The ATO advises that Pay As You Go (PAYG) Instalments are calculated using either the instalment amount method or the instalment rate method. Both of these methods will be shown on the Business Activity Statements (BAS) or instalment notices of taxpayers who are eligible to choose between these two methods.

We are providing two case studies to illustrate the two methods:

Case Study 1: Instalment Rate Method

Kelly is a DJ, working at festivals from November to January. She chooses to use the instalment rate method, as it suits her seasonal business income. Using this method means she needs to work out her business income each period. It helps her manage cash flow because the amounts she pays will vary in line with her income.

When Kelly receives her BAS or instalment notice, she calculates the instalment based on her income for that period, multiple by the rate provided

Case Study 2: Instalment Amount Method

David is a plumber with regular monthly business income, so he chooses the instalment amount method. He won’t need to work out his business income each period to use this method. David pays the instalment shown on his BAS.

The amount is calculated from information in his last lodged return.

Taxpayers can change their instalment method on their first activity statement of the next financial year. The method they choose will apply for remaining instalments for the financial year.

If taxpayers think the instalments they need to pay will add up to be more or less than their tax liability for the year, they can vary their instalments.

The ATO encourages taxpayers to review their tax position regularly, so their PAYG instalments reflect their expected tax for the year, and to avoid penalties.