Lodge Now or Later? Navigating Tax Return Timing and PAYG Instalment Adjustments

One of the most common questions we are asked is “should I lodge my tax return now or later?”

We encourage our clients to prepare their tax returns well ahead of the due date. Early submission not only facilitates a more timely refund (if one is due) but also helps quantify any tax debt, allowing time to plan for the payment.

If you do have tax payable, as a tax agent, we have the flexibility to hold off on lodging your tax return until closer to its due date. This can be beneficial if you want to delay the tax payment. For instance, if your tax return is due on 15 May, your payment won’t be due until 5 June. But if we lodge your return up to and including 12 February, that payment deadline moves up to 21 March. Lodge between 13 February and 12 March then the payment due date becomes 21 April.

This timing also has implications for those in the PAYG (Pay As You Go) instalment system. When your tax return is lodged, the Australian Taxation Office (ATO) will adjust your PAYG instalments upwards, beginning with the quarter following your return lodgement. This adjustment can be either advantageous or disadvantageous, depending on your cash flow preferences.

Understanding PAYG Instalment Adjustments

For some, retaining cash as long as possible is the priority. These people prefer to delay adjustments to their PAYG instalments, even if it means facing a larger one-off payment for the June catch-up instalment. This approach allows them to use their cash for other purposes in the interim.

On the other hand, some people prefer to adjust their PAYG instalments as soon as possible. This method smooths out cash flow throughout the year, preventing the potential shock of a large June payment. However, it’s crucial to remember that the June PAYG instalment is due on 21 July, shortly after the 5 June income tax payment. This can create a significant cash flow challenge if not planned for properly.

If you have a tax bill and you aren’t already in the PAYG instalment system, you may want to read our blog post FAQ: What are PAYG Tax Instalments?

Finding the Right Balance for You

Deciding when to lodge your tax return and how to handle your PAYG instalments depends on your individual cash flow needs. Some people thrive on holding onto their cash as long as possible, while others find peace of mind in knowing that their tax obligations are spread out more evenly throughout the year.

Example

Elly is currently paying PAYG instalments of $500 per quarter, based on her 2023 return. She prepares her 2024 tax return on 31 July 2024 and finds that she has further tax to pay of $1,000 (2024 total tax payable $3,000 including instalments already paid). Elly decides to lodge her tax return after 12 March. The balance of her tax of $1,000 will be due for payment on 5 June 2025, followed by a June PAYG instalment of $1,680 due 21 July 2025, calculated as follows:

$3,180 (estimated 2024/25 total tax liability)* - ($500 x 3 quarters lapsed in financial year) = $1,680

*Estimated tax total tax liability for 2024/25: $3,000 x 1.06 = $3,180 (where 1.06 is the ATO’s uplift factor for the 2024/25 financial year)

Elly’s instalments will then revert to $795 per quarter ($3180 divided by 4) until her next tax return is lodged.

If Elly had decided to lodge her return on 31 July 2024 she would have paid the balance of her tax of $1,000 on 21 March 2025. Her PAYG instalments would have been adjusted from the September 2024 quarter onwards, increasing from $500 per quarter to $795 per quarter. The instalments of $795 per quarter will continue until her next tax return is lodged.

Prior to finalising your return, if you have tax to pay, confirm with your accountant your preference to hold or lodge your return.

If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.

Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.