How do PAYG instalments work for sole traders in Australia?

Pay As You Go (PAYG) instalments are regular payments you make towards your expected end-of-year tax liability. The ATO usually enters you into the PAYG system if you report more than $4,000 of 'business or investment income' on your tax return. Instead of paying one large tax bill at the end of the year, you pay smaller amounts quarterly. These payments are then credited against your final tax assessment when you lodge your return. When you first start as a sole trader, you won't be in the system yet. After your first tax return showing business profit, the ATO will send you a letter notifying you of your instalment rate or amount. You can also choose to voluntarily enter the system to help manage your cash flow.

• Advance payments towards your annual tax bill
• Usually quarterly via your BAS or an instalment notice
• Triggered by business income > $4,000 in a tax year
• Prevents a large 'tax shock' at year-end
• You can vary your instalments if your income drops