Reduction in December PAYG instalment

The Government has announced a 20% reduction the December 2008 Pay As You Go (PAYG) tax instalment for small businesses. The reduction is available to those taxpayers who are eligible for the Small Business Entity concessions (see below) and who use the ATO’s pre-printed instalment amounts on their activity statements.

Note that the reduction is only designed to defer the tax instalments. The tax obligations will still remain.

At this stage the measure only affects the December 2008 instalment which, for most taxpayers, is due on 2 March 2009. The amount of tax to be paid on 2009 income will be determined when the 2009 return is lodged. If a lower instalment has been paid on the December 2008 activity statement, a higher amount will need to be paid when the 2009 tax return is lodged. However this final payment may be deferred as late as June 2010. The measure may therefore be attractive to small businesses who wish to defer cash outgoings as far as possible into the future.

Eligibility

The reduction is available to taxpayers who are eligible for the Small Business Entity concessions, that is those with less than $2 million in turnover and who are carrying on a business. However, if you are only receiving investment income and not running a business, for example income from rental properties, you will not be eligible for the concession.

Electing to take advantage of the December instalment reduction does not require you to use the other Small Business Entity concessions.

Note that the December 2008 activity statements do not show the reduced instalment amount, nor do they indicate a taxpayer’s eligibility for the concession. Eligible entities may simply short pay the printed instalment amount by 20% and the ATO will defer its payment.

Taxpayers who receive trust distributions from a business are not eligible for the concession, but may make use of the existing variation provisions for PAYG instalments.

Making the decision

As is often the case, taking advantage of these concessions should be discussed with Saward Dawson before proceeding. Firstly, you should confirm your eligibility with us. And if your business is not in the immediate position of needing to take advantage of the concessions, it may be that deferring the payments might actually create debt problems in the future.

We would be pleased to help you with your decision.

Published : 16 December 2008