Tax Return:: Reporting Your ABN Income and What You Need to Know About PAYG Instalment

Hello, this is your tax and super specialist, P&C Tax Professionals.

Believe it or not, the number of people working with their ABN continues to increase each year. In Australia, irrespective of how much you have earned with your ABN (even if you have earned nothing under your ABN) you must still lodge your tax return for the relevant financial year. In today’s blog post we will go through some of the key details surrounding the PAYG instalment system that is in place within Australia.

<What is a PAYG instalment?>

Pay as you go (PAYG) instalments refers to regular prepayments of the tax that is levied on your business as well as your investment income.

The main objective of paying these regular instalments during the year is in order to avoid having to pay a massive tax bill after you lodge your annual tax return.

Most people assume that the two terms are synonymous but there is a stark difference between PAYG instalments and PAYG withholding. For example, PAYG withholding is the tax which employers deduct from the wages they give out to their employees. This tax is then sent to the ATO and the employee can later claim the amount of tax that was withheld throughout the income year at the end of the financial year when they lodge their tax return. On the contrary, PAYG instalment is a quarterly prepayment that is made by ABN holders to cover the expected tax liability on their business and investment income. Since ABN holders do not have an employer that will withhold the tax for them, by doing this they will be able to reduce the amount of tax they will have to pay in the future.

<Beginning your PAYG instalments>

There are 2 ways in which you can start paying PAYG instalments:

1. Automatic entry

If your income exceeds the given threshold upon lodging your annual income tax return, the ATO will automatically place you into the PAYG instalment system.

Whether you are required to pay PAYG instalments is dependent on the information you declared on your latest tax return.

One of the factors which the ATO takes into account is your instalment income (i.e., your gross business + investment income excluding GST and capital gains).

If you are classified as an individual (including a sole trade) or a trust, you will automatically be put into the PAYG instalments system if you satisfy all of the following:

> instalment income from your latest tax return = $4,000 or more

> tax payable on your latest notice of assessment (NOA) = $1,000 or more, and

> estimated (notional) tax = $500 or more.

If you are classified as a company or super fund, the entity would automatically enter the PAYG instalments system if any of the following conditions apply:

> instalment income from its latest tax return = $2 million or more

> estimated (notional) tax = $500 or more, or

> it is the head company of a consolidated group.

If for whatever reason your income no longer meets the threshold, the ATO will automatically remove you from their PAYG instalments system.

2. Voluntary entry

If you are new to business or anticipating that your business will be making a profit, it may be a smart idea to consider voluntarily entering into the PAYG instalment system. This will help the individual or entity to plan in advance and thus reduce the possibility of having to pay a huge tax bill when you lodge your annual tax return.

For individuals, including sole traders:

You can make a request to start PAYG instalments by using your myGov account that is linked to the ATO’s Online services.

Once you are on the ATO’s Online services page, select Tax > Manage > Enter PAYG instalments.

For individuals as well as businesses:

You can request for a voluntary entry to be made on your behalf through your registered tax agent or by contacting the ATO:

> 13 28 66 for businesses

> 13 28 61 for individuals not in business.

<Due date for your PAYG instalments>

Due dates for quarterly instalments (standard income year):

An activity statement or instalment notice will be issued by the ATO at the end of each quarter. This notice will have the due date that is applicable to your business.

To finish off, if you are an ABN holder and would like to lodge your tax return with us or if you have any other questions relating to your tax or super matters, please reach out to us through our Official Facebook Page (P&C Tax Professionals – Australia) or simply send your enquiries to pnctax@naver.com.

Thank you and bye for now!