Common causes of unexpected high PAYG instalments

Under the PAYG instalment system, taxpayers pay instalments based on their expected income tax liability on their business or investment income prior to the lodgment of their tax returns.

A taxpayer’s instalment rate or amount is calculated by the Tax Office based on the most recently lodged income tax return.

Common causes for high instalment rate or amount include:

• The taxpayer received employee share scheme income;
• The taxpayer reported HECS/HELP debt in their last income tax return;
• Income was disclosed at a wrong label in the income tax return;
• The return is amended to include excess superannuation contributions

PAYG instalments can be varied if:

• The taxpayer, or their tax agent, believes the instalment rate or amount is too high; or
• The taxpayer’s financial circumstances have changed

Caution must be taken when varying instalments. If the varied amount or rate turns out to be less than 85% of what it should be, taxpayers may be liable to pay a variation penalty.

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