On 29 March 2017, the Inspector-General of Taxation (IGT), Mr Ali Noroozi, announced terms of reference for his review into the administration of the Pay As You Go (PAYG) instalments system with respect to individual taxpayers.
[IGT – press release, terms of reference; LTN 59, 29/3/17]
Extract from Terms of Reference
The ‘Pay As You Go’ (PAYG) system aims to assist taxpayers meet their anticipated tax liabilities by minimising large end-of-year tax bills and provide Government with revenue during the financial year. It requires periodic reporting and pre-payment of income taxes during the financial year either by withholding amounts at the source of income, such as salary and wages, or by payment of instalments where taxes are not withheld as is the case, for example, with interest and dividends.
The focus of this review is on the PAYG instalments system as it applies to individual taxpayers. Individual taxpayers who, in the prior year, have reported $4,000 or more of income that was not subject to withholding tax at source, are required to periodically report and pre-pay amounts towards their anticipated end-of-year tax liabilities for the current financial year. The amounts of the periodic pre-payments are based on the previous year’s tax assessment.
Concerns with respect to the Australian Taxation Office’s (ATO) administration of the PAYG instalments system as it applies to individual taxpayers have been raised with the Inspector-General of Taxation (IGT) both through his complaints handling service as well as in submissions to his current work program. In particular, these concerns include individual taxpayers:
- being unnecessarily entered into the PAYG instalments system due to one-off spikes in income in a particular income year;
- being unaware of automatic entry into the system or not receiving appropriate correspondence which may, for example, explain reasons for entry into the system and receiving unexpected tax debts;
- experiencing difficulties varying instalment amounts or lodgment frequency, making payments or exiting the system, all of which may result in tax debt errors or refund delays; and
- receiving unclear ATO communications and guidance on reporting and payment obligations, including how PAYG instalment debts are applied against income tax return assessments as well as how to vary instalment amounts and reporting frequency requirements.
This review will examine individual taxpayers’ experiences with the PAYG instalments system, and in particular the above concerns, in order to identify improvement opportunities for taxpayers, the ATO and the system as a whole.