What Is PAYGI? PAYG Instalments Explained for Australian Businesses
Book a Free DemoPAYGI (Instalments)
PAYGI stands for Pay As You Go Instalments — a system where businesses and individuals pay their income tax in advance, based on expected earnings. Instead of paying one large…
PAYGI stands for Pay As You Go Instalments — a system where businesses and individuals pay their income tax in advance, based on expected earnings.
Instead of paying one large lump sum at the end of the year, PAYGI helps spread your tax across the year and avoid nasty surprises. The ATO may automatically enter you into the PAYGI system once you reach a certain income threshold.
Who Needs to Pay PAYGI?
You may be required to pay PAYGI if:
- You earn business or investment income (not just salary)
- Your most recent tax return showed:
- $4,000 or more tax payable on income that wasn’t already taxed
- Business/investment income of $2,000 or more
- You’re a company, trust, or sole trader with sufficient income
The ATO will notify you via letter or include PAYGI in your BAS or IAS.
How PAYG Instalments Work
| Feature | Details |
|---|---|
| Frequency | Quarterly (standard) or Annual (optional) |
| Lodged through | BAS or Instalment Activity Statement (IAS) |
| Payment method | Fixed amount or % of income |
| Adjustment option | You can vary if your income changes |
There are two calculation methods:
- Instalment amount (set by ATO)
- Instalment rate (you apply % to actual income)
How to Check or Change PAYGI
- Log in to ATO Online Services or your accounting software
- Check if instalments are active for you
- Vary the amount if needed (but penalties apply for underpaying without reason)
- Review your PAYGI each quarter if income changes
PAYGI vs PAYGW
| Feature | PAYGI (Instalments) | PAYGW (Withholding) |
|---|---|---|
| Who pays it | Business or investment income earners | Employers deducting tax from wages |
| When paid | Quarterly or annually | With each payroll run |
| Purpose | Prepay your own income tax | Withhold tax for employees |
How Ozobooks Helps
- Monitors ATO PAYGI thresholds and notifications
- Helps you calculate and vary instalments accurately
- Includes PAYGI in your BAS lodgements
- Integrates income estimates with your cash flow forecasts
- Prepares records for year-end reconciliation
FAQ
Q1: Can I opt out of PAYGI?
Only if your income drops or you don’t meet the thresholds anymore. You must lodge a variation with the ATO.
Q2: What if I overpay my PAYGI?
You’ll receive a credit or refund when you lodge your tax return.
Q3: What happens if I underpay PAYGI?
The ATO may charge interest or penalties, unless you had a reasonable basis for your estimate.
Q4: Do I still lodge a tax return if I pay PAYGI?
Yes — PAYGI is a prepayment, not a replacement for your tax return.