PAYG Instalments in 2026: Who Pays, Amount vs Rate, Due Dates and Varying

PAYG instalments are how the Australian Taxation Office collects income tax on business and investment income during the year, instead of in one large bill after you lodge your return. If you're a sole trader, run a company or trust, or earn rent, interest or dividends outside a salary, you'll probably get a letter from the ATO one day saying you've been entered into the system. This guide explains what that means for 2026: who enters, the two ways of paying, how the ATO calculates your instalment (including the 2026–27 GDP adjustment), due dates, when and how to vary, the general interest charge if you get it wrong, and worked examples in Australian dollars.

Quick answer

PAYG instalments are quarterly prepayments of income tax on business and investment income. The ATO enters you automatically once your last return shows enough tax on that income — for individuals and trusts, instalment income of A$4,000+, tax payable of A$1,000+ and notional tax of A$500+. You either pay an amount the ATO calculates or apply an instalment rate to the income you earn each quarter. The instalments are credited against your tax when you lodge.

• 2026–27 GDP adjustment: 5% (was 4%)

• Most small businesses pay on 28 October, 28 February, 28 April and 28 July

• Annual option if notional tax is under A$8,000 and you're not registered for GST

• Vary by the due date — but an estimate below 85% of your actual tax can attract GIC

• Dynamic, software-calculated instalments are planned from 1 July 2027 (not yet law)

What PAYG instalments are, and what they aren't

Australia's pay as you go system has two halves. PAYG withholding is tax an employer or other payer takes out of a payment and sends to the ATO — the tax on wages, for example. PAYG instalments are payments you make yourself towards the tax on income that nobody withholds from: business profits, rent, interest, dividends, trust and partnership distributions. The rules for instalments are in Division 45 of Schedule 1 to the Taxation Administration Act 1953.

The instalments aren't an extra tax. They're credits. When you lodge your tax return, the total instalments you paid for the year are subtracted from the tax assessed on your income. Pay too much and the excess is refunded; pay too little and you pay the balance by the assessment due date. The point of the system is to spread your tax across the year, so that a growing business doesn't get hit with a full year's tax plus its first instalment in the same month.

The tax the instalments cover is the tax on your instalment income — broadly, your ordinary income from business and investments for the period, excluding GST. Net capital gains aren't instalment income, and neither are salary and wages subject to withholding. For an employee with a rental property, only the rent counts. For a sole trader, it's the gross business income — sales and fees before expenses — plus any interest, dividends and rent.

If you employ staff, you'll handle both halves. Our PAYG withholding guide explains the employer side; this page is about the tax on your own business income.

Who has to pay: the entry thresholds

You don't sign up for PAYG instalments; the ATO enters you after processing a tax return, and tells you by letter or through your activity statement. The thresholds depend on what kind of taxpayer you are.

Notional tax is the ATO's estimate of the tax you'll pay on your instalment income for the current year, based on your most recent assessment. It's worked out on your adjusted taxable income for the base year (the last year assessed) — which leaves out net capital gains and some one-off items — less tax already covered by withholding.

The most common surprise is a sole trader's second year. Your first return shows a profitable year with no instalments paid, so you get a tax bill for that year and an instalment notice for the current year at the same time. Starting instalments voluntarily in your first year, or setting aside a share of every invoice in a separate account, prevents the double hit.

You can ask to leave the system if your circumstances change — you sold the business, stopped receiving investment income or retired. The ATO also stops issuing instalments if your latest assessment no longer shows tax on that income.

Amount option vs rate option

There are two ways to pay, and your activity statement or notice will show which one the ATO has set for you.

Option 1 — instalment amount. The ATO calculates a fixed dollar amount for each quarter from your GDP-adjusted notional tax, and you pay that amount (shown at label T7 of the activity statement). It's simple and predictable. Under section 45-130, it's available to individuals, to companies and super funds whose base assessment instalment income is A$2 million or less, and to small business entities with aggregated turnover under A$10 million. The ATO splits the year's GDP-adjusted notional tax into four: 25% for each quarter, with each payment adjusted if the ATO revises your notional tax mid-year.

Option 2 — instalment rate. You multiply your actual instalment income for the quarter (label T1) by the rate the ATO gives you (label T2) and pay the result (label T11). The rate is your notional tax divided by your base-year instalment income. Because it tracks what you actually earn, it suits seasonal and fast-changing businesses: a slow quarter means a small instalment. Larger entities that don't qualify for the amount option must use the rate.

If you're eligible for the amount option, you can choose to switch to the rate option for the year by telling the ATO by the due date of your first instalment for that year.

Amount option vs rate option

	Option 1: instalment amount	Option 2: instalment rate
What you pay	A fixed amount the ATO calculates	Rate × your actual instalment income for the quarter
Based on	Last assessment, uplifted by the GDP adjustment	Last assessment, but applied to current income
Who can use it	Individuals; companies/funds with up to A$2 million instalment income; small business entities	Anyone; required for larger entities
GDP adjustment applies?	Yes — 5% for 2026–27	No
Effort each quarter	Copy T7 to 5A	Total instalment income at T1, calculate T11
Best for	Steady income, minimal bookkeeping	Seasonal or volatile income, growing or shrinking businesses

What you pay

Option 1: instalment amount

A fixed amount the ATO calculates

Option 2: instalment rate

Rate × your actual instalment income for the quarter

Based on

Option 1: instalment amount

Last assessment, uplifted by the GDP adjustment

Option 2: instalment rate

Last assessment, but applied to current income

Who can use it

Option 1: instalment amount

Individuals; companies/funds with up to A$2 million instalment income; small business entities

Option 2: instalment rate

Anyone; required for larger entities

GDP adjustment applies?

Option 1: instalment amount

Yes — 5% for 2026–27

Option 2: instalment rate

No

Effort each quarter

Option 1: instalment amount

Copy T7 to 5A

Option 2: instalment rate

Total instalment income at T1, calculate T11

Best for

Option 1: instalment amount

Steady income, minimal bookkeeping

Option 2: instalment rate

Seasonal or volatile income, growing or shrinking businesses

The GDP adjustment for 2026–27

When the ATO calculates an instalment amount, it doesn't simply use last year's tax. It increases the base-year income figures by a GDP adjustment so the instalments keep pace with growth in the economy. The formula in section 45-405 uses changes in nominal GDP over the previous two calendar years, rounded to a whole percentage.

For the 2026–27 income year the ATO has set the GDP adjustment at 5%, up from 4% in 2025–26. It applies to instalment quarters starting on or after 1 April 2026, so a standard 1 July taxpayer uses it for all four 2026–27 quarters. Taxpayers with a substituted accounting period that started on 1 January, 1 February or 1 March 2026 keep the 2025–26 factor. The same factor is used for GST instalments.

The adjustment only matters if you pay the ATO-calculated amount — quarterly or in two instalments. It doesn't affect the rate option or annual instalments, because those are based on your actual income for the year.

PAYG instalment numbers for 2026–27

5%

GDP adjustment

Amount option only

A$8,000

Annual option

Notional tax must be below this

85%

Variation safe harbour

Share of actual benchmark tax

A$20 million

Monthly payer test

Base instalment income

Annual and two-instalment payers

Two smaller groups pay less often.

Annual payers. Under section 45-140 you can choose to pay one instalment a year if, at the end of your first instalment quarter, your most recent notional tax is under A$8,000, you aren't registered or required to be registered for GST, and you aren't a partner in a GST-registered partnership (companies also can't be in an instalment group or a GST joint venture). An entity with an annual GST election can also choose to pay annually. You must make the choice by the due date of your first quarterly instalment. The annual instalment is due by 21 October after the end of a 30 June income year. You stop being an annual payer if your notional tax reaches A$8,000 or you register for GST.

Two-instalment payers. Individuals who are primary producers or special professionals (authors, performers, sportspeople and the like), whose income from that activity in the base year exceeded the related deductions, pay two instalments instead of four under section 45-134: 75% of their GDP-adjusted notional tax with the third quarter and the balance with the fourth. That suits income that arrives late in the year — a harvest, a book advance, a season.

Due dates

The due date depends on how you lodge, not just on how you pay. Section 45-61 sets the default as the 21st of the month after each quarter, but deferred BAS payers — which covers most small businesses and individuals — get until the 28th, with the December quarter pushed to 28 February.

Quarterly PAYG instalment due dates for most small businesses (2026–27)

28 October 2026

July–September quarter

28 February 2027

October–December quarter

28 April 2027

January–March quarter (first instalment for two-instalment payers)

28 July 2027

April–June quarter

21 October 2027

Annual instalment for 2026–27 (annual payers)

Businesses with base assessment instalment income of A$20 million or more generally pay monthly, by the 21st of the following month, unless they lodge quarterly GST returns and stay under A$100 million. If your instalment comes on the same quarterly activity statement as your GST, it's due on the same date as your BAS. Tax agents' lodgment programs can give later lodgment dates; your activity statement shows the date that applies to you.

Worked examples in A$

These examples use the 2026–27 rules above. Figures are rounded.

Paying a quarter's instalment

1. 1

   Check which option your statement shows

   An amount at T7 means Option 1; a rate at T2 means Option 2.

2. 2

   Option 1 — decide whether the amount still fits

   If your income is on track, copy T7 to 5A. If not, estimate the year's tax at T8 and work out a varied amount at T9.

3. 3

   Option 2 — total your instalment income

   Add the quarter's gross business and investment income excluding GST and capital gains. Enter it at T1.

4. 4

   Apply the rate

   Multiply T1 by the rate at T2 (or your varied rate at T3) to get T11, and copy it to 5A.

5. 5

   Pay by the due date

   Pay with the activity statement. A variation must be lodged by the due date of the instalment it applies to.

1. A sole trader on the amount option. Mia is a Sydney graphic designer. Her 2025–26 return produced notional tax of A$12,000 on her business income. Uplifted by the 5% GDP adjustment, her GDP-adjusted notional tax is A$12,600, so each quarterly instalment for 2026–27 is A$3,150, due on 28 October, 28 February, 28 April and 28 July. If her 2026–27 tax comes in at A$13,400, she pays the A$800 balance after lodging; if it's A$11,000, she gets A$1,600 back.

2. A company on the rate option. A Perth fit-out company, which has chosen the rate option because its work is lumpy, had 2025–26 instalment income of A$1.6 million and notional tax of A$96,000 — an instalment rate of 6%. In the July–September 2026 quarter it invoices A$450,000 excluding GST. Its instalment: 6% × A$450,000 = A$27,000. In a quiet December quarter with A$200,000 of income, it pays A$12,000.

3. Varying down after a bad quarter. A Hobart café owner on the amount option has a notional tax-based instalment of A$2,500 a quarter. Trade drops after a long roadworks closure, and in February she estimates her tax for the year at A$6,000. By the end of the second quarter she should have paid 50% of that estimate — A$3,000 — but she's already paid A$2,500, so her varied second instalment is A$500. Her third and fourth instalments are then A$1,500 each. If her actual tax for the year turns out to be A$7,500, her estimate of A$6,000 is 80% — below the 85% line — so the ATO can charge GIC on the shortfall in each varied instalment from its due date until the assessment is due. At the October–December 2026 GIC rate of 11.51% a year, A$750 outstanding for 200 days costs about A$47.

4. An investor paying annually. A retiree with A$60,000 of term-deposit interest and rent, no GST registration and notional tax of A$5,400 chooses to pay annually. Her 2026–27 instalment is due by 21 October 2027. The GDP adjustment doesn't apply to annual instalments.

Varying your instalments, and the 85% rule

The ATO's figure is based on last year. If this year is different — you've lost a big client, sold an investment property, had a run of large deductions or simply had a bad season — you can vary. You do it on the activity statement or instalment notice for the quarter (or online through your tax agent or Online services for business), on or before its due date, and give a reason code at label T4.

• On Option 1, you estimate your tax for the whole year at T8 and the varied amount at T9 is the year-to-date share of that estimate less what you've already paid. If that's negative, you can claim a credit at 5B for earlier instalments.
• On Option 2, you enter a new rate at T3, worked out as your estimated tax for the year divided by your estimated instalment income.

A variation lasts for the rest of the year unless you vary again. It doesn't carry into the next income year.

The safeguard against over-optimistic variations is in sections 45-232 and 45-235. If the estimate you used is less than 85% of your benchmark tax — essentially the tax actually assessed on your instalment income for the year — you're liable to the general interest charge on the difference between what you should have paid and what you did pay, from each instalment's due date. The ATO can remit GIC, and says it generally won't pursue it where you took reasonable care: used up-to-date figures, considered seasonal patterns, and kept a record of how you got to the estimate. A late payment of an instalment, varied or not, also attracts GIC under section 45-80.

How the 85% test works

Step 1

Vary using your estimate

Step 2

Lodge return for the year

Step 3

ATO works out benchmark tax

Step 4

Estimate ≥ 85%?

No GIC

Step 5

Estimate < 85%

GIC on the shortfall

Varying up is never penalised. If you're having a strong year on the amount option, increasing the instalment avoids a large balance at assessment time.

The next change: dynamic PAYG instalments from 2027

In the 2026–27 Federal Budget on 12 May 2026, the government announced that from 1 July 2027 small and medium businesses will be able to opt in to calculating and varying their instalments with an ATO-approved calculation built into their accounting software, and to report and pay monthly. Taxpayers with a history of non-compliance will be required to pay monthly. The Budget provided A$10.9 million to expand the ATO's existing pilot during 2026–27.

The ATO says the measure is not yet law. Alongside it, the ATO released draft guideline PCG 2026/D3, which says it won't spend compliance resources applying or collecting GIC on variations made using the dynamic calculation as intended, provided you take reasonable care with the data. Comments closed on 28 August 2026. Until legislation passes and the guideline is finalised, the current Division 45 rules and the 85% test apply in full.

Common mistakes

• Treating the instalment as optional. Unpaid instalments attract GIC from the due date, even if your final tax turns out to be lower.
• Including GST or capital gains at T1. Instalment income excludes both. Including GST overstates instalment income — and the instalment — by 10%.
• Varying to nil without workings. A nil variation in a good year is the classic way to fall below 85%.
• Forgetting the second-year bill. New sole traders often face last year's tax and the first instalment together. Put money aside from the start.
• Ignoring trust and partnership income. Your share of a trust's or partnership's business and investment income is instalment income too.
• Mixing up withholding and instalments. Withholding from your employees' wages is a separate obligation reported at W1–W5; instalments are your own tax at T1–T11 and 5A.

Official links

• Taxation Administration Act 1953, Schedule 1 Division 45 (Volume 2, compilation from 1 July 2026)The law on instalments, due dates and GIC
• ATO — How we calculate your PAYG instalment amount or rateNotional tax, instalment rate and the GDP adjustment
• ATO — Starting PAYG instalmentsEntry thresholds and voluntary entry
• ATO — PAYG instalments: how to complete your activity statementLabels T1–T11, 5A and 5B
• ATO — Dynamic PAYG instalmentsStatus of the 2027 measure

Next steps

Look at your next activity statement before the 28 October due date and decide which option fits your income pattern. If your income has changed, work out an estimate of the year's tax and keep it on file before you vary. For the rest of the activity statement, see our BAS guide; if you run a company, the company tax rate guide explains the 25% and 30% rates your notional tax is based on; and the budget planner helps you set aside each quarter's instalment.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What are PAYG instalments?

They're regular prepayments of the income tax you'll owe on your business and investment income for the year. The ATO works out your instalment from your latest tax return, and you pay it with your activity statement or instalment notice — usually quarterly. When you lodge your return, the instalments are credited against your final tax, so you get a refund if you paid too much and a smaller bill if you paid too little.

Why do I have to pay PAYG instalments?

The ATO enters you automatically once your latest assessment shows enough tax on business and investment income. For individuals and trusts that means instalment income of A$4,000 or more, tax payable of A$1,000 or more and notional tax of A$500 or more. For companies and super funds, instalment income of A$2 million or more, or notional tax of A$500 or more, is enough.

What is the GDP adjustment for 2026–27?

It's 5%, up from 4% in 2025–26. The ATO uses it to uplift your notional tax when it calculates an instalment amount for you. It only affects people paying the ATO-calculated amount quarterly or in two instalments. It doesn't change instalments worked out with the rate option or annual instalments.

When are PAYG instalments due?

Most small businesses and individuals pay quarterly on 28 October, 28 February, 28 April and 28 July, the same dates as a quarterly BAS. Larger entities pay on the 21st of the month after each quarter or month. Annual payers have until 21 October after the end of the income year. Check the due date printed on your activity statement or notice.

Can I reduce my PAYG instalments?

Yes. You can vary the amount or rate on your activity statement or notice, on or before its due date, if you expect your tax for the year to be lower. If your estimate turns out to be less than 85% of your actual benchmark tax, the ATO can charge general interest on the shortfall. Base the variation on current-year figures and keep your workings.

Do PAYG instalments apply to employees?

Not to salary or wages — tax on those is covered by PAYG withholding from your pay. Instalments apply to business income, rent, interest, dividends and similar investment income. An employee with a large rental or share portfolio can end up paying both: withholding on wages and instalments on investment income.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Taxation Administration Act 1953 — Compilation No. 225 (1 July 2026), Volume 2, Schedule 1 Division 45 — Federal Register of Legislation · accessed 9 October 2026
2. 2.How we calculate your PAYG instalment amount or rate — Australian Taxation Office · accessed 9 October 2026
3. 3.GDP adjustment for 2026–27 GST and PAYG instalments — ATO Software Developers · accessed 9 October 2026
4. 4.Starting PAYG instalments — Australian Taxation Office · accessed 9 October 2026
5. 5.PAYG instalments — how to complete your activity statement — Australian Taxation Office · accessed 9 October 2026
6. 6.Dynamic pay as you go instalments — Australian Taxation Office · accessed 9 October 2026
7. 7.Expansion of dynamic PAYG instalment calculations and monthly payments — BDO Australia · accessed 9 October 2026
8. 8.PAYG instalment variations: what the ATO is focusing on — Moore Australia · accessed 9 October 2026