Business Activity Statement » PAYG Instalments
During the first year of business, the Autralian Tax Office does not require you to pay your income tax liability until after the end of the financial year. Once your first tax return is lodged including your business schedule, the Australian Tax Office will estimate your income tax liability for the next year based on information included in your tax return lodgement. If the net profit of your business is $2,000 or more, you will be required to pay PAYG income tax instalments (tax in advance) each time you lodge an activity statement. If the amount payable based on an estimation of information included in your last tax return lodged does not match your current activity, the amount may be varied.
Often this means that in the second year of trading, a business is required to pay PAYG income tax instalments to help cover the income tax liability for the second year of trading, as well as pay the income tax liability from the first year of trading. This can be quite a financial strain!
Echo Tax & Accounting can help you estimate how much to put aside for your income tax liability for the period before you are entered into the PAYG income tax instalment system so that at the end of the financial year you don't receive a nasty shock.
NB: Depending on whether you trade as a sole trader, partnership, company or trust -- the instalments may belong to either individual(s) or to the entity.