PAYG instalment is an estimate made by the Australian Taxation Office based on your Superfund’s previous years’ assessment and is essentially a prepayment of your SMSF‘s tax liability for the current Financial Year. The ATO will also determine how frequently your SMSF is required to pay these instalment amounts.
Varying PAYG Instalment Amount
As the PAYG instalment amount is calculated based on your SMSF’s most recently lodged tax return, this amount may not best reflect the current circumstances of your SMSF. Accordingly, you may choose to vary the PAYG instalment amount down if you believe that the amount provided by the ATO overestimated your SMSF’s actual income tax liability.
Barney established his SMSF a few years ago and the most recent tax return lodged is for 2020 Financial Year which had a notional tax of $5,200. When the ATO issues the 2021 Annual PAYG, it will estimate the 2021 PAYG instalment amount based on the notional tax from the 2020 Tax Return.
The ATO therefore requires Barney to pay $5,200 PAYG instalment for the 2021 Financial Year but Barney does not agree that this amount accurately reflects his SMSF’s situation because his SMSF incurred significant investment losses in 2021. Barney estimates that his SMSF’s actual income tax liability for the 2021 Financial Year is only $1,000 and therefore decides to vary the PAYG instalment amount down from $5,200 to $1,000.
It is important that you reliably estimate the tax payable on your SMSF’s income when you vary PAYG Instalment amount down, however, please also note that the ATO has confirmed that they will not apply penalties or charge interests for any miscalculation of varied instalments due to the effect of COVID-19 for the 2021 Financial Year.
Please note that ESUPERFUND cannot provide any advice on the estimation of the income tax liability.
Lodging and Paying PAYG Instalments
When the ATO issues Activity Statements requiring your SMSF to lodge and pay PAYG instalments, ESUPERFUND will contact you via the Client Portal Inbox and provide you with the payment details, applicable due dates and instructions on how to vary the PAYG instalment amount should you wish to do so. It should be noted that any variation request can only be lodged with the ATO prior to the due date.
The lodgement and payment due dates of the PAYG instalment varies according to the frequency with which the SMSF is required to pay the PAYG instalments. The PAYG frequency, that is, whether your SMSF is required to pay PAYG instalment on a quarterly or annual basis is determined by the ATO. The following table details PAYG Instalment due dates for the 2021 Financial Year:
||Lodgement and Payment Due Date
||1 July 2020 – 30 September 2020
||28 October 2020
|1 October 2020 – 31 December 2020
||02 March 2021
|1 January 2021 – 31 March 2021
||28 April 2021
|1 April 2021 – 30 June 2021
||28 July 2021
||1 July 2020 – 30 June 2021
||21 October 2021
Reconciling PAYG Instalments Paid with your SMSF’s Actual Tax Liability
Given the PAYG Instalments are essentially a prepayment of the SMSF’s actual tax liability, the total PAYG instalment for the year is then credited against your SMSF’s actual tax liability to determine whether you owe more tax or are owed a refund upon lodgement of the Tax Return.
PAYG instalment is greater than the actual tax liability
Following our previous example, Barney’s SMSF paid $1,000 PAYG instalment to the ATO for 2021 Financial Year. When the 2021 tax return is prepared, the actual tax liability his SMSF is required to pay is only $950. Since $1,000 PAYG instalment has already been paid, his SMSF will be entitled to a refund of $50 ($1,000 - $950) from the ATO.
PAYG instalment is less than the actual tax liability
Assume Barney’s SMSF is required by the ATO to pay $2,500 PAYG instalment for each quarter during the 2021 Financial Year instead. Accordingly, Barney’s SMSF paid a total of $10,000 ($2,500 x 4) as PAYG Instalment. However, when the 2021 tax return is prepared, his SMSF’s actual tax liability is $12,800. Thus, his SMSF owes the ATO an additional $2,800 ($12,800 - $10,000). The $2,800 net income tax payable will be shown on the Income Tax Notification.