Question

act12.2
A PAYG instalment payer can vary the PAYG instalments if they believe that their circumstances have changed and that they might be paying too little or too much. Consider the following scenario, the rates are examples only and do not reflect current tax rates. The ATO has calculated the businesses rate to be 18.75% based on an income from the previous assessable period of $90,000. The instalment income for the first quarter (1 July to 30 September) was $21,000 and the second quarter (1 October to 31 December) was $15,000. The business has paid PAYG for the first two quarters of the year based on this rate but sales have dropped dramatically and expected income for the year is anticipated to be around $60,000. They have calculated their estimated income tax to be $8,900.
a. Calculate the new instalment rate based on these figures
b. Calculate how much the business paid in the first two instalments
c. Calculate the variation credit that can be claimed and explain why it can be claimed. Show the calculations

Answer 1

Hello, hope this answer helps you.

Following is the calculation based on which the answers are given:

Step 1	$90,000 (instalment income for earlier instalment quarters)	$90,000
Step 2	18.75 % rate
Step 3	$90,000 * 18.75% / 2	$8,437.5
Step 4	$36,000 ($21,000+ $15,000) (instalment income for earlier instalment quarters)
Step 5	$36,000 * 14.83 %	$5,339.99
Step 6	$8,437.5 (Step 3) - $5,339.99 (Step 5) (Variation Credit)	$3,097.51

1. Here, Instalment Rate = 8900/ 60000 * 100 = 14.83% (Estimated Income Tax/ Estimated Income) *100.
2. The business paid $ $8,437.5 in in the first two instalments. ($90,000 * 18.75% / 2)
3. The variation credit as calculated above is $3,097.51

Here, it is important to note that the entity may be entitled to a credit from earlier instalments for the same income year if a varied instalment rate was used and the varied instalment rate is less than the advised instalment rate.

A variation credit will occur only when those earlier instalments were worked out using a higher instalment rate. This credit is offset against the other liabilities on the activity statement (that is, it will be included in the net amount payable or refundable on the activity statement).