And why your June instalment may have increased substantially and why it won’t stay that high
A lot of queries have come up recently about how the ATO Pay as You Go Instalment (PAYGI) system works, especially around increased June instalment amounts, so here’s a quick explainer.
What is a PAYG instalment?
Pay As You Go Instalments (PAYGI) are the ATO’s way of collecting tax on your business and investment income throughout the year, rather than in one lump sum after you lodge your tax return. If you’re on quarterly instalments, you’ll generally receive a notice in September, December, March and June.
Think of it as pre-paying your next tax bill in four instalments — the total you pay during the year is later reconciled against your actual tax liability when your return is lodged.
Note that the same system applies to individuals, companies and SMSF’s.
How the ATO sets your instalment amount
Each quarter, the ATO sends an instalment amount based on your most recently lodged tax return. It simply divides your last known tax liability into four roughly equal payments and adjusts it slightly for expected growth.
The catch: what your “most recently lodged tax return” is can change during the year. When a new return is lodged, the ATO recalculates what you should have paid for the year based on the new figures — and adjusts your next instalment to catch up.
Why the June instalment often spikes
This is where you can get caught out. If your prior year’s return was lodged towards the end of the next financial year (for example, your 2025 tax return was lodged in May 2026), your September, December and March instalments were still based on the old, lower figures. Once the new return is lodged, the ATO recalculates the full year’s instalment liability and adjusts the final (June) instalment to make up the shortfall.
That June notice is a one-off true-up, not your new ongoing rate. Unfortunately, the notice itself doesn’t make this obvious, and it’s easy to assume every instalment from now on will be that same, much higher amount.
Worked example
You lodge your 2025 tax return in May 2026, showing total tax payable of $20,000. During the 2026 financial year, you had already paid three quarterly instalments of $2,000 each (based on the older 2024 return).
The ATO now issues a $14,000 instalment for June, to ‘catch up’ the instalments based on the 2025 tax return that’s recently been processed. See below for a table to illustrate this.
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The $14,000 June instalment is simply the balance needed to bring the year’s total instalments up to $20,000 ($2,000 × 3 already paid + $14,000 = $20,000). It is not the new normal — from September 2026, instalments reset to $5,000 per quarter ($20,000 ÷ 4), reflecting the actual 2025 tax bill.
Key takeaways
- A high June instalment is usually a one-off catch-up, not a permanent increase.
- Instalments reset each year based on your latest lodged tax return, divided into four.
- If your return is lodged later in the year, the final instalment may be unusually large — check the notice details rather than assuming it repeats.
- If in doubt, compare the instalment notice to your actual tax liability for the year, or let me know if you want to go through your specific figures.
- You can vary an instalment down if the instalment amount doesn’t reflect your expected tax payable amount, but non-deductible interest may be applied if you underestimate and reduce your instalment significantly.
Hopefully this sheds a bit of light on a confusing ATO system. Please don’t hesitate to contact me know if you have any questions.
Regards
Angus
ABN 78 624 606 295 83A Balcombe Road, Mentone. PO Box 319 Mentone Vic 3194 Telephone 0447407576 email angus@morrisonabs.com.au
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