What Is an Instalment Activity Statement? A Guide for Australian Taxpayers 

The Instalment Activity Statement (IAS) is an essential tax form for both businesses and individuals in Australia who don’t need to lodge a full Business Activity Statement (BAS) for a particular period but still have PAYG Withholding or PAYG Instalments to report. 

But there’s more to IAS and in this guide we take you through its purpose, types, and the process of lodging it, helping you properly fulfil your tax obligations. We will explore the nuances of IAS, who needs to lodge it, what can be claimed, and common challenges faced during the process, providing clear solutions and guidance.

What is an Instalment Activity Statement?

An Instalment Activity Statement (IAS) is a form used by the Australian Taxation Office (ATO) for taxpayers who need to report and pay tax instalments but do not require a full business activity statement (BAS). The ATO uses IAS to collect tax more frequently than in just an annual tax return or quarterly BAS.

The IAS is primarily used for reporting PAYG withholding on salaries, but some taxpayers will also report Pay As You Go (PAYG) instalments and other tax obligations. The ATO will contact you and your tax agent if you need to file an IAS, which will depend on whetheryou have business or investment income above a certain threshold or if you had to pay a significant amount of tax in your previous tax return. 

The IAS helps spread tax payments throughout the year, so you don’t have to worry about a large tax bill when you lodge your annual tax return. 

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What are the different types of Instalment Activity Statements?

There are several types of IAS tax forms, each tailored to specific tax obligations. You’ll need to fill out the correct form depending on your taxpayer obligations. Here is a summary table of various IAS tax forms. 

PAYG Income Tax Instalment Obligation (NAT 4192)

This form is for people who need to pay their income tax in advance, bit by bit, throughout the year (referred to as pay-as-you-go payments). It’s often used by business partners or individuals who earn money outside of regular employment. You use this form to tell the tax office how much you expect to earn and pay a portion of your tax every three months.

PAYG Tax Withheld Obligation (NAT 4193)

This form is for employers or businesses who take tax out of their workers’ pay. It’s a way to report to the tax office how much tax you’ve kept back from your employees’ wages. You might need to do this every month, every three months, or once a year, depending on your situation.

PAYG Income Tax Instalment, PAYG Tax Withheld, and FBT Obligations (NAT 4197)

This is an all-in-one form for people or businesses who have multiple tax responsibilities. It covers paying your own tax in advance, reporting tax you’ve kept from employees’ pay, and any extra tax on benefits (fringe benefits)you give to employees (like a company car). It’s a way to handle all these different tax duties in one go.

Annual PAYG Income Tax Instalment (NAT 4648)

This form is for people who prefer to – and who are eligible to – handle their taxes once a year instead of every three months. You use it to report how much you expect to earn for the whole year and pay your estimated tax in one lump sum. It’s useful if your income is hard to predict or you’d rather deal with tax annually.

What is included in an Instalment Activity Statement?

An IAS typically includes sections for reporting PAYG instalments, PAYG withholding, and other specific tax obligations like FBT instalments. The form allows you to report the instalment income, elect the amount or rate, and vary the amount if necessary.

Here is what you can expect to fill in on an IAS tax form: 

• PAYG instalments: This is like a prepayment of your income tax based on your expected earnings.
• PAYG withholding: If you’re an employer, this is where you report the tax you’ve kept from your employees’ wages.
• Fringe Benefits Tax (FBT) instalments: This covers tax on extra benefits you might provide to employees, like a company car.
• Instalment income: You report how much you’ve earned during the period covered by the statement.
• Payment options: You can choose how much to pay or what rate to use to calculate your payment.
• Adjustment section: If your circumstances have changed, you can request to adjust your instalment amount here.

For most taxpayers, the IAS is typically filled out every three months. It’s like a regular check-in with the tax office to make sure you’re on track with your tax obligations throughout the year rather than facing a big bill at the end.

Who needs to lodge an Instalment Activity Statement?

You’ll need to lodge an IAS if you use PAYG instalments to pay taxes or are asked to do so by the ATO. Here are some of the reasons you might need to lodge an IAS. 

1. Businesses or individuals not registered for GST but dealing with:

• PAYG Instalments
• PAYG Withholding
• Fringe Benefit Tax (FBT) Instalments

2. Entities that prepare quarterly BAS but are required to remit their PAYG withholding tax monthly because they are medium withholders (between $25K and $1M in PAYG withholding per year) 
3. Trustees who may need to fill out both BAS and IAS forms

Here are some examples. 

• A small consulting business not registered for GST but required to pay PAYG instalments on their business income would need to lodge a quarterly IAS.
• A medium-sized company that reports GST quarterly through BAS but withholds more than $25,000 annually in employee taxes would need to lodge monthly IAS forms for PAYG withholding.

The ATO typically notifies taxpayers if they are required to lodge an IAS. If you’re unsure about your obligations, it’s best to consult with a tax professional or contact the ATO directly.

What is the IAS lodging process? 

The IAS can be lodged online via the ATO portal, through a tax agent, or by paper. You must report the necessary figures, ensuring accuracy and meeting deadlines to avoid penalties. 

To properly lodge your IAS tax forms and avoid common pitfalls, follow these simple steps: 

1. Gather your financial records for the reporting period, including payroll information and any other relevant tax data.
2. Log in to the ATO’s online portal through your myGov account or use the ATO’s Business Portal if you’re a business owner.
3. Select the option to lodge an activity statement.
4. Choose the correct reporting period for your IAS.
5. Fill in the required information, which typically includes:
   • PAYG withholding amounts (if applicable)
   • PAYG instalment amounts
   • Any other tax obligations like Fringe Benefits Tax instalments
6. Review all the information you’ve entered to ensure it’s accurate.
7. Submit the completed IAS through the online portal.
8. Pay any amount owing by the due date, which is usually shown on the IAS.
9. Keep a copy of the lodged IAS for your records.

If you’re unsure about any part of the process, it’s a good idea to consult with a tax professional or contact the ATO directly for guidance. Remember, even if you have nothing to report for the period, you still need to lodge a “nil” IAS by the due date.

What can and cannot be reported on an IAS

Understanding what an IAS form is used for can be confusing. Typically, you report the following details on the form: 

• PAYG withholding amounts (if applicable)
• PAYG instalment amounts
• Fringe Benefits Tax instalments

You should not use the IAS for the following reporting items: 

• GST payments: If you are registered for GST and need to report it, you should use a BAS instead 
• Tax deductions: The IAS is primarily for reporting and paying PAYG Withholding PAYG instalments, not for claiming business expenses. 

Make sure you correctly understand the IAS reporting periods, what should and should not be reported, and how to vary instalments if necessary. To avoid misconceptions and errors, it’s always best to consult with a tax professional or refer directly to the ATO guidelines when completing an IAS form.

Common challenges and solutions when lodging IAS

Here are some common issues you might run into when lodging an IAS and how to prevent errors. 

Misunderstanding the amounts to report

Challenge: One of the most common challenges is misunderstanding the amounts that need to be reported on the IAS. This can occur when you have complex tax obligations or a variety of income sources. Misreporting can lead to discrepancies and potential penalties.

Solution: Review ATO guidelines in detail and use the resources they provide. Make sure you clearly understand what can and can’t be reported before filing. If in doubt, consult a tax agent or accountant. 

Calculating instalments incorrectly

Challenge: Incorrectly calculating instalments is another frequent issue. This can happen due to errors in estimating income, applying incorrect rates, or misunderstanding the calculation method. 

Solution: Use accounting software or get in touch with a tax expert to significantly reduce errors in calculations. 

Missing lodgement deadlines

Challenge: Missing lodgement deadlines is a common problem that can lead to penalties and interest charges. This can occur if you are not well organised, unaware of deadlines, or due to unexpected delays in gathering the necessary documentation.

Solution: To avoid missing deadlines, set reminders well in advance of the due dates. Organising documents and information ahead of time can prevent last-minute rushes and ensure timely lodgement. You should also keep a calendar with all relevant tax deadlines, which can also help maintain awareness and prioritise tasks accordingly.

Dealing with penalties

Challenge: If you lodge late or incorrectly, you might incur penalties, resulting in financial strain and stress.  

Solution: In the event of penalties, contact the ATO promptly to discuss the situation. The ATO may offer waivers or payment plans depending on the circumstances. Additionally, maintain open communication with the ATO to provide insights into how to avoid similar issues in the future.

FAQ

What is the difference between an instalment activity statement and BAS?

The IAS is for those who do not need to lodge a full BAS but still have tax instalments to report, focusing mainly on PAYG obligations.

Do I need to lodge an IAS if I have no instalments to report?

If you have no instalments to report and have not been notified by the ATO, you may not need to lodge an IAS. However, if you have been notified by the ATO and have no instalments to report, you will need to lodge a nil IAS tax form. In either case, it’s best to confirm with the ATO. 

What penalties apply for late lodgement of IAS?

Late lodgement of an IAS can result in penalties, which may vary based on the delay and the taxpayer’s history. Contact the ATO for specifics.

Final Thoughts

Understanding and correctly lodging an IAS is crucial for managing tax obligations in Australia. This article has offered guidance on IAS tax forms, who should lodge an IAS, and how to do it. It also provides practical tips to avoid common mistakes when dealing with IAS. 

By following the guidelines and solutions provided, taxpayers can ensure tax compliance and avoid unnecessary penalties. Reach out to Lawpath for more advice tailored to your unique tax situation.