Why Did I Get a PAYG Instalment Notice?

By Narelle Hartigan, CPAPublished 26 June 20266 min read

You got the notice because your last tax return crossed two lines at once: $4,000 or more of instalment income (business, rent, interest or dividends) and more than $1,000 of tax left owing after credits. The ATO enrols you automatically; nobody applies for this. The notice is not a penalty and not extra tax, it is a schedule for prepaying tax you already owe on current income. How the whole system works is covered in the PAYG instalments guide. This page covers the entry trigger and what to do in the first quarter.

Jump to:The two entry thresholdsThe one-good-year triggerWhat to do with the first noticeYour three options each quarterFAQ

The two entry thresholds

The ATO checks every lodged individual return against both of these tests. Fail either one and no notice comes. Cross both and enrolment is automatic:

Test 1: instalment income of $4,000+

  • Sole trader and partnership business income (GST-exclusive)
  • Rent from investment properties
  • Interest, dividends and trust distributions

Test 2: tax debt over $1,000

  • Tax payable on your notice of assessment
  • After PAYG withholding credits from any job
  • So wage earners with fully covered tax stay out

What counts as instalment income has its own precise definition; the short version is gross business and investment income, GST-exclusive, before deductions. The instalment income glossary entry covers the edge cases.

The one-good-year trigger

Most first notices trace back to a single change in the prior year's return. One strong business year, a first rental property, a large term deposit payout or a bumper dividend season is enough to cross both thresholds, and the notice arrives a few months after you lodge.

Worked example: salary plus a first rental property

Tax on $85,000 salary alone2026-27 resident rates, Medicare included$17,720
Tax on $105,000 (salary + $20,000 net rent)$24,120
Tax debt at assessment (employer withheld only for the salary)$6,400
Both thresholds crossed: $20,000 income, $6,400 debtNotice issued

The rent cleared $4,000 of instalment income and the $6,400 bill cleared $1,000 of tax debt, so the ATO now wants next year's version of that tax quarterly instead of in one lump. Your own numbers drop straight out of the PAYG instalment calculator.

What to do with the first notice

  1. Check the method it uses

    The notice offers a pre-set instalment amount, and usually an instalment rate as the alternative. The amount suits stable income; the rate self-adjusts when income moves quarter to quarter.

  2. Sanity-check the figure against this year

    The amount is built from last year's return, uplifted for growth. If the income that triggered enrolment has stopped or shrunk, the pre-set figure is too high and you can vary it.

  3. Diarise the four due dates

    28 October, 28 February, 28 April and 28 July. Full detail, including agent extensions, in PAYG due dates.

  4. Set the cash aside now

    The first instalment often lands mid-quarter with less than six weeks of runway. A separate account holding a quarter of your expected annual tax removes the scramble.

Your three options each quarter

Every quarter you can pay the notice as issued, vary it to match a genuine estimate of this year's income, or pay nothing and cop general interest charge on the debt. The first two are the only sensible ones. Varying is straightforward but has a safeguard: underestimate your final tax by more than 15% and interest can apply to the shortfall. The process and the safe way to estimate are in how to vary PAYG instalments.

Whichever you choose, every dollar you prepay comes back as a credit on your next notice of assessment. Instalments change when you pay tax, never how much.

Frequently asked questions

Why do I have to pay PAYG instalments?
Your last return showed $4,000 or more of business or investment income and left more than $1,000 of tax owing after withholding credits. The ATO enrols everyone who crosses both lines so the tax arrives during the year it is earned.
Is a PAYG instalment notice a fine or penalty?
No. It is a prepayment schedule. The amounts are credited against your next assessment in full, and overpayments are refunded.
I only had one good year. Do I have to keep paying?
You can vary the instalments down to match a genuine estimate of this year, even to zero if the income has stopped. Exit is automatic once a lodged return falls back under the thresholds.
Can I just ignore the notice?
Not without cost. An unpaid instalment becomes a debt accruing general interest charge from its due date. If the figure is wrong, vary it before the due date instead.
Do wage earners get instalment notices?
Yes, when side income crosses the thresholds. Withholding covers the salary; instalments cover the rent, interest, dividends or business income on top.

Sources

Related resources

Calculator

PAYG Instalment Calculator

What your quarterly prepayments should be

Open →
Guide

Varying PAYG Instalments

Cut a notice that no longer matches your income

Open →
Guide

PAYG Due Dates

The four quarterly deadlines and how to pay

Open →
Narelle Hartigan
Narelle Hartigan, CPA Verified Expert
Tax Accountant & PAYG Specialist

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.

CPABCom (Accounting)
Published: 28 July 2026