A familiar conversation begins every quarter. The activity statement is emailed and the PAYG instalment attracts immediate attention and someone always asks “Can we make that zero?”
Just because we are called Next Zero does not mean we can miraculously change your next PAYG instalment to zero. GST is reluctantly accepted, wages have been paid but suppliers are demanding money. The income tax instalment, however, is somehow considered negotiable and treated like an optional extra.
I understand the attraction. Changing a number on a form is easier than collecting overdue invoices or negotiating more time to pay suppliers. Reduce the instalment, keep the money in the account and this quarter suddenly looks more manageable. Unfortunately, reducing the instalment does not reduce the tax you will ultimately owe.
PAYG instalments are advance payments towards income tax on your business and investment income, credited when your return is processed. You are not paying twice, although the ATO collecting for last year while asking for this year’s instalments does suggest considerably better cash flow planning than most businesses manage.
The temptation is to reduce the instalments now and worry about the final bill later. However, the ATO’s September 2026 warning has reminded taxpayers and tax professionals that understating PAYG instalments can attract general interest charge and penalties.
Of course, sometimes reducing the instalment is entirely reasonable. Profit may have fallen, expenses increased or the income behind last year’s bill disappeared. The system allows variations because business circumstances change. The calculation simply needs to reflect the tax you reasonably expect to owe, rather than the amount you would prefer to part with this quarter.
Making the instalment zero might temporarily improve the bank balance but it does nothing to fix slow collections, poor margins or drawings the business cannot afford. It can simply push the problem into the future, where it may arrive alongside the next round of obligations.
We review the numbers and work out whether instalments should change. Sometimes we can reduce them, sometimes zero is appropriate and sometimes we achieve the seemingly impossible… making you like your accountant even less!!!