PAYG instalments for your startup company

Just when you thought you had a handle on tax, a little thing called PAYG instalments for your startup company pops onto your radar. But don’t worry, they’re not all bad – here’s the lowdown.

First up: PAYG instalments are different from PAYG withholding tax (which relates to your employees and which you can read about in our tax guide for starting a business post here).

PAYG instalments can apply to:

  • Your startup company or business
  • Your family trust (if you have one)
  • You personally, as a startup founder

Basically, if any of these entities earn over a certain amount, the ATO says you need to pay income tax instalments to go towards your end-of-year tax obligations.

The ATO lists the income thresholds on its website. It will notify you (or your accountant) if you need to start paying PAYG instalments based on your latest tax return.

You will then have to pay the instalments through your quarterly BAS. The ATO gives you two options for how much to pay:

  1. Instalment amount – a fixed amount that the ATO calculates using the income from your latest income tax return. Most of our clients prefer this method because having a fixed amount means you can plan and budget for each instalment
  2. Instalment rate – you calculate the amount based on your actual income for the quarter multiplied by a percentage that the ATO provides. This is usually best if your income fluctuates significantly during the year

So, why are PAYG instalments for your startup company not all bad?

No one likes paying tax but this system spreads it out during the year, which is actually better for your cash flow. So in their own weird taxy way, PAYG instalments could actually be your friend. Maybe. Okay, that’s a stretch (they are still a tax).

Speaking of tax, you might also be interested in this blog that answers the 7 essential tax Qs when starting a business.

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