Close this search box.

PAYG tax for sole traders explained

If you’re a sole trader in Australia, who is making pay as you go (PAYG) instalments for the first time, you probably have a lot of questions. Luckily, in this blog post, we’re going to be explaining everything you need to know about PAYG for sole traders.
At its simplest, PAYG tax is a way for sole traders in Australia to pay their tax obligations as they go. Instead of having to wait until the end of the financial year and paying all of your taxes at once, you instead pay them in smaller, more manageable payments throughout the year. While this system can be very helpful for sole traders who are managing their own finances and tax obligations, it can also be quite confusing to understand.

So, what exactly are PAYG instalments?

Different to PAYG withholding, which is the amount of tax withheld by employers to help employees meet their tax obligations, the PAYG instalment system involves the taxes that sole traders themselves must account for and make payments towards. PAYG tax is a way of collecting business and investment income tax from businesses during the year, rather than waiting for an end-of-year reckoning. There are two entry points for making PAYG instalments: automatic and voluntary.

Beginning PAYG automatically

When you file your tax return, the Australian Taxation Office (ATO) will take a look at your income to see if you’re above the entry threshold for automatic PAYG instalments. Factors such as your gross business and investment earnings will be assessed, but things like GST and capital gains won’t – so make sure you take that into account if you’re doing your own PAYG calculations!
If you are over the threshold, then the ATO will contact you regarding:

  • when to make PAYG instalments
  • how often to pay (usually quarterly)
  • how to calculate your instalments, as well as how much you should pay.

You then start making PAYG instalments once you have received your ATO PAYG instalment notice.

Voluntary PAYG instalments

Voluntarily entering PAYG instalments helps you avoid the problem of a large tax bill at the end of the financial year. To enter into a voluntary PAYG instalment agreement, you simply need to:

  • Determine the amount of tax you will owe
  • Request entry into the PAYG instalments system
  • Make your instalments on time to avoid paying interest.

It’s important to note that any payments above or below what is necessary won’t affect your final tax bill. The amount of income tax you pay for the year will stay the same no matter which option you choose. Your PAYG instalments go towards your income tax liability so when you lodge your return, any excess tax paid will get refunded to you.
Even if you’re reasonably sure of your expected income tax liability, entering this program won’t hurt – it’ll make sure your finances are in control no matter what happens down the track.

Lodging your PAYG tax instalment

Once it’s time to lodge your PAYG instalment, you’ll receive an activity statement or notice which will specify what rate of instalment you need to pay and the due date. Simply head over to your ATO Online Services account, where you can find this information all in one place. And don’t forget, once you’ve received your PAYG instalment notice – make sure to pay on time (usually 28 days after the end of the quarter)!

Benefits of PAYG instalments

While there are a lot of things to consider when you’re looking at your tax obligations as a sole trader, making use of the PAYG tax system either through automatic or voluntary instalments, can help give you peace of mind when it comes to your finances. By paying as you go, you know exactly how much you have to pay and when, so there are no surprises at the end of the year. And when you know your tax position, you can make better business decisions year round.

Final thoughts

PAYG tax shouldn’t be seen as a burden, but a tool to help you manage your financial obligations. At TaxTank, we’re passionate about making tax simpler for Australian sole traders. That’s why we’ve purpose-built our Sole Tank, a streamlined way of managing your finances and growing your business. It provides all the features you need to make sure your side hustle or sole trader tax obligations are under control. With auto invoicing, business reporting, and smart tools that help you track income, expenses and tax obligations. you’ll never have to worry about tax time ever again!. Rather than stressing about the numbers, TaxTank helps you focus on expanding your business and earning more money. Experience a new standard in online tax management with TaxTank. We make understanding tax and managing your sole trader finances not only stress-free but intuitive.


TaxTank Reviews


Important Tax Deadlines

For all incomes earned between 01 July 2023 – 30 June 2024.  

Tax returns can be lodged from 01 July 2024. You can prepare early with TaxTank so you know exactly what’s going on ahead of time.

For all incomes earned between 01 July 2022 – 30 June 2023.  

Tax returns are now OVERDUE.  

You can use TaxTank to get up to date and lodge with our partner accountants.

Tax returns are OVERDUE.  

You can use TaxTank to get up to date and lodge with our partner accountants.

More Posts