Nil PAYG instalments for years? Read this before the ATO calls.
If you’ve varied your PAYG instalments down to nil in recent years, you may be hearing from the ATO.
The ATO is writing to taxpayers who have varied their instalments to nil across multiple years. The letters are a reminder that general interest charge (GIC) can apply when instalments have been significantly understated.
What’s the 85% rule?
When you vary your PAYG instalments, you’re estimating what your tax will be for the year. If your varied instalments end up being less than 85% of the tax you actually owe, the ATO can charge GIC on the difference. Depending on the circumstances, penalties can apply as well.
Is it wrong to vary your instalments?
No. Varying is a legitimate option when your income drops or your circumstances change, and it can help your cash flow. The issue arises when the variation turns out to be too low and the numbers behind it can’t be backed up.
What should you do now?
Keep your records. Hold on to the forecasts, profit estimates or figures you used when you made the variation. If the ATO asks, you’ll want to show how you got there.
Review when things change. If your income, sales or business have picked up since you varied, it’s worth revisiting your instalments rather than leaving them at nil.
Check in before the bill lands. It’s much easier to adjust during the year than to explain a shortfall afterwards.
Not sure where you stand?
If you’ve varied your instalments for a few years running, or you’ve had a letter from the ATO, it’s worth a quick check. We’re happy to look at your numbers with you and work out whether your variation still makes sense. No pressure, just a friendly chat.
Editor: Please contact our office if you require assistance regarding the above.
_____________________________________________________________
Accumulate Accountants + Business Advisors is a consulting firm located in Perth, Western Australia that provides a range of successful businesses with strategic business advice, accounting and taxation services.
www.accumulateperth.com
info@accumulateperth.com
(08) 9364 4204
_____________________________________________________________
Liability limited by a scheme approved under Professional Standards Legislation