Key takeaways
- You enter PAYG instalments automatically when your last return shows $4,000+ of instalment income and a tax bill over $1,000. No application, no opt-in.
- A sole trader with $80,000 profit prepays roughly $4,030 per quarter; at $150,000 it is about $9,893 per quarter.
- You can choose the ATO's pre-calculated amount or an income rate. The rate method tracks a variable income much better.
- Quarterly due dates for 2026-27: 28 October, 28 February, 28 April, 28 July.
- You can vary an instalment down to any figure, but underestimating your final tax by more than 15% can attract general interest charge.
- Instalments are not extra tax. Every dollar prepaid is credited against your assessment when you lodge.
- Exit is automatic once your income falls back under the thresholds, or immediate if you cease business and ask the ATO to withdraw you.
PAYG instalments at 5 income levels
The fast answer first. These figures assume a resident sole trader whose only income is business profit, using 2026-27 resident rates including Medicare levy, spread over four quarterly instalments.
| Instalment income (annual) | Estimated tax + Medicare | Quarterly instalment | Effective rate |
|---|---|---|---|
| $30,000 | $1,348 | $337 | 4.5% |
| $50,000 | $6,270 | $1,568 | 12.5% |
| $80,000 | $16,120 | $4,030 | 20.2% |
| $120,000 | $28,920 | $7,230 | 24.1% |
| $150,000 | $39,570 | $9,893 | 26.4% |
Calculate your exact instalments
The table covers five common profit levels. For your own figure, the PAYG instalment calculator works the tax out bracket-by-bracket and splits it across the four quarters, including Medicare and any HELP repayment.
Who has to pay? The entry rules
The ATO enrols you automatically after you lodge a tax return that crosses both of these lines: instalment income of $4,000 or more, and a tax debt on that income above $1,000 after withholding credits. Companies and super funds enter under their own thresholds.
Counts as instalment income
- Sole trader and partnership business income (GST-exclusive)
- Rent from investment properties
- Interest, dividends and trust distributions
- Capital gains are excluded from income, but the tax on them still lands at assessment
Does not count
- Salary and wages already under PAYG withholding
- Government pensions and most Centrelink payments
- GST you collect (that's the BAS, not instalments)
- Exempt income and franking credits themselves
Received a notice and not sure why? The trigger is almost always a one-off spike in last year's return: a good business year, a first rental property, or a large interest payout. See why you got an instalment notice for the common cases.
Amount vs rate: the two calculation methods
Every instalment notice offers two ways to pay. Both prepay the same year's tax. They differ in how they respond when your income moves.
| Method | How it works | Best when |
|---|---|---|
| Instalment amount | ATO pre-calculates a fixed dollar figure from your last return, uplifted by GDP growth | Income is stable and predictable |
| Instalment rate | You multiply the quarter's actual income by an ATO percentage | Income is seasonal, growing or shrinking |
Worked example: $80,000 sole trader, rate method
The rate on your notice is simply last year's tax divided by last year's instalment income. If this year looks similar, the instalments will land within a few hundred dollars of your final bill.
Worked examples: $30,000 to $250,000
Each example assumes a resident sole trader on the amount method, 2026-27 rates with Medicare levy, no HELP debt.
Example 1: $30,000 profit (part-time trades)
Example 2: $80,000 profit (full-time sole trader)
Example 3: $150,000 profit (established consultant)
Example 4: $250,000 profit (top bracket)
Quarterly due dates 2026-27
| Quarter | Period | Due date |
|---|---|---|
| Q1 | July – September 2026 | 28 Oct 2026 |
| Q2 | October – December 2026 | 28 Feb 2027 |
| Q3 | January – March 2027 | 28 Apr 2027 |
| Q4 | April – June 2027 | 28 Jul 2027 |
Lodging through a BAS agent extends most of these dates. Annual payers (instalment income under the annual threshold) pay once, by 21 October.
How to vary your instalments
If this year's income will be materially lower than last year's, you don't have to keep prepaying at the old level. Vary the instalment on the activity statement before its due date. You can set the amount or the rate to any figure that matches your genuine estimate, even zero.
The safeguard to respect: if your varied instalments end up covering less than 85% of your actual tax on instalment income, the ATO can apply general interest charge to the shortfall. Estimate honestly, keep a written basis for the estimate, and revisit it each quarter. Full walk-through: varying PAYG instalments.
5 calculation mistakes to avoid
- Treating instalments as extra tax
Every instalment is a credit against your assessment. If you prepay more than your final bill, the difference comes back as a refund with your notice of assessment.
- Including GST in instalment income
Instalment income is GST-exclusive. Applying your instalment rate to GST-inclusive takings overpays by up to 10% every quarter.
- Varying to zero without a genuine estimate
A zero variation you can't substantiate invites the 85% shortfall test, and general interest charge on top of the tax you still owe.
- Ignoring the GDP uplift on the amount method
The pre-set amount is last year's figure uplifted for growth. If your income is flat or falling, the amount method silently over-collects. Switch to the rate or vary down.
- Forgetting instalments when budgeting for tax time
Your final bill is the assessment minus instalments already paid. Sole traders who budget the whole bill twice end up hoarding cash; those who forget the instalments entirely get a nasty Q1 surprise.
How to legally reduce your instalments
Vary with a genuine estimate
The primary lever. If profit is down, vary the current quarter and every later one to match your honest projection, documented and revised as the year unfolds.
Bring deductions forward
Instalments track last year's return, but your final tax reflects this year's deductions. Prepaying deductible expenses or making concessional super contributions cuts the assessment the instalments are credited against.
Switch to the rate method
The rate method self-adjusts: a slow quarter automatically produces a small instalment, with no variation paperwork at all.
Exit the system when eligible
Ceased business or sold the investment property? Ask the ATO to withdraw you rather than varying to zero forever.
Can you just ignore the instalment notice?
No, and the popular workarounds don't hold up. Not paying an instalment leaves a debt that accrues general interest charge from the due date. Varying to zero without basis fails the 85% test. Simply not lodging the activity statement attracts failure-to-lodge penalties on top. The system has one honest exit: income back under the thresholds, or a withdrawal request when circumstances genuinely change.
Bottom line: the instalment notice is a prepayment schedule for tax you already owe on current income. The only question worth optimising is whether the schedule matches reality, and variation is the tool for that.
Will the entry thresholds change?
The $4,000 instalment-income and $1,000 tax-debt thresholds have been stable for years, and neither major party has proposed moving them. What does change annually is the GDP uplift factor applied to amount-method instalments, published each June. Treat any "instalments are being abolished" headline with scepticism. The system collects tens of billions in smooth quarterly revenue, and reform proposals focus on real-time reporting, not abolition.
Frequently asked questions
Why did I get a PAYG instalment notice?
Are PAYG instalments extra tax?
How is my instalment amount calculated?
What happens if I don’t pay a quarter?
Can I vary after the due date?
Do wage earners ever pay instalments?
When do I stop paying instalments?
Where do instalments go in my tax return?
Is the instalment rate the same as my tax rate?
Do PAYG instalments include Medicare levy and HELP?
Sources and further reading
- ATO: PAYG instalments overview
- ATO: PAYG instalments calculator
- Taxation Administration Act 1953, Schedule 1, Divisions 45 and 50 (instalment framework)
Related resources
PAYG Instalment Calculator
Your quarterly figure, bracket by bracket
Open →Varying PAYG Instalments
The variation process and the 85% rule in detail
Open →Withholding vs Instalments
Which side of PAYG applies to each income type
Open →
Narelle Hartigan is a CPA-qualified tax accountant with over a decade of experience in Australian personal taxation and payroll. She founded PAYG Calculator Australia to make tax withholding easy for every Australian worker to understand.