Key Highlights

  • Taxpayers who pay PAYG instalments as a set amount each quarter will find this year's figure has been lifted by 5%.
  • PAYG instalments are regular prepayments of income tax made during the year by businesses, sole traders and investors with business or investment income.
  • For people who pay a set instalment amount, the ATO works out that amount using their most recent tax return, then lifts it by the GDP adjustment.
  • The idea is that incomes generally grow with the economy, so instalments based on an older return are scaled up to approximate the current year's tax.

Taxpayers who pay PAYG instalments as a set amount each quarter will find this year's figure has been lifted by 5%. The ATO has confirmed that "the GDP adjustment for the 2026–27 income year is 5%", up from 4% in 2025–26. The increase matters right now because the first activity statement for 2026–27, covering July to September, is due on 28 October 2026 for many businesses, unless a later date applies under lodgment program concessions for tax agents.

What the GDP Adjustment is

PAYG instalments are regular prepayments of income tax made during the year by businesses, sole traders and investors with business or investment income. They are credited against the tax assessed when the annual return is lodged, so they are not an extra tax.

For people who pay a set instalment amount, the ATO works out that amount using their most recent tax return, then lifts it by the GDP adjustment. The ATO says the factor reflects changes in gross domestic product over the previous two calendar years, or a percentage set by law.

The idea is that incomes generally grow with the economy, so instalments based on an older return are scaled up to approximate the current year's tax.

For comparison, the 5% uplift sits above annual headline inflation of 4.0% recorded in the August monthly consumer price index indicator, although the two measures are calculated differently and cover different periods.

Who is Affected, and Who is Not

The adjustment applies to those who pay using the instalment amount method, whether quarterly or twice yearly.

It does not apply to taxpayers who use the instalment rate method, where instalments are calculated by applying a rate to the actual income earned each period. It also does not apply to annual instalment payers, according to the ATO.

That distinction matters. A business whose income has fallen since its last return may find a fixed amount, lifted by 5%, runs well ahead of what it is actually earning. A business using the rate method will see its instalments track its actual income instead.

The timing adds to cash-flow pressure. The Reserve Bank lifted the cash rate to 4.60% on 29 September 2026, raising borrowing costs for many of the same small businesses now facing larger instalments.

A Hypothetical Worked Example

Hypothetical example: a sole trader's latest return gives a starting figure of $32,000 a year for instalment purposes, or $8,000 a quarter before any uplift.

With the 5% GDP adjustment, the quarterly instalment becomes $8,400 ($8,000 multiplied by 1.05). Over four quarters, that is $33,600, or $1,600 more than the unadjusted figure.

Under last year's 4% factor, the same starting point would have produced quarterly instalments of $8,320 ($8,000 multiplied by 1.04). The higher factor therefore adds $80 a quarter, or $320 over the year, compared with 2025–26 settings.

If the sole trader's tax for 2026–27 turns out to be lower than the instalments paid, the excess is credited when the return is assessed. If it turns out higher, the balance is payable then. The example is simplified, and actual notices may differ.

Varying Instalments, and the Interest Risk

Taxpayers who expect their income to be lower this year can vary their instalments, according to the ATO. A variation replaces the ATO's figure with the taxpayer's own estimate.