au-payg-instalments

Section 1 -- Quick reference

Quick reference field table

Field	Value
Country	Australia
Tax	PAYG income tax instalments (via BAS)
Primary legislation	TAA 1953 Sch 1 Div 45
Authority	Australian Taxation Office (ATO)
Portal	ATO Business Portal / myGov
Currency	AUD only
Entry thresholds	Instalment income >= $4,000 AND notional tax >= $1,000
Exit threshold	Notional tax < $500
Methods	Instalment rate (T1/T2/T9) or instalment amount (T7)
GDP uplift factor	6% (2024-25, subject to annual determination)
Variation safe harbour	85% of correct instalment amount
GIC rate	Base rate + 7% (updated quarterly)
Contributor	Open Accountants Community
Validated by	Pending -- requires sign-off by Australian CPA/CA
Validation date	Pending

BAS label summary

Label	Description
T1	Instalment income for the quarter
T2	ATO-notified instalment rate
T3	Reason code for variation
T7	ATO-notified instalment amount
T9	Calculated instalment (T1 x T2)

Conservative defaults

Ambiguity	Default
Method unclear	Check ATO notification -- they determine the method
Instalment income components uncertain	Include all business + investment income; exclude salary, CGT, exempt
Variation considered	Check 85% safe harbour before varying
First year of business	No instalments until first assessment
Annual election eligibility	Instalment income < $2M and GST turnover < $2M

Section 2 -- Required inputs and refusal catalogue

Required inputs

• Minimum viable inputs — ATO notification of instalment rate (T2) or instalment amount (T7), quarterly instalment income figure.
• Recommended inputs — prior year income tax assessment, BAS due dates, current year income projections if varying.
• Ideal inputs — complete ATO notification, prior year assessment, quarterly P&L, BAS history.
• Refusal policy if minimum is missing — SOFT WARN. Without the ATO notification, the instalment rate or amount cannot be confirmed.

Refusal catalogue

• R-AU-PI-1 -- Companies/trusts/partnerships — Trigger: client is not a sole trader. Message: "This skill covers sole trader PAYG instalments only."
• R-AU-PI-2 -- PAYG withholding — Trigger: client asks about PAYG withholding (W labels). Message: "PAYG withholding is a separate obligation. See au-gst-bas."
• R-AU-PI-3 -- GST computation — Trigger: client asks about GST. Message: "GST computation is handled by the GST skill. This skill covers PAYG instalments only."

Section 3 -- Payment pattern library

This is the deterministic pre-classifier for bank statement transactions. When a debit matches a pattern below, classify it as a PAYG instalment payment.

3.1 ATO PAYG instalment debits

ATO PAYG instalment debits pattern table

Pattern	Treatment	Notes
ATO, AUSTRALIAN TAXATION OFFICE	PAYG instalment	Match with BAS quarterly timing
BAS PAYMENT, BAS DEBIT	PAYG instalment (combined with GST)	BAS payment includes both GST and PAYG
PAYG INSTALMENT, PAYG INST	PAYG instalment	Explicit description
ATO DIRECT DEBIT	PAYG instalment	Automatic payment

3.2 Timing-based identification (quarterly BAS, standard)

Timing-based identification table

Debit date range	BAS quarter	Confidence
20 October -- 5 November	Q1 (Jul-Sep) due 28 Oct	High
20 February -- 10 March	Q2 (Oct-Dec) due 28 Feb	High
20 April -- 10 May	Q3 (Jan-Mar) due 28 Apr	High
20 July -- 10 August	Q4 (Apr-Jun) due 28 Jul	High

Note: BAS payments typically combine GST and PAYG amounts. The PAYG component is the T9 or T7 figure within the BAS.

3.3 Related but NOT PAYG instalments

Related but not PAYG instalments table

Pattern	Treatment	Notes
ATO PAYG WITHHOLDING, W1-W5	EXCLUDE	Employer withholding (separate)
ATO GST ONLY	EXCLUDE	GST-only payment
ATO SUPER, SUPER GUARANTEE	EXCLUDE	Superannuation guarantee
ATO PENALTY, ATO GIC	EXCLUDE	Penalty/interest
ATO REFUND	Flag for reviewer	Tax refund
ATO ACTIVITY STATEMENT	Combined payment	Includes GST + PAYG -- split for classification

3.4 BAS combined payment identification

A single BAS payment typically includes GST payable/refundable + PAYG instalment + PAYG withholding. To isolate the PAYG instalment component, the BAS form values (T7 or T9) are needed.

Section 4 -- Worked examples

Example 1 -- Instalment rate method

Q1 business income = $42,000. Interest income = $800. ATO rate (T2) = 8.50%.

BAS label value table

BAS label	Value
T1 (instalment income)	$42,800
T2 (instalment rate)	8.50%
T9 (instalment payable)	$3,638

Example 2 -- Instalment amount method

Input: ATO-notified instalment amount (T7) = $3,180 per quarter.

Output: Report T7 = $3,180 on BAS. Pay by BAS due date.

Example 3 -- Variation of instalment rate

Input: ATO rate = 12%. Taxpayer estimates current year rate should be 8% (income dropped). Varied rate = 8%.

Computation: T9 = T1 x 8%. Check: total varied instalments must be >= 85% of correct instalment (based on actual year-end assessment). If not, GIC applies.

Example 4 -- Below entry threshold

Input: Instalment income = $3,500. Notional tax = $800.

Output: Instalment income < $4,000. Not entered into PAYG instalment system.

Example 5 -- Bank statement classification

Input line: 28.10.2024 ; ATO ACTIVITY STATEMENT ; DEBIT ; BAS JUL-SEP 2024 ; -5,800.00 ; AUD

Classification: Combined BAS payment (GST + PAYG). PAYG instalment component = T7 or T9 from the BAS. Flag for reviewer to split.

Section 5 -- Computation rules

5.1 Entry into PAYG instalment system

• Automatic entry conditions — Automatic entry if most recent assessment shows: Instalment income >= $4,000, AND Notional tax >= $1,000. Voluntary entry available below thresholds.

5.2 Instalment rate method (T1/T2/T9)

• Instalment rate method formula — T1 = quarterly instalment income (business + investment, excl. salary/CGT/GST) T2 = ATO-notified rate (prior year notional tax / instalment income x GDP uplift) T9 = T1 x T2 (rounded to whole dollars)

5.3 Instalment amount method (T7)

• Instalment amount method formula — T7 = (prior year notional tax / 4) x GDP uplift factor

No income calculation needed. ATO pre-fills the amount.

5.4 GDP uplift factor

• GDP uplift factor 2024-25 — 6% (Applied by ATO when calculating T2 and T7. Updated annually.)

5.5 Variation

• Variation rule — Taxpayer may vary T2 (rate) or T7 (amount) downward. If total varied instalments < 85% of the benchmark (correct instalment based on actual assessment), GIC applies from each instalment due date.

5.6 Year-end credit

• Year-end credit rule — Total PAYG instalments credited against annual income tax assessment. Overpayment: refund or offset. Underpayment: balance due with assessment.

Section 6 -- Penalties and interest

6.1 General Interest Charge (GIC)

• GIC rate — base rate (90-day bank bill rate) + 7% (Updated quarterly. Applies from instalment due date if variation results in < 85% of correct amount.)

6.2 Late BAS lodgement penalty

• Late BAS lodgement penalty — $313 per 28-day period, up to 5 periods ($1,565 max for small entities) (Failure to lodge BAS)

6.3 Safe harbour

• Safe harbour rule — If varied instalments total >= 85% of the benchmark instalment, no GIC.

Section 7 -- Annual instalment election

• Annual election eligibility and effect — Taxpayers with instalment income < $2M and GST turnover < $2M may elect to lodge and pay annually instead of quarterly. This aligns the PAYG instalment with the annual income tax assessment.

Section 8 -- Edge cases

Not entered into PAYG system until after first assessment. No instalments in Year 1. Tax shock in Year 2. Flag for reviewer.

Instalment rate method auto-adjusts. If using amount method, consider variation in low-income quarters.

Instalment income = total across all activities. Single rate applies to aggregate.

Interest, dividends, rent are instalment income. Employees with significant investment income may enter PAYG system.

ATO-notified rate already includes Medicare levy (2%) and any surcharge. No separate adjustment needed.

Apply if notional tax drops below $500 or instalment income ceases.

Section 9 -- Self-checks

Before delivering output, verify:

• Entry thresholds checked ($4,000 instalment income + $1,000 notional tax)
• Correct method identified (rate vs amount)
• T1 includes only correct components (no salary, no CGT, no GST)
• T2 matches ATO notification or is validly varied
• 85% safe harbour checked if variation applied
• GDP uplift factor current
• BAS due dates correct
• Year-end credit against annual assessment noted
• First-year exception flagged if applicable
• Output labelled as estimated until Australian CPA/CA confirms

Test 1 -- Instalment rate method

Input: T1 = $42,800. T2 = 8.50%. Expected: T9 = $3,638.

Test 2 -- Instalment amount method

Input: Prior year notional tax = $12,000. GDP uplift = 6%. Expected: Annual = $12,720. T7 = $3,180/quarter.

Test 3 -- Below entry threshold

Input: Instalment income = $3,500. Expected: Not entered into system.

Test 4 -- Variation with safe harbour check

Input: ATO rate 12%. Varied to 8%. Actual correct rate = 10%. Expected: Varied total = 80% of correct. Below 85%. GIC applies.

Test 5 -- First year

Input: New sole trader, no prior assessment. Expected: No instalments. Flag Year 2 tax shock risk.

Test 6 -- Year-end credit (overpayment)

Input: Total instalments paid = $15,000. Actual tax = $12,000. Expected: $3,000 overpayment refunded or offset.

Prohibitions

• NEVER include salary, net capital gains, or GST in instalment income (T1)
• NEVER vary the instalment rate or amount without checking the 85% safe harbour
• NEVER assume the first year of business requires PAYG instalments
• NEVER ignore the GDP uplift factor when computing T7 or verifying T2
• NEVER conflate PAYG instalments (T labels) with PAYG withholding (W labels)
• NEVER present instalment figures as definitive -- the ATO notification is authoritative

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, EA, tax attorney, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.

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