You lodged your 2025-26 return, the assessment came back, you paid what it said. Then a letter arrived telling you that you are now in the pay as you go instalments system and the first payment is due 28 October 2026.
Nothing has gone wrong. This is the automatic consequence of having reported business or investment income above a threshold. What changed this week is the price of getting the amount wrong. On 4 September 2026 the ATO published the general interest charge rate for the October to December quarter at 11.51% a year, the highest quarterly rate since January to March 2012.
Why you were put into the system
The ATO enters you automatically based on your most recent return. The test is mechanical, and for individuals all three conditions have to be met.
| Who you are | Automatic entry when |
|---|---|
| Individual, including sole trader, or a trust | All three: instalment income of $4,000 or more on your latest return, tax payable of $1,000 or more on your latest notice of assessment, and estimated (notional) tax of $500 or more. |
| Company or super fund | Any one of: instalment income of $2 million or more, estimated (notional) tax of $500 or more, or being the head company of a consolidated group. |
Instalment income is your gross business and investment income, excluding GST and excluding capital gains. That last exclusion catches people out in the other direction: a one-off capital gain does not by itself put you into the system, but the tax payable it created does count toward the $1,000 test.
Source: ATO, Starting PAYG instalments. Page last updated 17 December 2024. Retrieved 5 September 2026.
The practical read of that table: a salaried employee who picked up $5,000 of dividends and franking credits, or a first-year sole trader who did better than expected, can land in quarterly instalments without ever having run a business bank account. Businesses with instalment income above $20 million pay monthly rather than quarterly.
What is actually due on 28 October 2026
Quarterly instalment due dates are 28 days after the quarter ends. Wednesday 28 October 2026 covers the July to September quarter, which is the first quarter of the 2026-27 year.
| Quarter | Period | Due date |
|---|---|---|
| 1 | July to September | 28 October |
| 2 | October to December | 28 February |
| 3 | January to March | 28 April |
| 4 | April to June | 28 July |
Source: ATO, When are PAYG instalments due. Page last updated 3 March 2026. Retrieved 5 September 2026.
Check whether you have an activity statement or an instalment notice
These are two different documents and they carry different instructions.
If you receive an activity statement and lodge it online, the ATO says you may be eligible to lodge and pay two weeks later than the usual due date. For the September quarter that would be Wednesday 11 November 2026. If you pay GST monthly, the two week concession does not apply to you and your due date is the 21st of the month.
If you receive an instalment notice and you intend to pay the amount printed on it, the ATO’s instruction is that you do not need to lodge anything. You pay the amount by the due date shown on the notice. The two week electronic concession is described against activity statements, not instalment notices, so do not assume a notice buys you until November. Look at which document you have before you plan the cash.
Source: ATO, When are PAYG instalments due. Retrieved 5 September 2026.
The 11.51% that landed this week
General interest charge applies where an amount remains unpaid after it should have been paid, and the ATO lists an underestimated instalment of tax as one of the triggers. It is calculated daily and compounds.
| Quarter | GIC annual rate | Daily rate |
|---|---|---|
| October to December 2026 | 11.51% | 0.03153425% |
| July to September 2026 | 11.43% | 0.03131507% |
| April to June 2026 | 10.96% | 0.03002740% |
| January to March 2026 | 10.65% | 0.02917808% |
| October to December 2025 | 10.61% | 0.02906849% |
Source: ATO, General interest charge (GIC) rates. Page last updated 4 September 2026. Retrieved 5 September 2026.
That is four consecutive quarterly increases. The last time the rate was at or above 11.51% was the January to March 2012 quarter, at 11.62%.
The part that changes what 11.51% means
General interest charge incurred on or after 1 July 2025 cannot be claimed as a deduction. GIC incurred before that date remains deductible in the year it was incurred.
Source: ATO, General interest charge. Page last updated 10 June 2026. Retrieved 5 September 2026.
Comparing 11.51% to a business overdraft rate is no longer a like-for-like comparison, because interest on the overdraft is generally deductible and this is not. To compare them you have to gross the ATO rate up by your marginal rate.
| Your marginal rate, including 2% Medicare levy | A deductible loan would have to charge this much to cost you the same after tax |
|---|---|
| 47% (taxable income above $190,000) | 21.7% |
| 39% (taxable income $135,001 to $190,000) | 18.9% |
| 32% (taxable income $45,001 to $135,000) | 16.9% |
| 30% company tax rate | 16.4% |
These four figures are our calculation, not ATO figures. The method is 11.51% divided by (1 minus your marginal rate). Marginal rates are from the ATO’s resident tax rates for 2026-27, which set 45c in the dollar above $190,000, 37c from $135,001, 30c from $45,001, and a 2% Medicare levy on top of all of them. The company figure uses the 30% rate and ignores franking effects. Your own position will differ.
Read that table as the answer to one question: if the choice is between paying the ATO on time and borrowing elsewhere to do it, what does the alternative have to cost before the ATO becomes the cheaper option. For most people the answer is now a number they will not see from a bank.
Varying the instalment, and the 85% line
You are allowed to vary your instalment if the amount the ATO calculated no longer reflects your year. The ATO works the amount out from your last return, so a business that has slowed down, a property that sold, or a contract that ended can all leave you prepaying tax on income you will not earn.
Two rules govern the timing. The variation has to be lodged on or before the day the instalment is due, and before you lodge that year’s tax return. Once you vary, the new amount or rate applies to the remaining instalments for the year until you vary again.
The limit is the one worth writing down. When your return is assessed, the ATO compares your actual instalments against the total tax payable on your instalment income for the year. If your varied instalments come to less than 85% of that figure, general interest charge can apply to the difference, on top of paying the shortfall, and penalties can apply depending on the circumstances.
Source: ATO, How to vary your PAYG instalments. Page last updated 23 June 2026. Retrieved 5 September 2026.
At 10.61% and deductible, an aggressive variation was a manageable mistake. At 11.51%, compounding daily, with no deduction, the same mistake costs materially more. The ATO’s own guidance on this is unusually direct: if you are not sure, do not vary, because overpaid instalments are refunded to you after you lodge.
The ATO also notes that where a variation is needed because of floods or other disasters, it will not apply penalties or interest if you took reasonable care to estimate your end of year liability.
Getting out of the system
Entry is automatic and so is exit, but exit runs off your next return rather than a phone call. The ATO removes an individual from PAYG instalments where any of the following show up: business and investment income under $4,000 for residents, a tax debt under $1,000 after adjusting for instalments already paid, a calculated instalment rate of 0.0%, estimated notional tax under $500, eligibility for the seniors and pensioners tax offset, or the lodgment of a final return or non-lodgment advice.
Source: ATO, Stopping PAYG instalments. Page last updated 18 December 2024. Retrieved 5 September 2026.
If your circumstances changed mid-year, that means you can be sitting in the system for several more quarters while the return that would release you is still months away. Varying to nil is the mechanism for that period, and the 85% test still applies to it.
What we check before 28 October
For clients in this position the review is short and it is the same five questions every time.
- Which document arrived, an activity statement or an instalment notice, and therefore which due date applies.
- Whether you are on the instalment amount (option 1) or the instalment rate (option 2). If you are on the rate, your payment already moves with your income and a variation is usually only warranted when the taxable proportion of that income has changed.
- What this year’s income actually looks like against the year the ATO used to set the amount.
- If a variation is on the table, what 85% of the likely full-year tax on instalment income is, so the varied figure sits above that line rather than near it.
- Whether anything in the year ahead will trip the exit tests, which changes whether varying is worth the exercise at all.
If you have unlodged returns from earlier years sitting behind all this, that is the more urgent problem, and we wrote about the 31 October consequences of it here. If you registered a company recently and are trying to work out which obligations start when, the first-year compliance calendar is here.
Sources
- ATO, Starting PAYG instalments, last updated 17 December 2024.
- ATO, When are PAYG instalments due, last updated 3 March 2026.
- ATO, How to vary your PAYG instalments, last updated 23 June 2026.
- ATO, Stopping PAYG instalments, last updated 18 December 2024.
- ATO, General interest charge (GIC) rates, last updated 4 September 2026.
- ATO, General interest charge, last updated 10 June 2026.
- ATO, Tax rates for Australian residents, 2026-27 resident rates.
All figures retrieved 5 September 2026. The gross-up table is our calculation and is labelled as such. This article is general information and does not take your circumstances into account.
Wiselink Accountants works with individuals and business owners in Melbourne and Brisbane in English and Chinese. Lily Zhang is a CPA and registered tax agent, and the firm has been advising Australian small businesses since 2013.
