PAYG withholding vs PAYG instalments
One is tax you hold back for others; one is prepaying your own.
PAYG withholding is tax you hold back from someone else’s pay — your employees’ wages — and send to the ATO on their behalf. PAYG instalments are prepayments towards your own income tax, usually paid through your BAS. Same three letters, two completely different obligations.
Worked example
A sole trader with no staff typically has no PAYG withholding at all, but may still get put onto PAYG instalments once their business income is large enough that the ATO wants it prepaid quarterly.
Common mistake
Assuming being “on PAYG” means your tax is handled. Instalments are estimates — if your year ends up bigger than the estimate, there’s still a balance to pay at lodgment.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
PAYG (Pay As You Go)
Paying tax through the year rather than in one lump.
BAS (Business Activity Statement)
The form GST-registered businesses use to report GST and PAYG.
Sole trader tax rate
There isn’t one — you’re taxed at personal marginal rates.
GST-Free vs BAS Excluded vs Input Taxed
Three ways a line can carry no GST — and three different BAS labels.
← Back to the full glossary.
Questions about this term
PAYG withholding vs PAYG instalments: common questions
- Do I have PAYG withholding if I have no employees?
- Typically no. Withholding is tax you hold back from someone else’s pay — your employees’ wages — and send to the ATO on their behalf. A sole trader with no staff usually has none, though the ATO may still place them on PAYG instalments once business income is large enough to be prepaid quarterly.
- Does being on PAYG instalments mean my tax is fully handled?
- No — instalments are estimates. If the year ends up bigger than the estimate, there is still a balance to pay at lodgment. Being “on PAYG” means the tax is being prepaid in instalments, not that the final figure is settled.
- Which kind of PAYG goes on my BAS?
- Both can. PAYG withholding you have taken from wages and PAYG instalments towards your own tax are usually both reported and paid through the BAS. That shared form, plus the shared name, is why the two are so easily confused — but one is money you hold for others and one is your own tax in advance.
- How do I tell which PAYG an ATO notice is about?
- Ask whose tax it is. If it concerns amounts you took out of an employee’s wages, it is withholding. If it concerns prepaying tax on your own business or investment income, it is instalments. Same three letters, two completely different obligations.
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