Aspects of the Pay As You Go Instalments System
TERMS OF REFERENCE
The ‘Pay As You Go’ (PAYG) system aims to assist taxpayers meet their anticipated tax liabilities by minimising large end-of-year tax bills and provide Government with revenue during the financial year.1 It requires periodic reporting and pre-payment of income taxes during the financial year either by withholding amounts at the source of income, such as salary and wages, or by payment of instalments where taxes are not withheld as is the case, for example, with interest and dividends.
The focus of this review is on the PAYG instalments system as it applies to individual taxpayers. Individual taxpayers who, in the prior year, have reported $4,000 or more of income that was not subject to withholding tax at source, are required to periodically report and pre-pay amounts towards their anticipated end-of-year tax liabilities for the current financial year.2 The amounts of the periodic pre-payments are based on the previous year’s tax assessment.3
Concerns with respect to the Australian Taxation Office’s (ATO) administration of the PAYG instalments system as it applies to individual taxpayers have been raised with the Inspector-General of Taxation (IGT) both through his complaints handling service as well as in submissions to his current work program. In particular, these concerns include individual taxpayers:
- being unnecessarily entered into the PAYG instalments system due to one-off spikes in income in a particular income year;
- being unaware of automatic entry into the system or not receiving appropriate correspondence which may, for example, explain reasons for entry into the system and receiving unexpected tax debts;
- experiencing difficulties varying instalment amounts or lodgment frequency, making payments or exiting the system, all of which may result in tax debt errors or refund delays; and
- receiving unclear ATO communications and guidance on reporting and payment obligations, including how PAYG instalment debts are applied against income tax return assessments as well as how to vary instalment amounts and reporting frequency requirements.
This review4 will examine individual taxpayers’ experiences with the PAYG instalments system, and in particular the above concerns, in order to identify improvement opportunities for taxpayers, the ATO and the system as a whole.
We invite you to lodge a submission to this review. Please set out your experiences with the PAYG instalments system as it applies to individuals and describe the impact it has had on you. Your views on any potential improvements to the ATO’s administration of this system are also welcomed.
The closing date for submissions is 30 April 2017. Submissions can be sent by:
- Post to:
- Inspector-General of Taxation
GPO Box 551
SYDNEY NSW 2001
- Email to:
Submissions provided to the IGT are maintained in strict confidence (unless you specify otherwise). This means that the identity of the taxpayer, the identity of the adviser and any information contained in such submissions will not be made available to any other person, including the ATO. Section 37 of the IGT Act safeguards the confidentiality and secrecy of such information provided to the IGT — for example, the IGT cannot disclose the information as a result of a Freedom of Information (FOI) request, or as a result of a court order generally. Furthermore, if such information is the subject of client legal privilege (also referred to as legal professional privilege), disclosing that information to the IGT will not result in a waiver of that privilege.
1 Explanatory Memorandum, House of Representatives, A New Tax System (Taxation Laws Amendment) Bill (No. 1) 1999.
2 Australian Taxation Office (ATO), ‘Who needs to pay PAYG instalments’ (November 2015) <www.ato.gov.au>.
3 Explanatory Memorandum, above n 1; section 45-15 of Schedule 1 to the Tax Administration Act 1953.
4 This review is commenced pursuant to subsection 7(1) of the Inspector-General of Taxation Act 2003 (IGT Act).