PAYG
Varying instalments
Varying instalments means asking to change your PAYG or GST instalment so it better matches your expected tax or GST for the year, usually when your income or circumstances change.
Varying instalments is the process of changing the amount, or the rate, you pay as PAYG instalments, so it reflects what you realistically expect to owe. The ATO's standard figures are based on your last tax return, which can be out of step with your current position if your business has grown, shrunk or changed. Varying is a way to avoid overpaying or underpaying during the year.
You can often vary through your activity statement, by entering a different rate or an amount for the period, along with a reason code. In some situations you will contact the ATO or use online services. The vary option is also available for GST instalments where eligible. The details depend on the method you are using, so check the instructions on your statement or ask your agent.
There are good reasons to vary. A significant drop in income, large deductions such as new equipment, a loss-making period, or the winding down of a business can all make the standard instalment too high. Conversely, if your income is rising strongly, paying more may help you avoid a large bill at year end. Varying is about your best estimate of your tax, not about delaying payment.
The risk is estimating poorly. If you vary the instalment to a figure that turns out to be much lower than your actual tax, the ATO can impose general interest charge, and in some cases a penalty may apply if the variation was not based on a reasonable estimate. Keep notes of how you worked out your estimate, including your income forecasts, so you can show you took reasonable care.
Remember that varying does not reduce your actual tax. It only changes the timing of when you pay. If you pay less during the year, you owe more when your return is assessed. Make sure you set aside funds for the balance. Also, once varied, a rate or amount may apply for the rest of the year or until you change it, so check what you have chosen.
Keep records of the variation, the reasons and the supporting estimate for five years. This is general information only, so confirm what is appropriate for you with the ATO or a registered tax professional.
Worked example
Rhea's PAYG instalment is set at $2,000 per quarter based on last year's profit. After losing her biggest client, she expects her tax for the year to be about $3,000 rather than $8,000. She varies the next instalments to $750 per quarter, records her income forecast, and notes the reason on the statement. She sets aside the shortfall in case her results improve.
Practical tips
- Keep a written estimate showing how you worked out the varied amount, in case the ATO asks.
- Remember that varying only changes timing, so set aside money for any balance at tax time.
- Review your instalments whenever your business income changes significantly.