Everything you should know about PAYG instalments

Pay As You Go (PAYG) tax instalments might seem somewhat self-explanatory. However, there are key points to know, especially if you’re new to the system. If you’ve just started your business, managing PAYG instalments means you’ve truly started on your growth journey.

The Australian Taxation Office (ATO) has different methods that taxpayers can use to pay their annual income tax. The PAYG scheme was enacted to create regular tax instalments for entities that meet certain criteria. The result of this is more manageable and controlled tax payments, rather than one, often scary tax bill due at the end of the financial year.

This guide explains how PAYG instalments work in Australia for sole traders, partners, trusts and companies with business or investment income. It was checked against ATO guidance on 8 October 2026. It is general information: your accountant or registered tax agent can tell you how the rules apply to you.

What are PAYG instalments?

PAYG instalments are regular prepayments of the income tax on your business and investment income. If you run a business or earn investment income above the ATO’s entry thresholds, you’ll generally need to pay them. When you lodge your tax return, the instalments you’ve paid are credited against your tax for the year: the ATO refunds any excess, and you pay any shortfall.

Depending on your entity structure, the thresholds for automatic entry into the PAYG scheme vary.

How PAYG instalments work

Most people pay PAYG instalments quarterly, on their activity statement or an instalment notice. Quarterly instalments are due 28 October, 28 February, 28 April and 28 July (if you report GST monthly, they are due on the 21st), with extra time in some quarters if you lodge online or through a registered agent. Monthly instalments generally apply when base-assessment instalment income is at least $20 million under the monthly-payer rules. An exception applies to quarterly GST reporters that are not consolidated or MEC head companies and have base-assessment instalment income below $100 million. Follow the frequency on your ATO notice; some taxpayers can pay annually. Paying through the year means you avoid a large lump sum after lodging your tax return, and it helps you plan, budget for tax and manage cash flow.

Even though you pay instalments during the year, you still need to lodge your income tax return after the financial year ends. The government announced in the May 2026 Budget that it plans to change PAYG instalments from 1 July 2027, including an opt-in to monthly instalments. These measures were not law at 8 October 2026.

PAYG instalments vs PAYG withholding

There are two types of PAYG: instalments and withholding. It is important to understand the difference.

• PAYG withholding (PAYG-W): an employer withholds tax from payments to employees (and from some other payments, such as to a supplier who doesn’t quote an ABN) and sends it to the ATO.
• PAYG instalments (PAYG-I): a taxpayer, commonly a sole trader, trust or company, prepays income tax on their own business or investment income, usually quarterly.

A business that has income withholding obligations must do the following:

• Register with the ATO for PAYG withholding
• Withhold the amounts set out in the ATO tax tables from each payment
• Report each pay through Single Touch Payroll (STP), on or before payday
• Pay the withheld amounts to the ATO and report them on activity statements
• Make an STP finalisation declaration by 14 July each year
• Lodge a PAYG withholding payment summary annual report by 14 August, only for payments not reported through STP

You’ll need to register online through the ATO to set up PAYG withholding. Keep in mind that PAYG withholding is not the same as payroll tax, which varies by state. For payroll tax, you’ll want to check the revenue office for your location.

How you enter PAYG instalments

There are two ways to start paying PAYG instalments:

• Automatic entry after meeting the entry threshold
• Voluntary entry before ATO mandates it

The two methods have the same end goal: spreading your tax across the year so there is little or nothing left to pay when you lodge your return.

Automatic entry

You may automatically enter PAYG instalments based on your latest tax return. The ATO will tell you when you’ve entered, how often to pay, how much to pay and your options for working it out. You still need to lodge your tax returns as usual.

The ATO determines entry thresholds depending on the information an individual reported in their latest tax return. The instalment income is the main factor that ATO considers.

Instalment income is your gross business and investment income, excluding goods and services tax (GST) and capital gains.

An individual (including a sole trader) or trust automatically enters the PAYG instalments system if all of the following apply:

• A notional tax of $500 or more
• Tax payable of $1,000 or more on their latest notice of assessment
• Instalment income of $4,000 or more on the latest tax return

A company or super fund automatically enters if any of the following apply. It:

• Is the head company of a consolidated group
• Has instalment income of $2 million or more from its latest tax return
• Has notional tax of $500 or more

Voluntary entry

Voluntary entry is when you ask to start PAYG instalments before the ATO enters you automatically.

You can plan ahead and enter PAYG instalments before meeting the ATO thresholds. The ATO suggests it if you are new to business or expect your business and investment income to exceed the thresholds. The ATO’s PAYG instalments calculator can help you estimate the amount. Entering voluntarily may help a business or investor plan their income tax payment and budgets beforehand.

You can enter voluntarily through the following ways:

• Online: individuals and sole traders through their myGov account linked to the ATO, and businesses through Online services for business
• By phone: 13 28 61 for individuals and sole traders, or 13 28 66 for businesses
• Through a registered tax agent

How your PAYG instalments are worked out

The ATO works out your instalments from the information in your latest tax return. If you’re eligible, your activity statement or instalment notice gives you two options:

• Instalment amount: you pay the amount the ATO calculates. You don’t need to calculate anything.
• Instalment rate: you multiply your instalment income for the period by the percentage rate the ATO gives you. Your payments rise and fall with your income, which suits businesses with uneven income.

You choose an option on your first activity statement of the financial year and keep it for that year. If you think your instalments will add up to more or less than your tax for the year, you can vary them. If you vary them down and your instalments for the year turn out to be less than 85% of your actual tax on that income, the general interest charge can apply to the shortfall.

Contact Visory today

PAYG instalments, withholding, payroll taxes and more can be a lot to navigate and manage without expert help. Many businesses choose to outsource payroll and bookkeeping to free up their time for other tasks.

Visory runs payroll, bookkeeping, accounts payable and accounts receivable for growing businesses, with a dedicated team and our AI, Delphi, working under that team’s oversight. Up-to-date books make it easier to see what your instalment income is and to set cash aside for each instalment. Book a discovery call to find out how we can help.