You can vary your PAYG instalments so the amount you prepay is closer to your expected tax for the year. Read on for more information, or contact our accounting firm today for tailored income tax services and advice on income tax returns.
If you pay PAYG instalments using the instalment amount (option 1 on your activity statement), you may want to vary if there has been a significant change in your instalment income this year.
If you calculate your PAYG instalments using the instalment rate (option 2 on your activity statement):
You make your variation when you lodge your activity statement or instalment notice. You must lodge:
Your varied amount or rate will apply for the remaining instalments for the income year, or until you make another variation.
When you vary your PAYG instalments, it is important to not underestimate your instalment amount or rate. If you underestimate, you could be left with a substantial tax bill when you lodge your tax return at the end of the year.
Also, when your tax return is lodged, the ATO compares your actual instalments to the total tax payable on your instalment income for the income year. If your varied instalments are less than 85% of your total tax payable, you may have to pay interest (the general interest charge) on the difference, in addition to paying the shortfall. Depending on the circumstances, there may also be penalties.
If you are not sure, it is best to not vary your instalments. Any overpaid instalments will be refunded to you after you lodge your tax return.
You may need to vary your PAYG instalments due to the impact of the 2022 floods or other disasters.
The ATO has said that it will not apply penalties or charge interest on variations if you have taken reasonable care to estimate your end of year tax liability. This means making a reasonable and genuine attempt to determine your liability. When considering if a genuine attempt has been made, the ATO considers what a reasonable person would have done in your circumstances.
Talk to our accountants in Melbourne today about whether you should vary your PAYG instalments. We can also talk to the ATO on your behalf if you are unable to pay an instalment amount.
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