Why do I have to pay Tax during the Year?

It’s a good question and unsurprisingly one I get asked all the time.

Pay As You Go (PAYG) instalments are payments that individuals and businesses make to the ATO to cover their expected tax liability for the current financial year. These instalments are based on an estimate of the individual or business’s taxable income for the year. Individuals and businesses are required to make regular instalments throughout the year, rather than paying their entire tax liability at the end of the financial year.

PAYG instalments are calculated based on the individual or business’s income tax return from the previous year, or an estimate of their taxable income for the current year. The ATO also provides a calculation tool for individuals to estimate their PAYG instalment.

Individuals who are employees have the option to have their employer withhold the tax from their salary, this is known as PAYG withholding. Their employer will be responsible for paying the amount withheld to the ATO on their behalf.

Self-employed individuals, or those who have additional income streams, such as rental income or capital gains, are required to make quarterly instalments payments to the ATO, using the PAYG instalment form.
Businesses also have to make regular payments to the ATO throughout the year, and as a general rule, businesses with an annual turnover of less than $20 million are required to report and pay GST on a quarterly basis. For those with a turnover of $20 million or more, they are required to report and pay GST on a monthly basis.

The ATO also offers various options for individuals and businesses to make their payments, such as electronic funds transfer, BPAY, or through a registered tax agent. If a business or individual fails to make the required payments, they may be subject to penalties and interest charges.

Overall, PAYG instalments are designed to ensure that the government has a steady flow of revenue throughout the year, and that individuals and businesses are paying the correct amount of tax throughout the year, in order to avoid a large tax bill at the end of the financial year.