PAYG Instalments: How to Vary Before EOFY 2025-26 If Your Income Dropped (ATO)

General information only. This is not tax or financial advice. Consult a licensed financial adviser or registered tax agent for advice specific to your situation.

If the ATO has you paying PAYG Instalments based on last year’s income and this year is shaping up materially smaller — business slowed, a rental went vacant, a big investment gain didn’t repeat — you don’t have to keep sending the ATO money you’ll get back in a refund 12 months later. The ATO lets you vary your PAYG Instalments mid-year, bringing the quarterly amount down (or up) to match what you now expect to owe.

Done correctly, variation protects your cashflow through EOFY without triggering penalties. Done carelessly — under-estimating by more than the ATO’s tolerance — it triggers General Interest Charge (GIC) back to the first quarter you under-paid. This article walks through who can vary, when to do it, the exact process, and the GIC math if you get the estimate wrong.

What PAYG Instalments Are (Quick Refresher)

Once your business or investment income generates more than ~$4,000 in tax, the ATO puts you into the PAYG Instalments (PAYGI) system. You prepay your expected annual tax in quarterly instalments through Activity Statements (BAS or IAS), usually based on:

• Instalment rate method — a % of your gross business/investment income each quarter (the ATO sets the rate from your last assessed return); or
• Instalment amount method — a fixed dollar amount each quarter (the ATO sets the amount from your last assessed return).

For 2025-26, the instalments are due:

Quarter	Period	Due date
Q1	Jul–Sep 2025	28 Oct 2025
Q2	Oct–Dec 2025	28 Feb 2026
Q3	Jan–Mar 2026	28 Apr 2026
Q4	Apr–Jun 2026	28 Jul 2026

(Two-month extensions apply if you lodge via a registered tax agent.)

The key point: these instalments are based on last year’s income. If this year’s income is materially different, you either over-pay (and wait for the refund after lodging) or under-pay (and owe a top-up on assessment). Variation lets you close that gap in real time.

Who Should Consider Varying in 2025-26

Vary down if any of these apply:

• Business revenue materially lower than 2024-25 (contract lost, client churn, trading conditions softer).
• One-off capital gain in 2024-25 that inflated last year’s base but isn’t repeating.
• Rental property vacant for an extended period, or negative gearing has deepened.
• Sold a significant asset that was generating the taxable income.
• Retirement or scaling down — you’ve started winding the business back.
• Ceased trading entirely (file a return-to-zero variation).

Vary up if you’re having a bumper year — a large capital gain, a surge in business profit, or a new high-income role. The ATO won’t chase you for under-estimating, but a deliberately low estimate combined with a large balancing bill can attract GIC (see below). Erring high protects against next year’s bill hitting all at once.

Don’t vary if:

• The expected change is under ~15%. The ATO’s GIC tolerance covers small under-estimates.
• You’re near EOFY and the next instalment is already based on this year’s actual run-rate.
• You’re planning to use a large deduction (carry-forward super contribution, prepayments) that won’t reduce taxable income below what your current instalments are tracking to.

How to Vary — The Process

You vary on the Activity Statement itself for the next unpaid instalment. The form has specific fields:

• T8 — Estimated tax for the year (your best forecast of 2025-26 total tax liability)
• T9 — Varied instalment amount (the dollar amount you’re paying this quarter)
• T4 — Reason code for variation (see the ATO’s reason code list — e.g. code 21 “Change in investments”, 22 “Current business structure not producing a profit or a smaller profit than last year”, 23 “Significant change in trading conditions”)

Critical: you cannot vary retrospectively. If the Q3 instalment due 28 April 2026 has already been paid without variation, that quarter stays. You can only vary Q4 (due 28 July 2026).

For EOFY 2025-26 cashflow planning, that means:

• Vary by 28 April 2026 to catch Q3 (the current quarter as of this article).
• Vary by 28 July 2026 to catch Q4.
• Waiting until you lodge the 2025-26 return just gets you a normal refund — it doesn’t help cashflow today.

You can lodge the variation online via ATO Online for individuals, your business portal, or through your registered tax agent. BAS agents cannot lodge variations on your behalf unless they’re also a registered tax agent.

The GIC Trap — What Happens If You Under-Estimate

The ATO only starts charging General Interest Charge (GIC) if your varied instalments total less than 85% of the actual tax you end up owing for the year. The 85% test is applied annually, after your return is lodged — so a variation that turns out to be too low doesn’t trigger an immediate charge, but does retroactively apply GIC from each instalment due date.

The GIC rate is set quarterly. For Q2 2026 (1 Apr – 30 Jun 2026) it’s 10.78% p.a. compounding daily. GIC is no longer deductible from 1 July 2025 — so the real after-tax cost is higher than the headline rate.

Simple example: Priya varied her Q3 and Q4 instalments down to $4,000 each (total varied instalments $12,000 for the year when Q1/Q2 already paid $8,000). Her 2025-26 return is lodged and the actual tax bill is $24,000. Her total instalments ($20,000) are only 83.3% of the $24,000 actual — under the 85% safe harbour.

GIC applies to the shortfall in each quarter’s instalment, compounding from each original due date to when the balance is paid. On a ~$4,000 total shortfall spread across quarters, the GIC ends up around $180–$220 — annoying but not catastrophic. Under-estimate by a large margin and it compounds quickly.

The conservative path: when in doubt, over-estimate by 5–10%. You still reduce cashflow pressure from the un-varied base, and you stay inside the 85% safe harbour.

Worked Example — Business Revenue Down 40%

Meet Rohan. Sole trader consultancy. In 2024-25 he earned $180,000 net and paid $49,000 in tax. The ATO put him on PAYG Instalments of $12,250 per quarter for 2025-26 (his 2024-25 tax divided by 4).

He paid Q1 (Oct 2025) and Q2 (Feb 2026) as normal — $24,500 already sent to the ATO.

Then in February 2026 his largest client paused the engagement. 2025-26 is now tracking to $105,000 net income, estimated annual tax around $23,000. Without variation he’d send another $24,500 in Q3+Q4, total $49,000 paid for a $23,000 bill — a $26,000 refund sitting with the ATO until after lodgement in late 2026.

He varies at Q3:

• T8 estimated tax for the year: $23,000
• Remaining for Q3+Q4: $23,000 – $24,500 already paid = –$1,500 (nil balance; no further instalments)
• T9 varied Q3 amount: $0 (nil return)
• T4 reason code: 23 (significant change in trading conditions)

He also claims back the over-paid portion from Q1+Q2 ($24,500 – $23,000 = $1,500) through the variation process, which issues a refund against the Activity Statement account.

Cashflow result: Rohan keeps $25,000 in working capital through H2 2025-26 instead of waiting for the 2026 tax return. If his estimate turns out conservative and he ends up owing $27,000, the GIC on the ~$4,000 shortfall is modest — a small price for keeping the money liquid during a business downturn.

Model your own expected tax with the sole trader tax calculator or the PAYG calculator, then work the variation off that estimate.

Five Variation Pitfalls

Pitfall 1 — Varying Q4 without factoring in CGT on year-end asset sales. If you sold shares or crypto in April or May, that gain hits the 2025-26 return. Vary down at Q4 before you confirm what CGT is actually coming and you can blow the 85% test.

Pitfall 2 — Mixing PAYGI variation with PAYG Withholding variation. These are separate systems. Employees vary withholding via a PAYG Withholding Variation (NAT 2036). Sole traders / investors vary PAYG Instalments via the Activity Statement. Don’t confuse the forms.

Pitfall 3 — Forgetting capital gains are included in PAYGI base. Last year’s instalment amount was based on 2024-25 total tax, which included any capital gains. If this year has no CGT event, your current PAYGI is probably too high.

Pitfall 4 — Varying to zero and then forgetting to re-vary if business recovers. The variation applies to all remaining instalments for the year. If your Q3 variation zeroed the amount but business came back in April, you still need to accurately estimate at Q4.

Pitfall 5 — Not varying when you should because “the refund isn’t worth the effort”. Over-paying by $20k all year is an interest-free loan to the ATO. On a 5% savings account that’s $500+ in forgone interest. Variation takes 15 minutes.

Frequently asked questions

Q: Can I vary after I’ve already paid the instalment? No. Variations apply from the next unpaid instalment forward. A paid instalment is locked in for cashflow purposes — you recover any overpayment through the annual tax return refund.

Q: Do I lose the variation if my estimate turns out wrong? No. The variation stands. If your actual bill ends up higher than 85% of your varied instalments, GIC applies to the shortfall from each instalment due date.

Q: Does varying to $0 exit me from the PAYGI system? No. You stay registered. If next year’s lodged return shows income above the threshold again, instalments resume automatically from the first quarter after that return.

Q: Can my accountant vary on my behalf? Only a registered tax agent (not a BAS agent alone) can lodge PAYGI variations on your behalf. Confirm your agent’s registration type before assuming they can.

Q: What if I’m on the instalment rate method, not the amount method? You can vary the rate instead of the amount. The ATO publishes a default rate; you can substitute your own lower (or higher) rate at T3. Same 85% safe harbour applies.

Sources

• ATO — How to vary your PAYG instalments
• ATO — General interest charge (GIC) rates
• ATO — PAYG instalments reason codes for variation
• Tax Administration Act 1953, Schedule 1, Division 45 (Pay as you go instalments)

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Work out whether to vary before your next Activity Statement

Estimate your 2025-26 tax using the sole trader tax calculator or the PAYG calculator, compare against what the ATO has already billed you in instalments, and vary if the gap is over ~15%. The GIC 85% safe harbour protects conservative estimates. Over-paying all year doesn’t.