The ATO is also expected to gain the power to require certain taxpayers to pay monthly if they have a history of failing to meet their tax obligations.
Announced in the 2026–27 Federal Budget, these changes are currently the subject of draft legislation and are not yet law. However, they could affect how businesses manage their cash flow, so it is worth considering the potential impact ahead of time.
What is changing?
PAYG instalments are regular payments towards your expected annual income tax liability. They help spread the cost of tax throughout the year rather than leaving you with a larger bill when your tax return is assessed.
Currently, most taxpayers in the PAYG instalment system pay quarterly, while certain larger taxpayers must pay monthly. Under the proposed changes:
- Monthly payments would become an option: Most taxpayers already paying PAYG instalments could elect to report and pay monthly from 1 July 2027.
- The ATO could require monthly payments: Taxpayers with a demonstrated history of failing to meet their tax obligations could be forced to pay monthly.
- Instalments could better reflect current performance: The changes form part of broader reforms intended to make PAYG instalments more responsive to current business performance, including through accounting software.
Monthly instalments would generally be due by the 21st of the following month, subject to the final rules.
The cash-flow implications
For many businesses, the main consideration will be whether monthly payments make managing cash flow easier or more difficult.
Potential benefits of monthly payments
Smaller, more frequent payments may be easier to budget for than larger quarterly amounts. This can be particularly helpful for businesses with steady monthly income, regular bookkeeping and established monthly reporting processes.
More frequent payments may also help businesses monitor their tax position throughout the year. If instalments better reflect current earnings, there may be less risk of paying too much or too little during the year, although the final outcome will depend on how the rules operate and the taxpayer's circumstances.
Potential drawbacks
Monthly payments mean money leaves the business more frequently. This could reduce flexibility for businesses with seasonal income, irregular customer payments or tight working capital. Monthly reporting may also create additional administrative work, although accounting software could help automate parts of the process.
Quarterly payments may remain preferable for businesses that rely on retaining cash between payment dates. The right approach will depend on your income patterns, cash reserves and existing accounting processes.
Who should pay attention?
Businesses and individuals with a history of late lodgments, overdue tax debts or repeated failures to meet their tax obligations should pay particular attention. If the proposed rules become law, the ATO could require affected taxpayers to move to monthly instalments, potentially adding pressure to their cash flow.
However, the changes are also relevant to taxpayers with a good compliance record. Moving voluntarily to monthly payments may help some businesses plan ahead, while others may be better off retaining their existing arrangements.
What should you do now?
Although the legislation is not final, there are practical steps you can take now:
- Review your cash flow: Consider whether monthly payments would fit your income and expenses better than quarterly payments.
- Check your accounting processes: Assess whether your bookkeeping and banking arrangements can accommodate more frequent payments.
- Review your current instalments: Compare your instalments with your expected annual tax liability, we would be happy to discuss any significant differences with you.
- Address compliance issues early: If you have outstanding tax debts or a history of missed deadlines, seek advice about managing your obligations and reducing the risk of further difficulties.
The key point is that monthly payments would change the timing of your tax payments, rather than change your underlying tax liability. Planning ahead can help you avoid unexpected cash-flow pressure and choose an approach that suits your business.
We will provide further updates as the rules are finalised. In the meantime, contact us if you would like to review your current PAYG instalments or assess how monthly payments could affect your cash flow.
