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PAYG instalments for sole traders: when they start and how to calculate them
PAYG instalments are quarterly prepayments of your income tax. They usually arrive after your first business return, often alongside that return's tax bill. Check whether you'll be entered, and work out an option 2 instalment.
1. Will I be entered automatically?
2. Option 2 instalment (income × rate)
Automatic entry thresholds (individuals and sole traders)
- Instalment income from your latest tax return of $4,000 or more
- Tax payable on your latest notice of assessment of $1,000 or more
- Estimated (notional) tax of $500 or more
You need all three. The ATO tells you by letter (myGov inbox, online services, or post).
Option 1 vs option 2
- Option 1, instalment amount: you pay the amount the ATO calculates from your latest return. For 2026–27 the ATO applies a GDP adjustment of 5% to quarterly instalment amounts.
- Option 2, instalment rate: you multiply your quarter's instalment income (T1) by the rate the ATO gives you (T2). Amounts follow your income, which helps if it's uneven.
You choose on your first activity statement of the year and keep that option for the rest of the year. Either way, your total tax for the year doesn't change. You can vary the amount or rate if you think it's too high or low.
The ATO's worked example
Sophia, a sole trader, had sales of $22,000 including $2,000 GST, plus $100 interest, so her instalment income is $20,100. Her rate is 1.7%: $20,100 × 1.7% = $341.70, and she enters 341. The calculator above is pre-filled with her numbers.
When they're due
Generally 28 days after the end of each quarter, on your activity statement. See BAS due dates 2026–27 for the exact dates.
FAQ
When do PAYG instalments start for a sole trader?
Usually after your first business tax return is assessed. Individuals, including sole traders, are entered automatically if they have instalment income of $4,000 or more on their latest return, tax payable of $1,000 or more on their latest notice of assessment, and estimated (notional) tax of $500 or more.
Can I start PAYG instalments voluntarily?
Yes. The ATO says individuals and sole traders can request it in myGov (Tax > Manage > Tax registrations > Add new registration > PAYG instalments), through a registered tax agent, or by phone.
Do PAYG instalments change how much tax I pay?
No. They're prepayments. When you lodge your return they're credited against your income tax; the ATO refunds any excess and you pay any shortfall.
Sources
- ATO: Starting PAYG instalments (entry thresholds)
- ATO: Calculate your PAYG instalments (option 1 and 2)
- ATO: PAYG instalments – how to complete your activity statement (Sophia example)
- ATO: How we calculate your PAYG instalment amount or rate (2026–27 GDP adjustment 5%)
- ATO: PAYG instalments (due dates)
Last checked 16 Nov 2026. Rules and rates change; confirm on the official page before you rely on a figure.
Want it done for you? Aussie Sole Trader Toolkit 2026-27 (offline tool)
The Sole Trader Toolkit's tax set-aside estimator helps you build the buffer that pays instalments without a cash-flow crunch. Disclosure: it's our own product, so we earn money if you buy it. You don't need it to use the free calculator on this page.
- Works in any browser on computer, tablet or phone; no login or internet needed
- Your numbers stay on your device
- Warns you at the $75k GST threshold
- Flags when a $1,000+ invoice needs the buyer's ABN
US$12.99 one-time on Whop. Instant download.
See it on Whop →Related guides
- Sole trader tax rates 2026–27: free income tax calculator
- BAS due dates 2026–27
- GST and BAS tracker spreadsheet for Australian sole traders
General information only, not financial, tax or legal advice. Check the official pages linked above, or ask a registered tax agent, before you rely on anything here. Last checked 16 Nov 2026.