PAYG (Pay As You Go)
Paying tax through the year rather than in one lump.
PAYG is the ATO’s way of collecting income tax gradually through the year. PAYG withholding is tax an employer holds back from wages; PAYG instalments are prepayments a business or investor makes towards its own income tax, usually via the BAS, so there’s no big bill at year-end.
The two are easy to mix up because they share a name and both land on a BAS. Withholding is tax you hold back from someone else — an employee, or a supplier who did not quote an ABN. Instalments are tax you pay in advance on your own income, and the ATO usually works the amount out from your last return.
Worked example
A sole trader who owed $8,000 last year might be asked for four quarterly instalments of about $2,000. Each one is credited against the final bill, so if the year’s tax comes to $9,000, the $8,000 already paid leaves $1,000 owing rather than the whole amount at once.
Common mistake
Treating an instalment as a separate tax on top of income tax. It is the same tax paid earlier — every instalment is credited against the year’s assessment, and the notice at year-end is the balance, not a second bill.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
BAS (Business Activity Statement)
The form GST-registered businesses use to report GST and PAYG.
GST (Goods and Services Tax)
Australia’s flat 10% tax on most goods and services.
Marginal tax rate
The tax rate on your next dollar of income.
GST turnover ($75,000 threshold)
The gross income figure that triggers GST registration.
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Questions about this term
PAYG (Pay As You Go): common questions
- Why are there two different things called PAYG?
- Because both collect income tax gradually through the year, just from different people. PAYG withholding is tax an employer holds back from wages — or that you hold back from a supplier who did not quote an ABN. PAYG instalments are prepayments a business or investor makes towards its own income tax, usually via the BAS. One is tax you hold for someone else; the other is your own, paid early.
- How does the ATO decide the size of my PAYG instalments?
- Usually from your last tax return. A sole trader who owed $8,000 last year might be asked for four quarterly instalments of about $2,000 each. Every instalment is credited against the year’s final assessment, so if the year’s tax comes to $9,000, the $8,000 already paid leaves $1,000 owing rather than the whole amount at once.
- Is a PAYG instalment an extra tax on top of income tax?
- No — it is the same income tax paid earlier. Each instalment is credited against the year’s assessment, and the notice you receive at year-end is the balance after those credits, not a second bill. Reading an instalment as a separate tax is the usual mix-up, and it makes the year look more expensive than it really is.
- Where do PAYG instalments get paid?
- Usually through your BAS. Instalments land on the same activity statement as GST, which is why they can look like a GST charge at first glance. Withholding — the tax held back from an employee’s wages, or from a supplier without an ABN — goes on the BAS as well. The income tax calculator on this site estimates the year’s total that the instalments are working towards.
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