects you to make payments towards this throughout the year.

The entry threshold starts with business or investment income of $4,000 or more and estimated tax greater than $500.00.

If you are in the PAYG instalments system, payments are typically quarterly.

For example, for the current financial year ending 30 June 2023, tax is prepaid for each quarter period due 28 October 2022, 28 February 2023, 28 April, and 28 July.

These PAYG instalments are prepaid towards your eventual tax bill, typically due in May the following year.

Depending on the business or investment income and the estimated tax this can become a revolving cashflow issue that needs to be managed. It’s all about the cashflow!

As always, if we can help, get in touch.