Highlights

  • Taxpayers using the PAYG instalment amount method face a 5% GDP adjustment Factor for 2026–27.
  • PAYG instalments are prepayments of expected income tax, not an additional tax.
  • Businesses and investors can vary instalments where the standard amount no longer reflects their expected tax position.
  • Any variation should be based on a reasonable and supportable estimate to reduce the risk of interest or a large year-end shortfall.

The Australian Taxation Office is encouraging businesses and investors to review their pay-as-you-go (PAYG) instalments after confirming an increase to instalment amounts for 2026–27.

PAYG instalments allow businesses and individuals with Business or Investment income to pay income tax progressively through the year, helping spread the Liability rather than leaving a large balancing amount when the annual return is lodged.

The key issue for 2026–27 is whether the instalment being charged still reflects the taxpayer's current circumstances.

What has changed for 2026–27

For taxpayers using the instalment amount method, the GDP adjustment factor for 2026–27 is 5%.

The adjustment is used to update certain instalment amounts between tax returns.

Importantly, this does not mean a taxpayer's actual income or final tax liability is expected to increase by exactly 5%.

The ATO also recalculates PAYG instalment amounts after tax returns are lodged, so future instalments can change as reported business or investment income moves up or down.

Reviewing and varying instalments

The ATO encourages taxpayers to review their tax position regularly rather than assuming the standard instalment will always remain appropriate.

Where the amount no longer reflects the tax expected for the year, taxpayers can vary their instalments.

A lower variation may be appropriate if business or investment income has fallen substantially, while higher expected Taxable Income may mean the standard instalment will not be enough to cover the eventual liability.

The estimate should be realistic and based on current financial information.

Reducing instalments too aggressively can create a larger balancing bill and may also expose the taxpayer to general interest charge or other consequences where the variation significantly understates the eventual liability.

Entering the system

Businesses and investors may be brought into the PAYG instalment system once they meet the relevant ATO criteria based on business or investment income.

Taxpayers expecting this type of income can also choose to enter voluntarily in some circumstances.

Voluntary entry can help smooth tax payments throughout the year rather than waiting for a larger assessment after the tax return is lodged.

The system is therefore primarily a timing mechanism for income tax payments.

Who may be affected

The guidance is relevant to businesses and individuals already paying PAYG instalments, as well as taxpayers who may enter the system because of their level of business or investment income.

Those whose income has increased may see higher instalment obligations.

Conversely, businesses experiencing weaker trading conditions or investors with lower assessable income may find that instalments based on an earlier, stronger year are higher than their current tax position warrants.

That makes regular review important.

What to consider next

Taxpayers should compare their most recent PAYG instalment notices with what they realistically expect to earn and owe in 2026–27.

Relevant factors can include:

  • business profits or losses;
  • investment income;
  • realised capital gains or losses;
  • deductions and offsets; and
  • significant changes in trading or investment activity.

Where circumstances have changed materially, a variation may be appropriate.

Any revised amount should be supported by calculations and records showing how the estimate was reached.

Instalments are a prepayment, not an extra tax

PAYG instalments do not create an additional tax liability.

They are prepayments that are credited against the taxpayer's final income tax liability when the return is lodged.

The purpose is to spread tax payments across the year and reduce the chance of a large year-end bill.

For 2026–27, the 5% GDP adjustment factor changes the instalment calculation for relevant taxpayers using the instalment amount method, but it does not change the underlying income tax rate itself.

That distinction is important because a higher instalment notice does not automatically mean the final tax bill will increase by the same amount.

Keeping instalments accurate

The practical objective is to keep instalments broadly aligned with the tax likely to be payable for the year.

If income has fallen, an instalment based on a stronger prior period may unnecessarily tie up cash.

If income has increased, leaving instalments too low can create a larger balancing liability at lodgment.

Taxpayers can vary instalments when circumstances justify it, but the variation should be based on a current and substantiated estimate rather than simply used to improve short-term cash flow.

Reviewing instalment notices as they arrive and comparing them with updated forecasts is one of the simplest ways to keep both Cash Flow and tax obligations under control.