Tax Return:: Your ABN Income Tax Return and PAYG Instalment

Hello, this is P&C Tax Professionals.

We have observed that there are quite a number of people working with an Australian Business Number (ABN) here in Australia.

If you work with an ABN in Australia, it is mandatory for everyone to lodge their income tax return each year, regardless of how much income you have earned with your ABN in a given financial year.

So, today we will explain to you the PAYG Instalment and how it works in Australia.

Below is a screenshot showing a detailed explanation of PAYG instalments as displayed on the Australian Taxation Office (ATO) website.

Once you have provided your Tax File Number (TFN) to your employer and you begin your work with them, generally, the employer would collect tax from the payments they make to their employees and contractors and send it to the ATO. In other words, tax is deducted from the employee's gross income before it is distributed as net income to its employees.

For instance, if:

Gross income = $3,000

PAYG Tax withheld = $500

Net income = $2,500

But did you know that if you work with an ABN in Australia, you would also have to pay taxes in advance just as you would if you were working with a TFN?

As explained earlier on, when paying the wage for TFN workers, the employer withholds some tax from the employee's income before paying them their net wage. However, since ABN workers do not have an employer that will withhold tax for them, it would be a huge burden to the taxpayer as they would have to pay a large lump sum amount for the next financial year. Moreover, from the ATO's perspective, the probability of not being able to collect tax will also significantly increase for them, which is why the ATO asks the business to pay the withholding tax in advance, at least on a quarterly basis.

Most student visa holders or working holiday makers don't have a lot of income and many of these people return to their home country within 1-2 years after obtaining their ABN, hence, the PAYG instalment payments are of less concern to these temporary visa holders.

However, for people who have immigrated to Australia and are carrying on a business or for those who have paid a considerably amount of taxes due to their high income, they should make regular quarterly payments throughout the year in order to avoid having to pay a large tax bill when it comes to lodging their tax return for the year.

If you ever receive a letter from the ATO asking you to pre-pay your quarterly PAYG instalment tax, there is no need to panic as long as you pay the required amount by the deadline each quarter.

You can essentially think of the whole concept of PAYG instalments as paying (withholding) tax in advance based on the amount of tax you paid in the previous financial year. This payment will not disappear but instead it will be used as credit when you lodge your tax return, so all the tax you've paid throughout the year will be offset or balanced out against any tax you owe for a given year.

Once you have made the PAYG instalment payment, you can contact the ATO directly or consult with your tax attorney to confirm whether or not the payment has been made successfully.

That's all for now but as always if you have any further questions or enquiries please do not hesitate to contact us through our Official Facebook Page (P&C Tax Professionals - Australia) or simply direct your questions to our email address at: pnctax@naver.com.

Thank you and bye for now :)