This post comes as we hopefully enjoy some time off and lots of chocolate over the Easter weekend. Hubby is away and I am not sure where he has hidden my Easter egg, but I am sure he has put it somewhere and not forgotten!
But for some, unfortunately this time of year is not all beer and skittles. It is also the time for what can appear to be a never ending stream of payments to our friends at the ATO.
So what is going on?
Well there are two things happening at this time of year that can catch you by surprise. The first is that the balance of any tax due for the 2015 year is normally due to be paid about now. The exact amount and due date will be on your notice of assessment (NoA) and we send calendar reminders with the NoA to help you remember to pay.
Secondly, the ATO may adjust your quarterly instalments for the 2015/16 year based on estimates derived from your recently lodged 2015 return. This is standard practice for the ATO, but the method used to calculate the instalment can catch you by surprise.
To explain further let’s use an example.
The ATO have estimated that Fred needs to pay a total of $100k in instalments for the 2015/16 year. They believe this will cover his 2016 tax liability, assuming Fred’s financial position is similar to the prior year.
Fred has already paid two instalments of $10k each and is waiting in anticipation for his Q3 March instalment notice to appear in his mygov inbox. Fred loves the way the new mygov system requires the use of email, sms codes and a web browser to access a single piece of paper. It can take him all day!
However, Fred’s enjoyment is quickly wiped out when he sees how much he owes. The ATO want $55k for the March instalment – how can this be!
Well the ATO want 3/4 of the annual amount due by the third instalment. So in this case they want $75k by quarter three. As Fred has only paid $10k x 2 to date, the top up required to bring the cumulative total to $75k is a huge $55k. Which unfortunately falls due at about the same time as his balance of 2015 tax.
Sobbing quietly, Fred resorts to eating vast amounts of chocolate!
Fred’s future instalments will drop down to 1/4 of the total due ie $25k, but that doesn’t make April any easier.
Nobody likes surprise bills, so to assist, we provide timelines which detail when and how much tax will need to be paid over the year. These can be used to manage cashflows, can be hung on the fridge as a constant reminder of your upcoming payments, or can be used for dart practice. Whichever is more useful to you and makes you feel good.
So hopefully having digested this you now have a better understanding of the system, and will be prepared, and may I suggest seated, when you open your Q3 instalment notice.
Have a great Easter