The slowing of the global economy has resulted in a downward trend in business earnings. As a result of this pattern, the Australia Taxation Office is encouraging businesses to review their tax position to ensure that pay as you go (PAYG) instalments reflect their current financial position.
How to vary the rate
Businesses and investors that are currently using the instalment rate method to determine PAYG instalments may find themselves paying more than their expected tax liability for the current tax year. If this is the case, taxpayers are able to vary their PAYG instalment rate, ensuring that the correct amount of tax is paid.
The option to vary the PAYG instalment rate is available to businesses or investment taxpayers that have had a significant change in their business and investment income and, accordingly, their tax liability. For instance, taxpayers that anticipate much higher tax deductions for a similar level of business and investment income may be able to make a change to their current instalment rate. Overpaid instalments from previous quarters are applied to meet the current PAYG instalment.
A word of warning – taxpayers may be liable to pay an incorrect variation general interest charge where it is found that the varied instalment rate is less than 85% of what ought to have been used. The Tax Office, however, does take into account variations that were considered reasonable at the time it was made.
At a time when cashflow is becoming increasingly important for businesses, varying the instalment rate may provide some welcome relief.