It can feel like you’re being asked to pay tax twice.
PAYG instalments are advance payments towards income tax on business and investment income for the relevant income year. They aren’t an extra tax or a penalty for doing well. The system changes when you pay some of your tax, rather than adding a separate tax to your income.
Why has the ATO put me into PAYG instalments
The ATO may automatically enter you into the system when your tax return shows business or investment income and you meet the relevant entry conditions. Those conditions depend on the type of taxpayer, so the same rules don’t apply to everyone.
You don’t need employees to receive an instalment notice. A sole trader or someone receiving investment income can be required to pay instalments too. The ATO explains entry and payment arrangements in its PAYG instalments guidance.
The notice is worth reading carefully: check whose obligation it is, which period it covers and when action is required.
Why can’t I just pay everything at tax time
When you earn wages, your employer generally withholds tax as you’re paid. With business or investment income, there may be no one deducting tax before the money reaches you.
PAYG instalments collect amounts during the year towards the tax on that income. Once you’re required to participate, you generally need to meet those obligations rather than simply choosing to wait until your annual return.
Payments are usually quarterly, although other arrangements can apply. The Australian Government explains how PAYG instalments work.
Am I paying the same tax twice
No. Your annual tax assessment takes account of your PAYG instalment credits. You still need to lodge your return so the final liability can be worked out.
For example, assume your final income tax liability is $12,000 and you have paid $9,000 in instalments for that same income year. Ignoring other credits, adjustments and debts, the remaining amount is $3,000.
If you had paid $13,000 instead, there would be a $1,000 excess before any other adjustments or offsets against debts. Paying instalments doesn’t guarantee a refund or eliminate every year-end balance. See the ATO’s answers to common instalment questions.
Why does it feel like two bills at once
One payment may be the balance for an income year that has finished. Another may be an instalment towards tax for a later income year.
For example, after lodging a return for the year ended 30 June 2026, a business owner might need to pay the remaining tax for that year while also making instalments for the year ending 30 June 2027.
Those payments relate to different years, but the cash flow impact can still be significant. Ask your adviser to explain the periods covered before assuming a notice duplicates a payment you’ve already made.
What if my income has fallen
The ATO’s instalment amount or rate may reflect information from an earlier tax return. If your circumstances have changed, an appropriate variation may be available.
Start with current records and a realistic estimate of your full-year position. Reducing an instalment simply because the payment is inconvenient can create a shortfall. Variations that are too low can lead to interest and potentially penalties. Discuss the calculation with your tax agent before making a change.
What if I can’t afford the payment
Get advice early and separate two questions: is the instalment correctly calculated, and can you pay it on time?
A cash shortage doesn’t necessarily mean the liability is wrong. Your adviser can help review the amount and discuss contacting the ATO about payment options where needed. Keep track of any lodgement obligations as well as payment dates.
Make your next tax notice easier to understand
At Bookflow, we’re registered tax agents with the Tax Practitioners Board (TPB). We can help you understand why you’ve received a PAYG instalment notice and review what it means for your business.
We can work alongside your existing accountant, or chat about tax support if you need help in that area too. Our packages offer clear pricing and regular direct debit payments for agreed services.
Good books. Better flow.
Received a PAYG instalment notice and wondering why? Chat to Bookflow and let’s work through it together.
General information checked on 29 October 2026. Your PAYG obligations and options depend on your circumstances.