A PAYG instalment notice is the ATO asking you to prepay next year’s income tax in quarterly pieces. Pay it and the bill at tax time shrinks. Ignore it and you face a larger bill plus interest when you lodge.
This guide covers who gets a notice, how the instalment amount and instalment rate work, the 2026-27 due dates, how to vary, and the general interest charge (GIC) that can apply if you vary too low. Figures were checked against the ATO’s PAYG instalments, due dates and variation pages on 9 October 2026.
It is written for sole traders, property investors, trusts and small companies with business or investment income. If your instalments come on a BAS with GST, read our activity statement guide as well.
Key takeaways
- You enter automatically when your latest return shows instalment income of $4,000+, tax payable of $1,000+ and notional tax of $500+ (individuals, sole traders and trusts).
- Quarterly due dates: 28 October, 28 February, 28 April and 28 July.
- If you pay the amount shown on an instalment notice, you do not need to lodge it.
- Option 1 is a fixed instalment amount; option 2 is an instalment rate applied to your actual income.
- Vary below 85% of your actual tax and GIC may apply to the difference. GIC is 11.51% a year for October to December 2026.
PAYG instalment notice at a glance
| Quarter | Period | Due date |
|---|---|---|
| Q1 | July to September | 28 October |
| Q2 | October to December | 28 February |
| Q3 | January to March | 28 April |
| Q4 | April to June | 28 July |
Source: ATO when are PAYG instalments due, checked 9 October 2026. Online lodgers may be eligible for an extra two weeks (not monthly GST payers). Twice-yearly payers pay 75% by 28 April and the rest by 28 July; monthly payers by the 21st of the following month.
Why have I received a PAYG instalment notice?
The ATO enters you into PAYG instalments based on your latest tax return (starting PAYG instalments). Instalment income is your gross business and investment income, excluding GST and capital gains.
- Individuals, sole traders and trusts enter when all three apply: instalment income of $4,000 or more, tax payable of $1,000 or more on the latest notice of assessment, and notional tax of $500 or more.
- Companies and super funds enter when any one applies: instalment income of $2 million or more, notional tax of $500 or more, or being the head company of a consolidated group.
You can also join voluntarily, which suits new businesses expecting a profit. PAYG instalments are separate from GST and from PAYG withholding on wages, even though they can appear on the same activity statement.
What is the difference between the instalment amount and the instalment rate?
| Option 1: instalment amount | Option 2: instalment rate | |
|---|---|---|
| How it is set | Worked out by the ATO from your latest return, adjusted for GDP growth | (Notional tax / instalment income) x 100, from your latest return |
| What you pay | The same amount each quarter | Your actual instalment income for the quarter x the rate |
| Who can use it | Individuals, trusts, and eligible companies and super funds | Any instalment payer |
| Best for | Steady income | Seasonal or changing income |
| Switching | Choose on the first statement of the year | Switch only from the first quarter of the next year |
The ATO’s own rate example: $106,000 of quarterly instalment income at an 11% rate gives a payment of $11,660 (calculate your PAYG instalments). The ATO also caps calculated rates at a reasonable rate: 55% for individuals and trusts, 45% for super funds and 30% for corporate tax entities (how the ATO calculates). Eligibility for the amount option is set out on the ATO’s instalment amount page.
Do I have to lodge the notice or just pay it?
If you pay the amount shown, you do not need to lodge the notice (ATO lodge and pay). Lodge it only if you want to vary, using myGov, Online services for business, mail, or your tax or BAS agent. Our BAS and GST lodgement team can handle this for you.
Paying late means GIC on the unpaid instalment, compounding daily. Our guide to ATO interest on overdue tax explains how it builds and when remission is possible. If you lodge an activity statement late, a failure to lodge penalty can also apply; see our late lodgment penalty calculator. All of these key dates are collected in our tax due dates guide.
When should I vary my PAYG instalments?
Vary when your instalment income or tax position has changed significantly, for example after losing a major client, selling an investment or using carried-forward tax losses. The ATO lists reason codes such as a significant change in trading conditions (23) and use of income tax losses (27).
You must lodge the variation on or before the instalment due date and before you lodge your tax return for the year. The varied amount or rate then applies to the remaining instalments for the year unless you vary again. Varying changes when you pay, not how much tax you owe, and the ATO says that if you are not sure, it is best not to vary because overpaid instalments are refunded after you lodge (how to vary).
The 85% rule and GIC on variations
When you lodge your return, the ATO compares your varied instalments with your total tax on instalment income. If they are less than 85% of it, you may owe GIC on the difference. The ATO will not apply penalties or interest if you took reasonable care with your estimate, so keep your workings. The current GIC rate is 11.51% a year.
Worked example: varying an instalment amount
Leah, a sole trader, receives notices showing $3,000 a quarter for 2026-27 ($12,000 for the year). She pays Q1 ($3,000). In November her largest client leaves, and she estimates her tax on instalment income for the year will be $8,000.
She varies on her Q2 notice. Using the ATO method, each quarter is the cumulative share of estimated tax less what is already paid: Q2 = 50% x $8,000 – $3,000 = $1,000. Q3 = 75% x $8,000 – $4,000 = $2,000. Q4 = $8,000 – $6,000 = $2,000. Total paid: $3,000 + $1,000 + $2,000 + $2,000 = $8,000.
Her actual tax on instalment income turns out to be $10,000. 85% of $10,000 = $8,500. Her instalments of $8,000 are 80%, below the benchmark, so GIC may apply to the difference unless she can show reasonable care. She also pays the $2,000 balance on assessment.
Rule of thumb: Only vary when you have numbers to back it, aim for at least 85% of your realistic tax, and keep your workings with the notice.
How can I plan for quarterly PAYG instalments?
Move a set share of each payment you receive into a separate tax account so the money is there on the due date. Accounting software helps; our Xero training and setup and QuickBooks training and setup services can configure it for you, and a tax planning session before 30 June can check whether your instalments still match your income.
For the underlying law, the ATO legal database holds the PAYG instalment rulings, and the Reserve Bank publishes payments data on how Australians pay electronically.
Common mistakes with PAYG instalment notices
- Treating the notice as optional. Unpaid instalments attract GIC from the due date.
- Lodging when you do not need to. If you pay the amount shown, you do not need to lodge the notice.
- Varying too low. Below 85% of your actual tax can mean GIC on the difference.
- Missing the variation deadline. It must be lodged by the instalment due date.
- Mixing PAYG instalments with GST. Keep separate savings for each.
FAQ about quarterly PAYG instalment notices
Do I have to lodge my PAYG instalment notice?
Not if you are paying the amount shown. The ATO says that if you pay the amount on the notice, you do not need to lodge it; just pay by the due date. You only need to lodge the notice if you want to vary the amount, which you can do online through myGov or Online services for business, by mail or through your tax or BAS agent.
When are quarterly PAYG instalments due?
The standard quarterly due dates are 28 October for July to September, 28 February for October to December, 28 April for January to March and 28 July for April to June. Online lodgers may be eligible to lodge and pay two weeks later, but that does not apply to monthly GST payers.
Why did I start getting PAYG instalment notices?
Individuals, sole traders and trusts enter automatically when their latest return shows instalment income of $4,000 or more, tax payable of $1,000 or more and notional tax of $500 or more. Companies enter with instalment income of $2 million or more, notional tax of $500 or more, or as the head company of a consolidated group.
Will I be charged interest if I vary my instalments too low?
Possibly. When you lodge your return, the ATO compares your varied instalments with your actual tax on instalment income. If they are less than 85% of it, you may owe the general interest charge on the difference. The ATO says it will not apply penalties or interest if you took reasonable care with your estimate.
What is the difference between the instalment amount and the instalment rate?
The instalment amount is a fixed figure the ATO works out from your latest return, adjusted for GDP growth, and you pay it each quarter. The instalment rate is a percentage you apply to your actual instalment income for the quarter, so payments rise and fall with your income. You choose on your first activity statement or notice of the year.
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Nanak Accountants can review your instalment notice, lodge a variation backed by real figures and keep your activity statements on time. Call 1300 626 258, visit nanakaccountants.com.au or see our tax audit assistance service if the ATO has queried a variation.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO PAYG instalments pages (starting, calculating, varying, lodging and paying, and due dates) and GIC rates page on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
