PAYG instalments are pre-payments toward your end-of-year income tax liability. The ATO puts you into the system once your business or investment income from a prior return suggests you'll owe more than $1,000 in tax not already covered by salary withholding. Sole traders, partnerships, companies, and many trusts and investors with rental or franked-dividend income end up paying PAYG instalments quarterly via their BAS or instalment activity statement.

You have two methods. Option 1 is the 'instalment amount' — a fixed dollar figure the ATO calculates from your last lodged return, indexed for GDP, paid in equal quarterly instalments. Easy and predictable. Option 2 is the 'instalment rate' — you report this quarter's actual gross instalment income and apply the ATO's notified rate (set as roughly your average tax rate from the last return). Option 2 self-adjusts if your income is volatile.

Either way, the instalments are reconciled when you lodge your annual return. If you've paid too much, you get a refund; too little, you owe a top-up. You can vary either the amount or the rate during the year if your income materially changes — but the ATO can charge general interest if you under-vary by more than 15%. For broader business obligations see our BAS Calculator.