PAYG Instalment Variations and Refunds to Assist Cash Flow
PAYG installments are payments made towards an expected future income tax bill on a quarterly basis. Once the tax return has been completed for a year, the tax liability is calculated and any installments paid during that year are credited towards the tax bill. The business then either receives a refund or pays the balance owing. PAYG installments are designed to make the tax bill easier by paying in advance.
The ATO is allowing businesses that usually pay installments to vary the amount to nil on the March and June 2020 activity statements to assist with cash flow during the Coronavirus crisis.
Whilst installments can be varied to a lower amount or to nil, (without incurring the usual penalties for incorrectly varied instalments), it’s important to remember that income tax may still be payable once your tax return has been completed.
Whilst your business may have dramatically reduced turnover, if the business makes any profit or if sole traders earn above the taxable threshold, income tax will be payable. There will of course be the option to enter into an ATO payment plan for income tax debt that may arise if needed.
Installments already paid against the September 2019 and December 2019 activity statements can also be refunded by the ATO. This may be useful to assist cash flow, but for some businesses, it will make more sense to leave installments paid with the ATO, and to consider varying March and June installments.
The idea behind the installments is to reduce the likelihood of you having a large tax debt when your tax return is submitted. Reducing your installments or even getting a cash refund now will inevitably leave you with a large tax debt at the end of the year if you made a profit during the financial year.
Talk to us about whether varying your PAYG installments downwards will help your business to stay afloat. We can also apply for PAYGI refunds on your behalf if that is applicable to your business.
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