If you run a business as a sole trader, earn rent from an investment property or have other investment income, PAYG instalments are probably part of your year. They are the quarterly tax prepayments the ATO asks for, and the first one for 2026-27 falls due on 28 October. For anyone planning a car loan, they matter for a simple reason: they are a real outgoing, they arrive in lumps, and the cash you set aside for them is not spare money for a deposit.
This article explains how PAYG instalments work using the ATO's own published rules, then looks at what they mean for your budget, your bank statements and the way a lender may read your application. It is general information, not tax or credit advice.
What PAYG instalments are
The ATO describes pay as you go (PAYG) instalments as regular prepayments of the expected tax on your business and investment income. You pay during the year, usually once every three months, and when you lodge your tax return the instalments you have paid are offset against your tax. The aim is to leave you with little or no tax to pay at the end.
They are different from PAYG withholding. Withholding is the tax an employer takes out of your wages and sends to the ATO. Instalments apply to income nobody withholds tax from, such as business takings, rent, interest and dividends. If you are a wage earner with a side business or a rental property, you can have both at once.
Who has to pay PAYG instalments
The ATO works out whether you enter the system from your latest tax return. According to the ATO's entry rules, an individual (including a sole trader) or a trust is entered automatically when all of these apply:
- instalment income of $4,000 or more on the latest tax return
- tax payable of $1,000 or more on the latest notice of assessment
- estimated (notional) tax of $500 or more
Instalment income is your gross business and investment income, excluding GST and capital gains. It includes items such as gross sales and fees, gross rent, interest and dividends. Salary and wages that already had tax withheld are not included.
You can also enter voluntarily, which the ATO suggests if you are new to business and expect to earn over the threshold. The ATO tells you by letter, through your myGov Inbox if your account is linked, or through Online services for business, and it may send an SMS reminder.
When PAYG instalments are due in 2026-27
Most people pay quarterly. The ATO's due dates for a standard income year are:
- Quarter 1 (July to September): 28 October
- Quarter 2 (October to December): 28 February
- Quarter 3 (January to March): 28 April
- Quarter 4 (April to June): 28 July
If you receive an activity statement and lodge online, the ATO says you may be eligible to lodge and pay two weeks later than those dates. Monthly GST payers have a due date of the 21st of each month instead. Some primary producers and special professionals can pay two instalments a year: 75% of the yearly total by 28 April and the rest by 28 July. Annual payers who use a tax agent pay their annual instalment by 21 October.
Instalment amount or instalment rate
Many payers can choose between two options on their activity statement or instalment notice.
- Option 1, the instalment amount. The ATO calculates a set amount from your most recent tax return and adjusts it for likely income growth using a GDP adjustment. The ATO says the GDP adjustment for the 2026-27 income year is 5%.
- Option 2, the instalment rate. The ATO gives you a percentage. You multiply your instalment income for the quarter by that rate, so the payment rises and falls with your income. The ATO says this option suits people whose income changes a lot.
You choose your option on the first activity statement of the income year and keep it for the rest of that year. The ATO's calculation page notes that neither option changes the total income tax you pay for the year. Any excess is refunded after you lodge your return, and you pay any shortfall.
For a borrower, the difference matters. Option 1 gives you a fixed figure to budget around. Option 2 gives you a payment that tracks your income, which can be gentler in a slow quarter but harder to predict.
What a PAYG instalment looks like in a weekly budget
The ATO publishes a worked example. A sole trader estimates business income of $100,000 with $10,000 of deductions. The ATO's calculator estimates her PAYG instalments at $20,437 for the year, and she puts aside $393.02 a week so the money is there when each quarterly statement arrives. Spread monthly, the same total is about $1,703.
The ATO's second example is an investor with $55,000 of rent and $5,500 of deductions. The calculator estimates $7,544 of tax for the year, which he divides into quarterly instalments of $1,886.
Those figures are the ATO's examples, not a guide to your own tax. They do show the scale of the commitment. A weekly set aside of a few hundred dollars competes with the same pay that has to cover a car loan repayment, insurance, fuel and living costs. If you have not built it into your budget, a car loan repayment calculator result can look more affordable than it really is. Serviceability, the test of whether you can afford the repayments, depends on what is left after your commitments, and for a self employed borrower tax is one of the largest of them.
How PAYG instalments can show up in a car loan application
Self employed applicants and investors are often asked for more evidence than wage earners, typically tax returns, notices of assessment and bank statements. Our guide to what lenders check on your bank statements covers the general approach. A few points are specific to instalments:
- Regular ATO payments are visible. A payment to the ATO each quarter is a normal sign of a business keeping on top of its tax. Large unexplained gaps, or a quarter that was not paid, may prompt questions.
- Your expenses should include tax. When you list your outgoings, set aside the cash for tax rather than treating gross takings as spendable income. Our article on household expenses and loan applications explains why understated costs cause trouble later.
- Unpaid instalments are a tax debt. If an instalment is not paid, it becomes an amount owing to the ATO. Lenders commonly ask about tax debts, and our guide to ATO tax debt and your car loan explains how payment plans and interest may affect an application.
- Your last lodged return still sets the income figure. Instalments are prepayments, not proof of income. Many lenders start from your most recently lodged return and notice of assessment, which is why the 31 October tax return deadline can matter if you are applying soon.
Do not raid the tax money for a car deposit
The most common budgeting mistake is easy to make. Money builds up in the business account between quarters, and it can look like savings. If part of it belongs to the 28 October instalment, spending it on a car deposit leaves you short when the statement arrives.
The same caution applies to cutting instalments to free up cash. The ATO lets you vary your instalments if you expect them to add up to more or less than your tax for the year. Its variation guidance warns against underestimating: if your varied instalments are less than 85% of your total tax payable, you may have to pay the general interest charge on the difference as well as the shortfall, and penalties may apply depending on the circumstances. The ATO's own advice is that if you are not sure, it is best not to vary.
A variation can be appropriate when your income has genuinely changed, and a registered tax agent is the right person to help you decide. It is not a way to fund a purchase. If the deposit only exists because the tax has not been paid yet, it is not really a deposit. Our guide on how much deposit you need for a car loan covers the alternatives.
Practical steps before you apply for a car loan
- Know your next instalment. Check the amount and due date on your activity statement or instalment notice before you commit to a purchase date.
- Keep a separate tax account. Moving the weekly set aside into its own account makes your spendable money clear to you and easier to read on a statement.
- Lodge on time. Keep activity statements and returns up to date so the figures a lender sees are current.
- Budget the repayment after tax. Work out what is left once instalments, GST (if registered) and living costs are covered, then size the loan to that.
- Declare tax obligations honestly. Include any ATO payment plan or amount owing on your application.
- Pick the right finance structure. If the vehicle is mainly for business use, compare options such as business equipment finance and read our guide to chattel mortgages. If your financials are not lodged yet, low doc ABN car loans explains how some lenders use other evidence, usually at a higher cost.
The bottom line on PAYG instalments and borrowing
PAYG instalments do not change the tax you owe. They change when you pay it. For a borrower, that timing is the point: four lumps a year that need cash on hand, alongside any car loan repayment. Treat the set aside as committed money, keep your lodgments current and your application will show a business managing its tax in an orderly way.
If you drive for a platform such as Uber, our rideshare driver car loan guide covers the ATO tax rules that matter for your application. When you are ready to compare, you can explore car loans or browse our lender profiles. Approval and rates depend on the lender's assessment of your circumstances.
