The ATO said it won’t be applying penalties and interest for excessive PAYG instalment variations due to the “exceptional circumstances surrounding COVID-19”.
“This is in recognition of difficulties you may face in making accurate estimates of final tax liabilities in these uncertain economic times,” it said.
“If you varied your PAYG instalment amounts in 2019–20 due to COVID-19, you may need to vary your instalments again for 2020–21 if your instalment amounts don’t reflect your current financial circumstances.
“Note that general interest charges may apply to outstanding PAYG instalment balances.”
The ATO said businesses can also vary their PAYG instalment rate or amount if they have an approved substituted accounting period (SAP), provided that any variation must relate to instalments made during the corresponding SAP.
For businesses in the top 100, top 1,000 or top 500 private groups programs, the ATO said they will need to ensure any variation to their instalment rate or payments reflect their anticipated tax liability for 2020–21.
However, the ATO also said it doesn’t expect those businesses to vary their rate down if they anticipate making an end-of-year wash-up payment.
The announcement comes after the government announced in June it would legislate to suspend the indexation of tax instalment amounts for the 2020–21 financial year in response to COVID-19.
It is estimated that the change will affect instalments payable to the ATO for an estimated 2.2 million taxpayers paying PAYG income tax instalments, and around 81,000 taxpayers paying goods and services tax GST instalments in 2020–21.