Taxpayers are confused as to why they’re being put into the ATO’s Pay As You Go (PAYG) instalments system without being informed of the change nor properly advised about outstanding debts, a report has found.
The report, prepared by the Inspector-General of Taxation (IGT) Ali Noroozi, observed that taxpayers believed the ATO had incorrectly commenced debt recovery action against them for unpaid PAYG instalments.
“Individual taxpayers were unclear as to why they had been entered into the system, its requirements and exemptions, its interaction with the annual income tax system and the support tools available to them,” Noroozi explained.
But first, let’s backtrack. Why the confusion?
The PAYG arrangements scheme requires periodic reporting and pre-payment of income taxes during the financial year.
Taxpayers who earn business or investment income, such as interest and dividends, which is not subject to withholding at source, are required to periodically pay instalments towards their annual income tax liability if they’re notified to do so by the ATO.
But the IGT review was set up because a lot of people moved onto the PAYG system complained that they were not adequately notified, nor properly informed, about their new requirements.
Extra confusion has stemmed from the fact that the ATO uses two different types of accounts for each taxpayer to administer the PAYG instalments system, Noroozi noted.
One system is used to administer income tax liabilities, while the other maintains tax liabilities such as GST and PAYG instalments.
Information has to be manually reconciled between the two systems, and in some instances this has led to unnecessary and incorrect debt and recovery action.
The IGT’s recommendations
With respect to the PAYG instalments system, the IGT has recommended that the ATO:
– Improve its ‘welcome letter’ to provide taxpayer specific information and include a brochure.
– Provide a comprehensive PAYG instalments guide on the ATO website.
– Improve ATO staff education and support.
– Consider using a single accounting method for administering the income tax regime.
How we can help
If you – or a friend or colleague – is confused with the ATO’s PAYG requirements, rest assured that you’re certainly not alone.
Get in touch and we’ll explain all the details of your requirements to you.
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