PAYG instalments are the ATO's way of collecting this year's income tax as you go, based on what happened last year. Which is fine, until this year stops looking like last year.
When varying makes sense
- Profit is falling. If you have lost a big client or margins have compressed, paying instalments sized for last year's profit starves your cash flow for no reason. You can vary the instalment down on your activity statement.
- Profit is jumping. Varying upward is allowed too, and it is a favour to future you. Paying more as you go beats a nasty catch up bill plus a bigger instalment schedule next year.
How to do it
You vary on the activity statement or instalment notice itself, before the payment due date, either through your software, online services or your agent. The ATO's PAYG instalments calculator will sanity check the number. Your estimate flows through the rest of the year's instalments, so it is worth ten minutes of care.
The honesty clause
The one rule: do not lowball it. If you vary down and your actual tax lands more than a margin above your estimate, the ATO can charge interest on the shortfall. Vary because the business genuinely changed, keep a one page working of how you got the number, and revisit it each quarter.
Right now, with 2025-26 returns being prepared, is exactly when to have this conversation. Your first 2026-27 instalment will be based on the old year unless you act.