We’re often asked by strata managers why a strata property is suddenly required to make PAYG instalments.
What Are PAYG Instalments?
PAYG (Pay As You Go) instalments are a system administered by the Australian Taxation Office (ATO) to help strata properties pay their expected income tax in advance throughout the year. Rather than facing one large bill after lodging the tax return, strata make smaller, regular payments during the year. This can make cash flow more predictable and reduce the risk of a surprise tax debt at year-end.
When Do They Apply to Strata?
PAYG instalments only apply if a strata property earns taxable non-mutual income. The most common example is interest from investments or bank accounts. Levies collected from lot owners are considered mutual income — essentially owners paying themselves — and are never subject to income tax. Income from status certificates is normally offset by a corresponding fee paid to the strata manager, so it often does not result in taxable profit.
The ATO will generally require a strata property to start PAYG instalments if the most recent tax return or ATO records show all of the following:
- Instalment income (gross investment income) of $4,000 or more.
- Tax payable of $1,000 or more on the latest notice of assessment.
- Notional tax (ATO’s estimate of tax for the current year) of $500 or more.
When these conditions are met, the ATO will issue a notice advising that instalments must commence*.
The amount of the instalments are determined by the ATO, so there is not need to carry out calculations**. The first quarterly instalment is usually calculated as 25% of the gross tax shown on the most recent lodged return. However, if a return is lodged partway through the year, the next instalment may be higher or lower to “catch up” on the year-to-date amount. For example, if a return is lodged in February, the March instalment might be adjusted so that about 75% of the estimated full-year tax has been paid by that point. After this catch-up, future instalments generally return to around 25% each quarter, with increases for inflation.
How Are PAYG Instalments Reported and Paid?
PAYG instalments are reported and paid via an activity statement. If the strata property is registered for GST on a quarterly basis, this will be included in a separate section of the quarterly Business Activity Statement (BAS). If it is not registered for GST, the ATO will issue an Instalment Activity Statement (IAS), which works in the same way but doesn't include GST reporting
Each PAYG instalment paid during the year is credited against the final income tax liability when the annual tax return is lodged. If the total paid is more than the final tax bill, the excess will be refunded; if it is less, the strata will simply pay the difference at that time. This ensures the tax position is reconciled accurately once the year’s actual results are known.
Hoefully that helps. If you require assistance in relation to the above matter, please reach out to our admin team.
*Another good reason to ensure contact details are updated when taking on any new management.
** Instalment amounts can be amended but this should be done with caution as the ATO does have the power to impose penalties if the final amount of tax is not close to the total of instalments for the year (only applies if the instalments are amended). We generally advise against amending instalment amounts for strata properties.
Quick Takes
- PAYG instalments are most often triggered by investment interest.
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Levies are mutual income and not taxable.
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ATO triggers include $4,000+ instalment income, $1,000+ tax payable, and $500+ notional tax.
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Instalments are reported quarterly via an activity statement.
Links:
- Income Tax Recording - Best Practice
- Timing Status Certificate Fees to Minimise Tax Issues
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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