Understanding PAYG Instalments: A Guide for Australian Expats

If you’ve recently received a letter from the ATO about PAYG instalments, or noticed an extra amount added to your tax bill, you’re not alone. Many Australians—particularly expats, sole traders, investors, and rental property owners—find the PAYG system confusing. In this article, we’ll break it down so you understand what it is, why it happens, and how to manage it.

What is PAYG Instalment?

PAYG (Pay As You Go) instalments are prepayments of tax on income that isn’t already taxed at the source. This might include:

Rental income
Investment income (dividends, interest, capital gains)
Business income or sole trader profits
Trust distributions
Foreign income not subject to withholding

Rather than waiting until tax time to pay a lump sum, the ATO collects tax in advance through quarterly instalments.

Why Am I in the PAYG System?

The ATO automatically enters individuals into the PAYG system if:

You had over $4,000 tax payable on your last lodged return (after credits) Note – this has increased from $2,000 in previous years.
Your adjusted taxable income (excluding salary taxed at source) is over certain thresholds
You earned consistent passive or business income that’s likely to recur

Many taxpayers are caught off guard when they receive their first instalment notice—especially if they’ve had a large one-off capital gain or started earning rental or foreign income.

If you are in the PAYG instalment system, this only updates when you lodge a new return. This means your PAYG instalment rate will go up or down accordingly. If you have left Australia whilst in the PAYG instalment system and haven’t lodged for a number of years, you may find yourself in a significant payable position accruing interest with the ATO.

How Do the Instalments Work?

You’ll typically pay PAYG instalments quarterly (due 28 days after each quarter), either:

Using the ATO’s calculated amount – based on your last tax return
Self-calculating as a percentage of your actual income for the quarter

You can manage and vary these amounts through your myGov or BAS portal, or your tax agent can handle this for you.

For example: Sarah is an expat with a rental property in Australia. Her 2024 return showed $20,000 in net rental income and a tax bill of $6,000. The ATO now assumes she will earn similar income in 2025 and issues her quarterly PAYG instalments of $1,500 each.

Can I Vary My Instalment?

Yes. If your income will be lower this year (e.g. the property is vacant, or you’ve sold an asset), you can lodge a variation. However, beware: underestimating without reasonable basis can result in interest or penalties. Generally, you need to vary within 15% of your actual tax liability or you can be stung, so you need to be careful you are not careless or aggressive with your variation.

What Happens at Tax Time?

Your PAYG instalments are like credits against your end-of-year tax. When you lodge your tax return:

If you’ve paid more than required – you get a refund
If you’ve paid less – you pay the difference
If it matches – no extra payment is needed

Even if you haven’t paid your instalments they appear as a credit in your tax return, so when you lodge you are assessed as if you had paid, but then any refund due back to you in the tax return first ensures you settle outstanding instalments and interest/penalties before any refund is paid to you.

Common Misunderstandings of PAYG Instalments

Misconception	Clarification
“I’ve already paid my tax when I lodged last year.”	The PAYG system is for the current financial year, not backpaying for the last.
“It’s optional.”	Once the ATO enters you into the system, you’re required to pay unless varied or exited.
“It’s for businesses only.”	Individuals with rental income, investments, or foreign income may also be included.

Contact Us

If managing your financial affairs across borders is starting to feel overwhelming, you’re definitely not alone. It’s a complex space, and having the right support can make all the difference. At Atlas Wealth Group, we specialise in supporting Australian expats with cross-border tax planning, superannuation, and wealth management. Contact us to arrange a consultation with a qualified adviser who specialises in Australian expat financial planning to get personalised guidance tailored to your circumstances.

To learn more, check out Atlas Wealth Groups’ podcast: Expat Chat