Quick answer
PAYG instalments are regular prepayments of the income tax you expect to owe on business and investment income, so you don't face one large bill after lodging your return. The ATO lets you pay an instalment amount it calculates or apply an instalment rate to your actual income each period. Quarterly instalments are generally due 28 days after each quarter, and you can vary them if your income changes.
Key points
- Instalments are prepaid income tax, credited against your final assessment.
- Amount option: a set figure from the ATO. Rate option: a percentage of your actual income.
- Quarterly instalments are generally due 28 days after each quarter ends.
- You can vary instalments if they're too high or low — but be realistic.
The first year in business often has a pleasant surprise: no income tax to pay until the return is lodged. The second year has a less pleasant one — the tax on last year’s profit and the first PAYG instalments towards this year, landing close together. Understanding instalments early takes the sting out of that double hit.
What are PAYG instalments?
The ATO describes them as regular prepayments of the expected tax on your business and investment income. Instead of paying all your income tax in one lump after the year ends, you pay it in instalments during the year. When you lodge your return, those instalments are credited against the tax assessed.
They’re not an extra tax. They’re a timing change — and timing is exactly what matters for cash flow.
Instalments also interact with your BAS. If you lodge quarterly, the instalment usually appears on the same activity statement as GST and withholding, so the total payment on BAS day can be noticeably larger than the GST figure alone. Plan for the combined amount, not just the GST.
How are instalments calculated?
The ATO offers two main approaches:
| Option | How it works | Suits |
|---|---|---|
| Instalment amount | Pay a set amount the ATO calculates, usually from your last return | Stable businesses who want predictable payments |
| Instalment rate | Multiply your actual instalment income for the period by a rate the ATO gives you | Businesses with seasonal or changing income |
With the rate option, a quiet quarter produces a smaller instalment and a busy one a larger instalment, so payments track your real trading. With the amount option you know exactly what’s coming but it won’t flex if income drops.
When are instalments due?
The ATO says PAYG instalments are generally due 28 days after the end of each quarter. For quarterly lodgers that usually means paying alongside your BAS: 28 October, 28 February, 28 April and 28 July. Some taxpayers pay annually, and larger businesses may pay monthly. Our 2026–27 tax calendar lists the dates.
When should you vary your instalments?
The ATO lets you vary instalments that are too high or too low. Reasons to consider it:
- your income has fallen significantly — a lost contract, a slow season, a major expense;
- you’ve made a large deductible investment this year;
- your structure or circumstances have changed.
Be careful. Varying too low can bring interest charges when the real tax is worked out, and ATO interest incurred from 1 July 2025 is no longer tax deductible. Vary based on a realistic forecast prepared with your accountant, not a hopeful one.
Instalments squeezing your cash in a growth year? See whether funding could ease the timing — enquiring won’t affect your credit.
How do instalments fit into cash planning?
Treat them like any other scheduled payment:
- Put each instalment in your 13-week cash flow forecast in the week it’s due.
- Transfer a weekly share into your tax account, alongside GST and PAYG withholding — see how much to set aside for tax.
- When your return is lodged, reduce the final set-aside by instalments already paid.
Illustrative example. A consultancy operating as a company earned a strong profit last year. After lodging, it owes the balance of last year’s tax and receives a notice for quarterly instalments this year. Its owner hadn’t budgeted for both, so the October quarter included last year’s final payment, the Q1 BAS and the first instalment. A weekly transfer into a tax account set up from July would have covered all three with room to spare.
Do instalments change with business structure?
Yes. Sole traders pay instalments on their business and investment income as individuals. Companies pay instalments on the company’s income. If you’re thinking about changing structure, our comparison of sole trader vs company explains the money differences.
What if you can’t pay an instalment on time?
Life doesn’t always line up with the ATO calendar. If an instalment is going to be difficult:
- Check whether a variation is justified. If income has genuinely fallen, varying may be appropriate — using a realistic estimate.
- Talk to the ATO early. Payment arrangements are generally easier to set up before a debt becomes overdue, and engaging early matters to how a debt is treated.
- Consider the true cost of paying late. ATO interest incurred from 1 July 2025 isn’t deductible, so the after-tax cost of carrying tax debt is higher than before.
- Look at funding that pays the ATO on time, if the gap is temporary and the business is otherwise sound.
The worst option is silence. Missed payments without contact can escalate, and overdue tax debt can affect how lenders view your business later. Our guide on how much to set aside for tax shows how to prevent the squeeze next time.
Keeping instalments from crowding out growth
Instalments are a sign of a profitable business. But in a year of strong growth, they can arrive just as you need cash for stock, staff or equipment.
That’s where the right facility helps. We consider trading businesses for cash-flow facilities typically from $5,000 to $500,000 and property-secured loans from $20,000 to $5,000,000. You won’t face a credit check to enquire, your details stay with our team, and a real person calls to understand the timing. Please give us accurate numbers — tax due, turnover, what you’re planning — so we can suggest the right fit at the first conversation.
Frequently asked questions
Who has to pay PAYG instalments?
The ATO generally enters you into the system after you lodge a tax return showing business or investment income above certain thresholds. You'll receive a notice telling you which option applies and how much to pay.
What's the difference between the amount and rate options?
With the amount option you pay a figure the ATO calculates from your last return. With the rate option you multiply your actual instalment income for the period by a rate the ATO gives you, so payments move with your income.
Can I reduce my PAYG instalments?
Yes, you can vary them if you expect your tax for the year to be lower. But if the variation proves too low, the ATO may charge interest, and ATO interest incurred from 1 July 2025 isn't tax deductible.
Are PAYG instalments the same as PAYG withholding?
No. PAYG withholding is tax you withhold from employees' wages and pass to the ATO. PAYG instalments are prepayments of your own business's income tax.
What happens to instalments when I lodge my tax return?
They're credited against the tax assessed for the year. If you've paid more than you owe, the difference may be refunded or applied to other debts; if less, you pay the balance.