Pay as you go (PAYG) instalments are regular tax prepayments made to the Australian Taxation Office (ATO) during the year. Instead of paying your self-managed super fund’s (SMSF) full tax bill in one lump sum when the annual return is lodged, the ATO may require the fund to make smaller payments throughout the year.

The ATO may enrol your SMSF automatically

If your SMSF earns above certain income thresholds, the ATO may automatically enrol it in the PAYG instalment system. This helps spread tax payments across the year, rather than having the full amount due at tax time.

Instalments are generally based on previous results

The ATO generally calculates instalments using your fund’s previous business and investment income or prior tax payable. This means the amount is usually based on historical results and may not reflect what your fund will earn this year.

Most PAYG instalments are paid quarterly

Most SMSFs pay PAYG instalments every three months. In some cases, the ATO may require annual instalments instead.

PAYG instalments count towards your annual tax

PAYG instalments aren’t an additional tax. They’re prepayments towards your SMSF’s annual tax liability.

When your SMSF tax return is lodged, the instalments already paid are credited against the final amount owing. This usually means:

• there’s little or no additional tax to pay
• the fund may receive a refund if it paid too much

The ATO reconciles your instalments after lodgement

Once the annual SMSF tax return is lodged, the ATO reconciles the instalments already paid against the fund’s actual tax position for the year.

If the instalments cover the liability, there may be nothing further to pay. If the fund paid too much, it may receive a refund.

Stake helps manage PAYG instalments

Stake helps simplify PAYG instalment obligations by:

• managing PAYG instalment lodgements
• notifying you before each due date
• allowing you to review the instalment and request changes
• automatically paying the ATO if you don’t request changes and there are sufficient funds in your Stake AUD account

You may not need to take any action

In most cases, you won’t need to do anything unless you want to:

• adjust the instalment amount
• make sure there are enough funds in your Stake AUD account for payment

Insufficient funds may prevent payment

If there aren’t enough funds in your Stake AUD account, the PAYG instalment may not be processed.

Stake will notify you if this happens. You’ll then need to fund the account or arrange payment directly with the ATO.

You may be able to vary your instalments

You may be able to request a variation if you expect your SMSF’s income for the year to be lower than the previous year.

Take care when varying instalments downwards. If you reduce them too far and pay less than 85% of your actual tax liability, the ATO may apply interest or penalties.

A zero instalment may be possible

If your expected tax liability is low, you may be able to vary your instalment to zero. Otherwise, PAYG instalments are generally mandatory once the ATO has enrolled your SMSF in the system.

Missed instalments may attract interest or penalties

If you miss a PAYG instalment, the ATO may charge interest or penalties.

You may still be able to pay the amount later through Stake if funds are available, or directly to the ATO.

Stake will notify you before payment

Stake will notify you before lodgement and payment. This gives you the opportunity to review the instalment and request changes if needed.

PAYG instalments are available through the ATO

You can usually view your PAYG instalments through ATO Online Services or in correspondence issued by the ATO.

Instalments can reflect changes in income

PAYG instalments are generally based on prior-year income or tax payable. If your current-year income is expected to be materially different, you may be able to vary the instalment amount to better reflect your fund’s current position.

Trustees remain responsible for PAYG obligations

The SMSF’s trustees remain ultimately responsible for meeting the fund’s tax obligations.

Stake assists with lodgement and payment as part of its service, but trustee responsibility still applies.

PAYG instalments may apply to capital gains income

The ATO may place your SMSF into the PAYG instalment system even if its income is primarily made up of capital gains. This may be based on the fund’s prior tax payable.

PAYG instalments can help manage cash flow

PAYG instalments can make tax obligations easier to manage by spreading payments across the year, rather than leaving the full amount payable at annual tax time.

This may help smooth cash flow and reduce the chance of a large, unexpected tax bill.

Contact Stake when your circumstances change

Contact Stake if:

• you want to vary your instalment amount
• you believe the instalment amount is too high
• your fund’s expected income has changed materially
• there may not be enough cash in your Stake AUD account before the due date
• you’ve received ATO correspondence you don’t understand

Important information

Stake can assist with PAYG instalment lodgement and payment workflows. Trustees should carefully consider their fund’s circumstances before requesting a variation, as reducing instalments too far may lead to ATO interest or penalties.