On 22 October 2012, the Government announced in its 2012-13 Mid-Year Economic and Fiscal Outlook ("MYEFO") that it proposes to change the timing of Pay As You Go ("PAYG") instalments for large companies. The changes are to be made over a three year period, as follows:
- Companies with turnover of $1 billion or more will be required to pay monthly PAYG instalments from 1 January 2014;
- Companies with a turnover of $100 million or more will have a further one year before they are required to make monthly PAYG instalments from 1 January 2015;
- Companies with a turnover of $20 million or more will commence paying monthly PAYG instalments from 1 January 2016.
Currently, most large companies with an annual turnover of more than $2 million are required to pay GST on a monthly basis while all companies submit their PAYG instalments quarterly. The Government argues that the move to monthly PAYG instalments will help to align PAYG instalments with GST payments, thereby streamlining companies' payment cycles.
The changes bring forward $5.5 billion of revenue to the 2013-14 income year, which the Government desperately needs to produce a follow-up budget surplus. In addition to facing this cash squeeze, companies will be burdened with additional compliance costs associated with monthly PAYG instalment calculations.
There will be approximately 350 companies affected by this new measure from 1 January 2014, approximately 2,500 companies from 1 January 2015 and approximately 10,500 companies from 1 January 2016. This measure will provide total revenue of $8.3 billion over 4 years which is more than half of the total savings of $16.4 billion produced by the MYEFO.
The Government is planning to consult with the business community on the proposed changes in an effort to improve the correlation between the total PAYG instalments paid throughout the year by a company and the company's final tax liability. A consultation paper will be released by early next year to gather thoughts from the affected parties.
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