ATO Advised Instalment Amounts and Rates Explained

ATO Advised Instalment Amount

Advised instalment amounts can often cause some confusion when a small business or individual receives a letter from the Australian Taxation Office (ATO) explaining its intentions. However, for many, this will be the first time they have had to deal with advised instalment amounts and won’t know what action they should take.

Individuals, companies and superannuation funds with an annual turnover of less than $2 million are eligible to pay a quarterly instalment, instead of calculating the amount based on an instalment rate advised by the ATO.

The instalment amount is calculated based on the prior year’s tax (excluding capital gains and will be pre-printed on a statement for that period - choosing to adopt this method is made on the First activity statement of the financial year.

If the recipient considers their instalments are too high due to a change in income in the current year, the amounts can be varied. Once an estimated benchmark tax for the current year (tax payable excluding capital gains) has been calculated, a new estimate for a revised quarterly instalment amount can be made.

Care must be taken however, as if the estimation is less than 85 percent of the actual tax for the year, the taxpayer will be liable for interest on the underpayment and may also be fined.

ATO Advised Instalment Rate

For those not eligible or who have elected not to pay an instalment amount, the ATO will provide advice about an instalment rate on the Business Activity Statement (BAS). This rate is multiplied by the instalment income for the period to give the payment amount.

Instalment Income includes:

  • Gross sales or fees received (ex. GST)
  • Interest
  • Dividends (excluding imputation credits)
  • Rental income
  • Distributions from trusts & partnerships
  • Royalties
  • Imputation credits

Instalment Income does not include:

  • Salary and wages
  • Income where PAYG has otherwise been withheld
  • Exempt income
  • Capital gains (unless you are a superannuation fund)

Capital gains are exempt because they are not expected to be repeated every year. When attempting your calculations, it is a good idea to seek help from a TaxAssist Accountant, to avoid a fine if you’re out by more than 15%. Bear in mind that it’s still an estimate, as no one picked the Melbourne Cup winner in 2015 - Prince of Pendance at 100/1.

Remember, there is no substitute for proper professional advice, please call into your nearest TaxAssist Accountants office to see an accountant for more specific details.

By Terry Murphy
Last updated November 2016