PAYG instalments and the annual tax return
This guide explains the different roles of PAYG instalments, payroll withholding, business activity statements and annual tax returns.
On this page
- Different obligations
- Instalments and withholding serve different purposesGovernment PAYG withholding guidance
- Scope
- General process information; no instalment or final tax estimate
Separate instalments from the annual return
PAYG instalments are income-tax payments made during the year when business and investment income meets the relevant entry criteria. An annual income-tax return is still required. Government PAYG instalment guidance (opens in a new tab).
The ATO administers entry and advises the calculation options and reporting frequency. A stored budget amount does not establish the amount required by an ATO notice. Government PAYG instalment guidance (opens in a new tab).
Distinguish withholding on payments to others
PAYG withholding takes tax from certain payments and sends it to the ATO. It can apply to employees, directors, businesses that don't quote their ABN and contractors under voluntary agreements. Government PAYG withholding guidance (opens in a new tab).
For sole traders and partners, personal drawings are not wages and do not require withholding. That distinction does not establish the treatment of a company paying its director. Government PAYG withholding guidance (opens in a new tab).
Read entry and calculation choices
The ATO can place a taxpayer in instalments following a return that meets the criteria. Voluntary entry is another route. This article does not determine an entry threshold or recommend entering the system. Government PAYG instalment guidance (opens in a new tab).
The government guidance points to the ATO instalment calculator for voluntary-entry amounts or rates and variations. This article provides no instalment calculation or variation decision. Government PAYG instalment guidance (opens in a new tab).
Keep the activity statement and return distinct
A BAS can report GST, PAYG withholding and PAYG instalments, among other taxes. Reporting them on one form does not make their labels or obligations interchangeable. Government lodgment guidance (opens in a new tab).
Return type depends on structure. A sole trader includes business income in an individual return, while a company has a separate company return. A director also has their own individual return. Government lodgment guidance (opens in a new tab).
Match the notice to the reporting period
Activity-statement due dates differ from annual-return due dates, and reporting frequency can vary. A cash-flow plan organises money but is not a substitute for the obligation and period on the notice. Government lodgment guidance (opens in a new tab).
This general explanation excludes penalties, interest, variation eligibility, personal deductions and final tax. The linked government pages distinguish reporting processes without assessing an individual business.