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 2023 Financial Year which had a notional tax of $5,200. When the ATO issues the 2024 Annual PAYG, it will estimate the 2024 PAYG instalment amount based on the notional tax from the 2023 Tax Return.
The ATO therefore requires Barney to pay $5,200 PAYG instalment for the 2024 Financial Year but Barney does not agree that this amount accurately reflects his SMSF’s situation because his SMSF incurred significant investment losses in 2024. Barney estimates that his SMSF’s actual income tax liability for the 2024 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.
We caution that you may be liable to the general interest charge (GIC) if you vary your PAYG instalment amount down and end up paying less than 85% of the actual tax payable on your Fund’s income. If you are not sure, it is best to not vary your instalments. Any overpaid instalments will be refunded upon lodgement of the Tax Return.
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 2024 Financial Year:
||Lodgement and Payment Due Date
||1 July 2023 – 30 September 2023
||28 October 2023
|1 October 2023 – 31 December 2023
||28 February 2024
|1 January 2024 – 31 March 2024
||28 April 2024
|1 April 2024 – 30 June 2024
||28 July 2024
||1 July 2022 – 30 June 2023
||21 October 2023
||1 July 2023 – 30 June 2024
||21 October 2024
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 2024 Financial Year. When the 2024 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 2024 Financial Year instead. Accordingly, Barney’s SMSF paid a total of $10,000 ($2,500 x 4) as PAYG Instalment. However, when the 2024 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.