Pay as you go (PAYG) instalments is a system implemented by the Australian Taxation Office for making regular payments towards the expected annual income tax liability. If you pay PAYG instalments, you still need to lodge your annual tax return. The PAYG instalment is different to PAYG withholding that is deducted from an employee's wages.
If you are registered for GST, a PAYG instalment may appear on your BAS, which is lodged on a quarterly BAS. This PAYG instalment is based usually on your prior year's income tax return (and divided by 4, ie split over the quarters for the year). If the BAS is for the Apr to Jun quarter, there is a possibility that the ATO may catch up the amounts that should have been lodged from Jul the prior year and include a larger amount on the Apr to Jun quarter BAS of the current year. Any amounts that you pay as PAYG instalment on your BAS is deducted from the income tax that you need to pay for that year. If you have paid more as instalments than the income tax return, you will receive a refund when the income tax return is lodged.
Since all profits need to be distributed from a discretionary trust, then the Trust will not need to pay PAYG instalments. Instead, the beneficiaries of the trust will need to pay PAYG instalments individually.
This is similar to the sole trader. Instead, the tax relates to the company. This PAYG instalment would be included on the company's BAS. The director personally, may also have a separate IAS which would offset their personal income tax at the end of the year.
All profits from a partnership need to be distributed to the partners. As a result, a partnership will not need to lodge a statement with a PAYG instalment. Instead, the individual partners may need to lodge their own IAS.
PAYG instalments are calculated using either method:
If your income fluctuates, it would be best to choose the income % basis, so the PAYG instalment reflects your earnings for the quarter.