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PAYG Withholding vs PAYG Income Tax Instalments

PAYG Withholding vs PAYG Income Tax Instalments

One of the questions we get asked frequently is: what is the difference between PAYG withholding & PAYG Income Tax Instalments? So what are these two taxes and how do they affect your business.

What is PAYG Withholding?

Under PAYG Withholding rules, you have an obligation to collect tax from payments you make to employees and some businesses so that they can meet their end-of-year tax liabilities. You have withholding obligations if any of the following apply:

  • You have employees
  • You have other workers, such as contractors, and you enter into voluntary agreements to withhold amounts from your payments to them
  • You make payments to businesses that don’t quote their ABN

What are PAYG Income Tax Instalments?

PAYG Income Tax Instalments relate to your own income tax (or that of your company). They are in advance payments made for individuals and/ or company income taxes and are paid by business owners, investors and sub-contractors who earn a certain amount of income. Paying PAYG Income Tax Instalments assists you to meet your income tax obligations by allowing you to make payments in advance instead of having to make one lump sum payment at year’s end. When your income tax return is lodged, the resulting income tax payable is reduced by the PAYG Income Tax Instalments you have paid throughout the year.

How do I know if I need to pay PAYG Income Tax Instalments?

The ATO will write to you and tell you if you need to pay PAYG Income Tax Instalments.

Who determines the PAYG Income Tax Instalment amount payable?

You can generally chose between 2 options for calculating and paying your PAYG instalments, which will apply for the remainder of the income year. The options are below:

• Option 1: Instalment amount

The ATO calculate the instalment amount using the business and investment income from your most recently assessed income tax return.

• Option 2: Instalment rate

You calculate your PAYG instalment amount based on your actual income multiplied by a rate provided to you by the ATO

What if my PAYG Income Tax Instalments exceed my actual annual Income Tax liability?

If the amount you have paid in PAYG Income Tax Instalments exceeds your resulting annual income tax liability the ATO will refund the amount you have overpaid.

We are here to help

If you have questions or need assistance preparing your Business Activity
Statements, please contact Sarah Tilse , Manager in RSM’s Outsourced
Accounting Division, on 6217 0302 or [email protected]

Sarah Tilse


For further information, please contact Sarah Tilse , Manager in RSM’s Outsourced Accounting Division, on 02 6217 0302 or [email protected].

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