Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 1 PAYG Instalments Chapter 4

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 2 OVERVIEW The PAYG instalment system is another means of regularly collecting income tax from taxpayers. The system applies to taxpayers with business and or investment income. The ATO notifies taxpayers whether they have to pay tax by PAYG instalments. Under the PAYG instalment system eligible taxpayers pay their own income tax to the ATO.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 3 PAYG instalments are prepayments of income tax. The instalments are allowed as a tax credit on the taxpayer’s tax return for the income year. Eligible taxpayers are given various options for calculating instalment payments. Most taxpayers pay quarterly while others elect to pay a single annual instalment if they qualify.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 4 Individuals in business. Individuals with investment income. Companies. Superannuation funds. Trustees and beneficiaries of some trusts. ELIGIBLE TAXPAYERS Eligible taxpayers may include:

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 5 They have $1000 or more of gross business or investment income in their last year’s return. The tax assessment for their last return showed a tax debt of $250 or more. Individual taxpayers will generally be required to pay PAYG instalments if:

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 6 Taxpayers issued with a written instalment rate by the ATO are required to pay quarterly PAYG instalments unless eligible to pay by annual instalment and choose to do so. QUARTERLY PAYG INSTALMENTS

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 7 1.Instalment income x instalment rate option, 2.GDP adjusted notional tax option, or 3.ATO instalment amount option. OPTIONS FOR CALCULATING QUARTERLY INSTALMENT AMOUNTS

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 8 Quarterly instalments are calculated by applying the ATO notified instalment rate to the taxpayers’ instalment income for each quarterly period. INSTALMENT INCOME X INSTALMENT RATE OPTION Instalment income Gross business and/or investment income for the quarter. Note: Gross income is income before any deductions

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 9 Quarterly Instalment Calculation INSTALMENT AMOUNT ($) instalment income ($) x instalment rate (%) =

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 10 Instalment income for any tax period includes: Gross sales or fees received. Gross income from which tax was withheld because an ABN was not quoted by the taxpayer. Gross interest received. Gross rent received. Gross dividends received. Share of partnership gross income earned.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 11 A taxpayers instalment income does not include: Income received that was subject to the PAYG withholding system other than where tax was withheld because an ABN was not quoted. Any GST amounts included in the sale price of goods or services sold.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 12 INSTALMENT RATE The instalment rate applicable for the income year will be notified to the taxpayer by the ATO. This rate is pre-printed on the taxpayer’s quarterly Business Activity Statement (BAS). Taxpayers not registered for GST receive Instalment Activity Statements (IAS) from the ATO instead of a BAS. This rate is based on the information provided in the taxpayer’s last annual tax return lodged at the ATO.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 13 The ATO uses the following formula to calculate each businesses rate Taxpayers can vary their instalment rate to reflect a more accurate tax assessment situation. Taxpayers may vary the rate by nominating their own rate on their BAS or IAS. Rate assessments must be at least 85% accurate otherwise penalties apply. Instalment Rate % = Tax payable on business/investment income for last year Instalment income for last year ($)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 14 INSTALMENT AMOUNT Taxpayers must calculate their instalment income for the period and apply the relevant instalment rate (the ATO rate or their own nominated rate) to calculate the instalment amount.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 15 GDP-ADJUSTED NOTIONAL TAX OPTION Individual taxpayers may choose to pay quarterly instalments based on their GDP- adjusted notional tax for the income year. No estimates or records are required under this option. The quarterly instalment amount is based on last year’s notional tax with an increase allowed for economic growth. (Notional tax is the income tax assessed by the ATO on a taxpayer’s business and or investment income shown on their last income tax return.)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 16 GDP-ADJUSTED NOTIONAL TAX OPTION Be an individual, Not be registered, (or required to be registered for GST), and Have a notional tax bill of $8000 or more. This option requires a once-only election to be made for the income year on an approved form and sent to the ATO. To qualify for the election the taxpayer must: If this option is chosen, the instalment amount is printed on the taxpayer’s BAS or IAS for the quarter.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 17 ATO INSTALMENT AMOUNT OPTION It is based on the income shown in the taxpayer’s last income tax return. The PAYG instalment amount is determined by the ATO each quarter.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 18 Reporting and Paying Instalments 28 October 28 February 28 April 28 July. A quarterly BAS or IAS must be lodged at the ATO, regardless of which payment option is chosen. Due dates for the payment of quarterly instalments are:

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 19 Payment options include: Mailing the payment to the ATO. Paying personally at an Australian Post Office. (up to a maximum amount). Electronically transferring funds into the ATO bank account.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 20 ANNUAL PAYG INSTALMENTS A taxpayer may choose to pay by an annual instalment if: The taxpayer is not registered (or required to be registered) for GST. The taxpayer is not a partner in a partnership registered (or required to be registered) for GST. The most recent notional tax amount notified by the ATO to the taxpayer is less than $8000.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 21 ANNUAL PAYG INSTALMENTS Annual PAYG instalment payers normally has three choices as to the amount of the annual instalment: The amount worked out by multiplying the ATO’s notified instalment rate by the taxpayer’s estimated instalment income for the income year. The most recently notified notional tax; or The taxpayer’s estimate of benchmark tax. (adjusted estimate of income tax payable on taxable income, less any PAYG withholding credits).

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 22 ANNUAL PAYG INSTALMENTS Taxpayers cannot vary any instalment rate % used by the ATO to work out the annual instalment. Payment options are as for the ATO instalment amount option. Taxpayers can continue to pay by annual instalments, unless they cease to be eligible to pay by annual instalments, or they choose to pay quarterly.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 23 PAYG INSTALMENT CHOICES

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 24 PENALTIES Failure to notify the ATO of the correct instalment rate for a tax period may attract a special ‘failure to notify penalty’ This can apply to omissions or understatements of instalment income for a tax period. Late payment penalties apply for overdue PAYG instalments. A General Interest Charge may also apply where instalment payers significantly underestimate their own instalment rates.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 25 Chapter 5 Discusses Goods and Services Tax