Highlights

  • The GDP adjustment Factor for 2026–27 PAYG instalments is 5%, up from 4% in 2025–26.
  • SMSFs can vary PAYG instalments where the amount or rate no longer reflects their expected tax liability.
  • Significant underestimation can result in general interest charge consequences, particularly where varied instalments fall below the relevant 85% threshold.
  • Trustees should review taxable Investment income, capital gains, contributions tax, franking credits and pension-phase circumstances before varying.

Self-managed super fund (SMSF) trustees who pay pay-as-you-go (PAYG) instalments have been encouraged to review their tax position as the 2026–27 year progresses.

For funds using the instalment amount method, the GDP adjustment factor has increased to 5% for 2026–27. The ATO uses this adjustment when calculating certain quarterly PAYG instalment amounts, although the fund's eventual tax Liability will still depend on its actual taxable position for the year.

What has changed for 2026–27

From 1 July 2026, the GDP adjustment factor used for relevant PAYG instalment and GST calculations increased to 5%.

For comparison, the factor was 4% for 2025–26.

The adjustment is designed to update instalment amounts between tax returns. It does not mean an SMSF's Taxable Income or eventual tax liability is automatically expected to increase by exactly 5%.

The ATO also uses information from the fund's most recently lodged annual return when determining PAYG instalment amounts or rates.

As a result, a fund's instalments can be based partly on historical information even where its current-year circumstances have changed.

When and how to vary

Trustees can vary their PAYG instalment amount or rate if they believe the ATO-calculated instalments will be higher or lower than the fund's expected tax liability.

A varied amount or rate generally applies for the remainder of the income year or until another variation is made.

Variations can be lodged through Online Services for Business or through a registered tax agent.

The key consideration is whether the revised figure reasonably reflects the fund's expected tax position.

A caution on varying to nil

Trustees should be careful about reducing instalments substantially or varying them to nil without a supportable basis.

The ATO compares varied PAYG instalments with the tax ultimately payable on instalment income. If the varied instalments are less than 85% of the relevant amount calculated after year-end, the taxpayer may have to pay general interest charge on the shortfall, and penalties may also arise depending on the circumstances.

That is more precise than simply saying any understated instalment automatically attracts interest.

The practical message is that a variation should be based on a reasonable and genuine estimate, supported by current information and calculations.

Who may be affected

The guidance is relevant to SMSFs already paying PAYG instalments.

Accumulation-phase funds with taxable investment income are more likely to have material instalment obligations.

An SMSF receiving assessable interest, dividends, rental income or realised capital gains may therefore need to review whether the instalments set by the ATO still reflect its likely annual liability.

Funds with members moving into retirement phase may experience a lower taxable position where exempt current pension income applies.

However, pension-phase income is not automatically entirely tax-free in every SMSF, so trustees should avoid assuming that moving into pension phase necessarily removes PAYG instalment obligations.

What to consider next

Trustees should compare their current PAYG instalments with the tax the fund realistically expects to pay for 2026–27.

Relevant factors may include:

  • taxable investment income;
  • realised capital gains and losses;
  • contributions tax;
  • franking credits;
  • deductions and offsets; and
  • exempt current pension income where applicable.

If a variation is warranted, trustees should retain the calculations and assumptions supporting it.

How the SMSF instalment system works

PAYG instalments are prepayments toward an SMSF's expected income tax liability.

Amounts paid during the year are credited against the fund's final tax liability when its annual income tax position is determined.

For funds using the instalment amount method, the GDP adjustment factor helps update the amount between returns.

For 2026–27, that factor is 5%.

Whether the adjusted amount remains appropriate depends on what happens within the SMSF during the year.

A fund with lower taxable Earnings may find the instalments too high, while a fund realising a substantial Capital Gain could find them insufficient.

Reviewing the position during the year can therefore help keep instalments more closely aligned with the fund's expected liability.

Vary with care, and keep records

A PAYG instalment variation should be driven by the fund's expected tax outcome rather than used simply to improve short-term cash flow.

Where circumstances genuinely support a lower estimate, varying can prevent unnecessary overpayments during the year.

Conversely, an overly aggressive reduction can leave the fund with a larger balancing liability and potentially expose it to general interest charge consequences if the statutory underestimation threshold is breached.

For SMSFs with more complicated tax positions involving capital gains, contribution taxes, pension exemptions and franking credits, a registered tax agent may help determine whether a variation is appropriate.

The broader message is straightforward: PAYG instalments should reflect the fund's expected tax position as closely as practicable, and variations should be based on evidence rather than guesswork.