https://advisorsbusiness.com.au/ All businesses need advice. Varying your PAYG instalments is a fairly common practice. It makes sense to lower what you pay to the tax office by half, or even down to zero, if your cash flow is not as good as it once was. The Government charges interest, but this was rarely enforced - until last year

1. ATO imposes interest on taxpayers who vary PAYG lodgement
instalments
Effectively, you can keep varying instalment after instalment so that you rarely pay the full
PAYG amount. The Government charges 10-13% interest on the unpaid amount, but
realistically this interest has rarely been enforced upon the taxpayer.
Until now.
Do you vary your instalments?
The ATO calculates your PAYG instalment rate based on your previous financial situation
and returns. You can vary the rate or amount on your most recently issued activity statement
if you feel your financial situation has changed and the rate or amount is too onerous at the
present time.
This option to decrease what you pay can be taken up a number of times. Naturally, this leads
the ATO to question whether you are failing to pay your tax liabilities, and hence the
institution of interest charges on the difference between your PAYG instalment (calculated
based on your reported income) and your variation.
Hence a General Interest Charge (GIC)is applied when an amount of tax, charge, levy or
penalty is paid late or is unpaid, or when there is an excessive shortfall in an incorrectly
varied or estimated income tax instalment. It is calculated on a daily compounding basis on
the amount outstanding.
Are you understating your instalments?
If you use the rate method, then your PAYG instalment rate will be based on the presumed
accuracy of your instalment income at T1 on your activity statement. This is checked against
your lodged tax return.
If you vary this amount so that you pay less, then this may be construed as providing a false
or misleading statement about your income. The penalty on the shortfall amount could be
25%, 50%, or 75%.
Are you excessively varying your instalments?
How often and how much you vary your instalments depends on your cash flow. It is left up
to the discretion of the taxpayer, though the ATO does provide calculators and support to
help in the correct application of a variation. But if you do vary your rate or amount so that

2. the variation is more than 15% under your actual tax payable, then you may be subject to a
General Interest Charge.
How can you avoid paying the penalties?
There are a number of factors that can legitimately require you to vary your instalments.
Income and cash flow are unpredictable at times. The ATO recognises this, hence there are
extenuating circumstances wherein the GIC on a debt may be remitted in part or in full.
 the delay in payment was not due to your actions (for example, you were the victim of
natural disasters, industrial action, the unforeseen collapse of a major debtor, or the
sudden ill health of key personnel) and you took reasonable action to reduce the
delay.
 you took reasonable action to reduce the delay, and it is fair and reasonable to remit.
 payment of the full amount of GIC would result in serious financial hardship for you.
The key is documentation and accuracy. Precise record-keeping can justify to the ATO
reasons for lowering your PAYG instalment rates or amounts. Likewise, an accurate
understanding of by how much your rate or amount can be lowered will mitigate the potential
occurrence of an interest charge.
Your business advisors and tax accountants make this their bread and butter. Contact
Calibre’s experts who have built a strong reputation for effective dealings with the ATO to
best manage your PAYG.
Important Disclaimer: Readers should not act solely on the basis of the material on this
page. Items herein are general comments only and do not constitute or convey advice.
Legislation and proposals of legislation are also subject to constant change. We therefore
recommend that formal advice be sought before acting in any of the areas. This news article
is issued as a guide to the readers. This article first appeared at:
https://advisorsbusiness.com.au/latest-news/ATO-charging-interest-on-PAYG-
instalments.html