PAYG Tax System
The PAYG income tax system does not only capture salary earners, but also those with extra investment income and business income via quarterly tax notices.
We have recently had a number of concerned clients call us in regard to their large June 2016 tax instalment notices, due 28 July this year.
By way of explanation, the June notice is meant to capture all the income tax payable (or the anticipated final balance) for the previous year, 2016. This is received in advance and credited against the assessed tax when the 2016 Tax Return is lodged. Often these PAYG Tax notices generate soon after the lodging of the 2015 tax return when clients may still be paying off 2015 bills.
We completely understand that this double whammy of tax coming virtually concurrently can present cash flow problems for clients.
So what can be done to manage your PAYG tax instalments?
- Firstly, review the amount of tax being asked for in the notice and check with your accountant whether this amount can be varied downward based upon what you know about your 2016 estimated income. It is essential though that any variation is lodged with the tax office prior to the due date of the notice.
- In the event the tax is due and payable, arrange a payment plan with the ATO to cover a reasonable time frame. In our experience the ATO can be reasonably generous with this and 12-month time frames are not uncommon.
As a final piece of bad news, beware that instalments to cover the 2016/2017 year can become due from the September Quarter onwards so this should be planned for.
I hope this information has been helpful in assisting you to understand the timing issues associated with tax payable on business and investment income.