If you are an expat leaving from or arriving to Australia, one tax obligation that often catches individuals by surprise is the Pay As You Go (PAYG) Instalment System.
PAYG Instalments are pre-payments of income tax on a taxpayer’s business or investment income such as rental income, investment income (e.g. interest or dividends), business income and certain foreign income.
If you have been enrolled to the PAYG Instalment system, the Australian Taxation Office (ATO) would require you to pay PAYG Instalments on your business and investment income throughout the year (usually quarterly) instead of waiting until you lodge your annual tax return and get a large tax bill.
When are you Required to Pay PAYG Instalments?
The ATO will automatically register you into their PAYG Instalment system if all of the following are satisfied:
- The instalment income from your latest tax return is $4,000 or more, and
- Tax payable on your notice of assessment of $1,000 or more (this is the amount of tax that wasn’t covered by any Pay-as-you-go withholding tax from your employment income), and
- Estimated (notional) tax (a projection based on your non-employment income) of $500 or more.
This system commonly catches people who have sources of income not already subject to PAYG withholding (like wages). For international assignees, whether you are an Australian moving abroad or a foreign national moving to Australia, understanding the PAYG instalment system is crucial for managing cash flow and staying compliant.
If you have not been automatically entered into the system but expect to receive substantial investment income during the year, you may also choose to enter the PAYG Instalment system voluntarily. This will enable you manage your tax payments more evenly throughout the year and avoid a large lump sum tax bill when you lodge your tax return.
How PAYG Instalments Work
When you receive a PAYG instalment notice from the ATO, you will be provided with the following options:
- ATO Calculated Amount: The ATO will calculate a quarterly amount based on your last tax return.
- Instalment Rate Method: Provide a percentage rate that you can use to apply on your business/investment income for the quarter.
Alternatively, if you expect your income/tax liability to be lower in the current year than what the ATO has calculated, you can lodge a variation to reduce your quarterly instalment.
PAYG Instalment notices are issued by the ATO at the end of each quarter and are generally due for lodgement 28 days after the end of each quarter.
At the end of the year, all PAYG instalments paid are credited against your actual tax liability in your tax return.
Considerations Specific to International Assignees
Here are some important points that expats departing from or arriving to Australia should consider:
Residency Changes
When you change your residency status, your tax position and the nature of your Australian income may change. As a result, you may need to vary the instalments if your expected assessable business/investment income to change.
Investment Income Continuing While Overseas or After Arrival
If you have rental property or interest/dividends in Australia, even while overseas, you may still be subject to PAYG Instalments on this income. It is important to obtain advise on how your investment income will be taxed in Australia prior to leaving and factor this into cash‑flow planning prior to leaving Australia.
Similarly, inbound expats moving to Australia who begin to earn significant Australian-sourced investment income (such as interest, dividends, or rental income), should monitor their PAYG Instalment obligations, as the ATO may register you in the system once you meet the relevant thresholds.
Significant One‑Off Events
If you have sold an investment property during the year and required to pay a large tax liability, the ATO may use this information to calculate higher PAYG Instalments for the following year. If this is a one‑off event and your future investment income is expected to be lower, you should consider varying your PAYG Instalment when the PAYG Instalment notice is issued to ensure your payment more accurately reflect your tax position and avoid overpaying tax.
Please note that Instalment income does not include capital gains, unless you are a super fund or self-managed super fund.
Keeping Compliance While Remote
If you are overseas, you may not always be monitoring your myGov/ATO notices. Missing a quarterly payment may attract interest/penalties. You may consider engaging a tax agent to assist with managing your PAYG Instalment obligations while you are overseas.
In summary, whether you are departing Australia or arriving as an expat, it is important to be aware of your potential PAYG Instalment obligations if you expect to earn Australian-sourced investment or business income. Our firm’s global mobility tax team can assist with managing your quarterly PAYG instalments obligations and lodging variations so that your instalments accurately reflect your actual investment income through the year.
©Andersen Australia Pty Ltd. All Rights Reserved. Andersen is the Australian member firm of Andersen Global, an association of legally separate, independent member firms located throughout the world providing services under their own name or the brand “Andersen,” “Andersen Tax,” “Andersen Tax & Legal,” or “Andersen Legal.” Andersen Global does not provide any services and has no responsibility for any actions of the member firms, and the member firms have no responsibility for any actions of Andersen Global. No warranty or representation, express or implied, is made by Andersen, nor does Andersen accept any liability with respect to the information and data set forth herein. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice.
