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Whether voluntary or mandatory, the Tax Office has warned agents to ensure their client understands their obligations.
Accountants must educate clients on PAYG instalments: ATO
22 February 2023
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7 minute read
Accountants must educate their clients on PAYG instalments, the ATO says, or many will be caught out by paying too little through the variable system.
The ATO is calling on accountants and tax agents to help clients calculate PAYG instalments to ensure they maintain a healthy cash flow and to remind them that payments can begin once they receive a BAS or instalment notice.
Individuals or trusts – including sole traders – would be automatically entered into the PAYG system if they had instalment income from their latest tax return of $4,000 or more, tax payable on their latest notice of assessment of $1,000 or more and a notional tax of $500 or more.
A company or super fund client would be automatically entered into the system if it had instalment income from its latest tax return of $2 million or more, a notional tax of $500 or more or was the head company of a consolidated group.
The ATO said accountants should help clients who used PAYG instalments to vary payments to ensure they did not pay too little tax for the year. This could be organised through the next activity statement once it was available through the practitioner lodgement service software or on the online services for agents.
The Tax Office warned accountants that if their clients’ varied PAYG instalments were less than 85 per cent of their total tax payable they might be liable to pay a general interest charge on the difference as well as paying the shortfall.
For businesses or individuals impacted by disasters such as the floods in 2022, the ATO said it would not apply penalties or charge interest on variations if they had taken reasonable care in their estimate.
The different variation reasons and their codes provided by the ATO included:
- Change in investments - 21
- Current business structure not continuing - 22
- A significant change in trading conditions - 23
- Internal business restructure - 24
- Change in legislation or product mix - 25
- Financial market changes - 26
- Use of income tax losses - 27
- Consolidations - 33
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- I would like the ATO to provide a calculator that helps agents and taxpayers make the variation forecast. One where users type in how much has been paid for the year, how much we now forecast and then projects what the instalments should be. Perhaps that might help alleviate some of this issue.0
- How about the ATO posts the notices out, and puts an actual copy in online services for agents, with the address it was actually sent to, rather than the crazy mish-mash of email, myGov, and ATO Online notices they are using? And give us a list of *all* issued PAYGI notices for *all* of our clients.1
- And then ATO decides to cancel a client's PAYG instalment, when we know the client still needs to pay. So we have to lodge a special request and if you're not quick enough, we have to wait another BAS period before it takes effect. Currently have husband and wife clients with almost equally split business income. His instalment has been cancelled and hers hasn't. Maybe the ATO should penalise itself because at the end of the year the client will have to pay tax. Had the ATO not cancelled the instalments there would be no shortfall of tax payments.0
- I did not know that a Bachelor of Clairvoyancy was supposed to be one of our qualifications.
1 - Since when has the ATO have stopped providing services to taxpayers? The ATO is imposing on tax agents to educate taxpayers. The ATO is paid by taxpayers to do their job and but they aren't doing what they were supposed to do. That is not acceptable.1
- As a practice it has always been difficult to calculate PAYG I and then advise clients on expected amounts and dates due. I mean let’s get into the stupidly complicated PAYG I system. Only the ATO could take something, which could be fundamentally simple like paying tax by instalments and turn it into a mountain of red tape. So we have quarterly payers, annual payers, dual payers, notional tax method, benchmark method, credit for overpaid PAYG, underestimating benchmark tax, instalment income (and all its included and excluded definitions of income), varying instalment rates, different entry thresholds pending with your individual, company or SMSF, special rules and forms for PAYG I credit requests, differing instalment income calculation methods for quarter and annual tax payers and there is more. All this and the ATO still remain clueless as to why accountants are often not telling their clients as well as they might what their PAYG I amounts are and when.3
- Spot on, Plus we have 17 different types of BAS. Should I educate my clients on each one. Twenty-three years after its introduction we have GST rulings every month.0
- "Clients’ varied PAYG instalments were less than 85 per cent of their total tax payable they might be liable to pay a general interest charge on the difference as well as paying the shortfall."
Clients who pay tax on time and just don't want to pay it during the year will be penalised. Makes sense.0 - There should be a simpler system where you just pay a percentage of your income each month/quarter instead of the current variation system.0
- Again, we have to do the ATO's job. Typical.1
- It's time the ATO threw out the lodgement program time frames - you keep asking agents to do more work and in the same time keep lodgements on track.2
