The COVID-19 pandemic has brought unprecedented disruption in Australia’s real estate industry and the impact has been felt across the property sector.
In the residential and commercial rental property markets, many landlords are generating substantially less income as tenants struggle to meet payment obligations due to the economic impact of government-imposed shutdowns.
In light of the situation, the Australian Taxation Office (ATO) has announced that it will not apply penalties or interest for excessive pay-as-you-go (PAYG) variations in the 2020-21 financial year, continuing its approach from the previous income year.
“To assist taxpayers experiencing financial difficulty as a result of COVID-19, we are providing added flexibility to manage your instalments to suit your circumstances,” the ATO said in its website. “You can vary your instalments if you think using the current amount or rate will result in you paying too much by instalments when compared to your estimated tax for the year.”
However, the ATO said that variations made in the 2019-20 income year will not carry over into 2020-21. The department reminded taxpayers to vary their instalments again if they think they will pay excessive taxes in the 2020-21 financial year.
The ATO also urged businesses to review their tax positions regularly and vary their PAYG instalments depending on their financial situation.
What are PAYG instalments?
PAYG instalments is a system that helps business owners manage their expected tax liability on income from their businesses or investments for the current income year by making regular payments.
Once business owners lodge their tax returns, the amount they already paid will be offset against any taxes they owe for the income year.
How to vary PAYG instalments if you are an amount payer
As an amount payer, the amount on the activity statement is set as a dollar amount. Amount payers can vary their instalment amounts for the remainder of the year if either:
- They expect to have significantly less business and/or investment income
- They expect deductions against their business and/or investment income to be more than the income itself for the full year
To vary the instalment amount, fill in the following fields on your activity statement:
- T8, the estimated tax for the year (if this is nil, enter 0)
- T9, the varied instalment amount for the quarter (if this is nil, enter 0)
- T4, the variation reason code (use reason code 23 – significant change in trading conditions)
- 5A, the PAYG income tax instalment amount (if filling in a paper form, enter the amount from T9)
How to vary PAYG instalments if you are a rate payer
Instalment rate is a percentage applied against the income a taxpayer has received for the period, so the amount may go up or down. Payers can vary their instalment rate to zero if either:
- They expect to have significantly less income
- They expect their deductions against your business and/or investment income to be more than the income itself for the full year
Follow these steps to vary the instalment amount:
1. Estimate your instalment income for the year. The instalment income is generally the gross business and/or investment income, excluding any capital gains.
2. Estimate the tax on your instalment income for the year. It is best to use ATO’s PAYG instalments calculator found here.
3. Calculate your varied instalment rate. This can be done by dividing estimated tax by estimated instalment income then multiplying the amount by 100.
Then, on the activity statement, fill in the following fields:
- T1 (PAYG instalment income), instalment income
- T3 (varied instalment rate), varied instalment rate (if varying to nil, enter 0)
- T11, the sum of instalment amount (multiply T1 by T3)
- T4 (Reason code for variation) reason code 23 (significant change in trading conditions)
- 5A, PAYG instalment income amount (if filling in a paper form, enter the amount from T11)
4. Complete any other questions on the activity statement as required.
How to claim a credit on PAYG instalments already paid
Once the rate or amount has been varied down, taxpayers can also claim back a credit from the PAYG instalments that they have already paid in the current financial year. To do this, payers must complete the amount at label 5B on the activity statement.
Payers who overpay their PAYG instalments and opt not to claim back credits on their activity statement will be credited with the amount back once the tax return is processed.
For more information on PAYG instalments, visit the ATO’s official PAYG instalments page.
