PAYG installments are used to collect amounts towards your expected income tax liability on taxpayer’s business and income investment during the current year. Tax payer’s actual tax liability is worked out at the end of the current year when ATO assesses your annual tax return. PAYG installments are credited against taxpayer’s assessment to work out if taxpayer owe more tax or are refunded if excess taxes are paid.

Individuals

Generally, individuals who have gross business or investment of $4000 or greater on their latest tax return will be notified of an installment rate, otherwise one of following condition applies:

• The adjusted balance of assessment on taxpayer’s most recent notice of assessment is less than $1000
• Taxpayer notional tax is less than $500
• Tax payers are entitled to the seniors and pensioners tax offset.

Companies

Generally, companies and superannuation funds will be notified of an installment rate if either taxpayer

• Installment rate is greater than 0%
• Notional tax exceeds $500

However, if tax payer gross business and investment income exceeds $2 million, taxpayer may only have the installment rate.

There is special formula for working out taxpayer’s proportion of the partnership’s installment income. Use the following formula to work out what proportion of the partnership’s installment income to include in your own installment income for the current period.

Formula:

A is taxpayer assessable income from partnership for last year income.
This amount is shown on the partnership tax return at item 51 (labels A+B).

B is the partnership’s installment income for the last income year.

This is generally the partnership gross ordinary income. It is the total of the amounts shown on the partnership’s tax return at:

Item 5 Total business incomes
Item 8 Distribution from partnerships (item A and B) and distribution trusts (item Z and R only)
Item 9 Gross rent (item F only)
Item 10 Forestry managed investment scheme income
Item 11 Gross interest (item J only)
Item 12 Dividend received (item k and L only)
Item 14 other Australian incomes
Item 23 Other assessable foreign source incomes (item B only)
Item 31 Taxation of financial arrangements (TOFA)

If the partnership is a mature TOFA entity only the net TOFA income needs to be included in installment income.

Net TOFA income is calculated by first reducing installment income by the value of gross TOFA income that has been received, then second, adding back the net TOFA amount.

The net TOFA amount is calculated as TOFA gains (label N). Only include if this is a positive amount.

C is the partnership installment income for the current period. Taxpayers can obtain this amount from the partnership’s records for each installment period.

They can use the partnership’s tax return for the most recent year they have an assessment to find the information they need to calculate formula. These amounts will need to be updated only when the most recent partnership tax return is amended.

There may be times when the result is zero. In these cases, they must estimate a fair and reasonable amount of current installment income from partnership.

There is a worksheet at the end of these instructions they can use to help to work out their proportion of partnership’s installment income.

For more information on PAYG Installment on ATO website by clicking here