If you employ staff in Australia but are not registered for GST, you have probably received an Instalment Activity Statement from the ATO without fully understanding what it is, why you received it, or what happens if you ignore it. You are not alone. The IAS is one of the most misunderstood compliance forms in Australian tax, partly because it overlaps with the far more talked about Business Activity Statement (BAS) and partly because the ATO does not do a great job of explaining the distinction.
This guide explains exactly what an IAS is, who needs to lodge one, how it works, what it reports, and how to stay on top of your obligations without getting caught by penalties.
An Instalment Activity Statement is a form issued by the Australian Taxation Office that businesses and individuals use to report and pay certain tax obligations. Specifically, it covers Pay As You Go (PAYG) withholding, PAYG instalments, and in some cases, Fringe Benefits Tax (FBT) instalments.
The IAS exists for entities that have tax reporting obligations but are not registered for GST. If you are registered for GST, you report everything through a BAS instead. Think of the IAS as the reporting form for businesses that do not meet the GST registration threshold ($75,000 annual turnover for most businesses, $150,000 for non-profits) or have chosen not to register voluntarily, but still have employees or income tax instalment obligations.
The ATO sends IAS forms to you based on your registration details. You do not need to request them.
You are required to lodge an IAS if you meet any of the following criteria and are not registered for GST.
You withhold tax from payments to employees. If you have even one employee and are withholding PAYG from their wages, you need to report that withholding to the ATO. For businesses not registered for GST, the IAS is the vehicle for this.
You have PAYG instalment obligations. The ATO may require you to make quarterly income tax prepayments based on your prior year tax return. These are PAYG instalments (not to be confused with PAYG withholding, which relates to employees). If you are not GST-registered, these instalments are reported on an IAS.
You have FBT instalment obligations. If your business provides fringe benefits to employees (such as a company car for personal use or entertainment expenses), you may need to pay FBT instalments, which are also reported through the IAS.
There is also a scenario where businesses that are registered for GST and lodge quarterly BAS still need to lodge a separate monthly IAS. This applies to medium withholders, which the ATO defines as businesses that withhold more than $25,000 but less than $1 million in PAYG withholding per year. These businesses must remit their PAYG withholding monthly even though their GST is reported quarterly. The monthly IAS captures the two non-quarter-end months.
PAYG withholding is the tax you hold back from employee wages and remit to the ATO on their behalf. Every time you run payroll and deduct tax from an employee's pay, you are creating a PAYG withholding obligation.
On the IAS, you report two key figures. W1 is the total of all amounts you withheld from payments during the period. W2 is the amount payable, which in most cases equals W1 unless you are making adjustments.
Here is a worked example. A Sydney-based consultancy has three employees earning $70,000, $85,000, and $55,000 per year respectively. After applying the ATO tax tables and accounting for the tax-free threshold, the business withholds approximately $1,100, $1,500, and $750 per fortnight respectively. That is $3,350 in PAYG withholding per fortnight, or roughly $6,700 per month.
If this business is not registered for GST, it reports the $6,700 monthly withholding on a monthly IAS. If it is a medium withholder that lodges quarterly BAS for GST, it still lodges monthly IAS for the non-quarter-end months (for example, October and November IAS, then the December quarter BAS captures December's withholding plus GST).
PAYG instalments are a separate obligation from PAYG withholding. Where withholding relates to tax deducted from employee wages, instalments are prepayments of your own business income tax.
The ATO calculates your instalment amount using one of two methods. The instalment amount method uses a fixed dollar amount based on your most recent tax assessment, adjusted for GDP growth. The instalment rate method applies a percentage to your actual business and investment income for the period.
For example, if your business earned $400,000 in taxable income last year and paid $100,000 in tax, the ATO might set your quarterly instalment at approximately $26,000 (the prior year tax divided by four, adjusted slightly for GDP). You can vary this amount down if your current year income has dropped significantly, but underestimating can result in a shortfall plus interest at the General Interest Charge (GIC) rate. From 1 July 2025, GIC is no longer tax deductible, making accurate estimation more important than ever.
IAS due dates depend on your reporting frequency.
Monthly IAS is due on the 21st of the following month. For example, your January IAS is due by 21 February. If you use a registered tax or BAS agent, you may have access to extended lodgement dates, but this varies and should be confirmed with your agent.
Quarterly IAS follows the same schedule as quarterly BAS. Quarter 1 (July to September) is due 28 October. Quarter 2 (October to December) is due 28 February. Quarter 3 (January to March) is due 28 April. Quarter 4 (April to June) is due 28 July.
If a due date falls on a weekend or public holiday, the deadline moves to the next business day.
The ATO classifies businesses into withholder categories based on total annual PAYG withholding.
Small withholders withhold $25,000 or less per year. They report quarterly through either a BAS (if GST-registered) or an IAS (if not).
Medium withholders withhold more than $25,000 but less than $1 million per year. They must report PAYG withholding monthly, regardless of their GST reporting frequency. If GST-registered on a quarterly basis, they lodge monthly IAS for the two non-quarter-end months and include PAYG withholding on the quarterly BAS.
Large withholders withhold $1 million or more per year. They must remit PAYG withholding within six to eight days of each payment to employees, depending on the specific payment period.
To put this in perspective with dollar amounts, $25,000 in annual withholding roughly corresponds to a payroll of around $100,000 to $130,000 depending on employee circumstances (tax-free threshold claims, HECS-HELP debts, multiple jobs). So a business with two full-time employees on $60,000 each could easily cross the medium withholder threshold.
The ATO applies a Failure to Lodge (FTL) penalty for overdue IAS lodgements. The penalty is calculated at one penalty unit for every 28 days (or part thereof) that the IAS is overdue, up to a maximum of five penalty units.
As of 7 November 2024, one penalty unit is $330. That means the maximum FTL penalty for a small entity is $1,650 per overdue IAS. For medium entities (turnover between $1 million and $20 million), the penalty doubles to $3,300 maximum. For large entities (turnover above $20 million), it is five times the base, or $8,250.
These penalties apply per statement. If you miss three monthly IAS lodgements, you could face three separate penalties. For a medium withholder missing three months, that is a potential $9,900 in penalties alone, before any General Interest Charge on late payments.
Beyond penalties, consistently late IAS lodgement can trigger an ATO review or audit. The ATO cross-references your IAS data with Single Touch Payroll (STP) reporting. If your STP data shows you are paying employees but your IAS is not lodged, the system flags the discrepancy automatically.
Directors of companies face additional exposure. Under the director penalty regime, unpaid PAYG withholding can result in a Director Penalty Notice (DPN), making directors personally liable for the company's tax debts. The ATO issued over 84,000 DPNs in 2024-25, a 136% increase on the prior year. If the relevant IAS or BAS has not been lodged within three months of the due date, the DPN becomes a "lockdown" notice, meaning the only way to resolve it is to pay the debt in full. You can read more about this in our guide to director penalties in Australia.
You can lodge an IAS through several channels. The ATO Business Portal allows online lodgement for registered businesses. Your accounting software (Xero, MYOB, or similar) can often generate and lodge IAS electronically. A registered BAS agent can prepare and lodge your IAS on your behalf. Paper lodgement is still possible using the pre-printed form the ATO sends, but electronic lodgement is faster, more accurate, and provides immediate confirmation.
Even if you have nothing to report for a period (for example, you had no employees that month), you must still lodge a nil IAS by the due date. Failing to lodge a nil return still attracts FTL penalties.
Set calendar reminders at least seven days before each IAS due date. This gives you time to reconcile payroll records, check STP alignment, and arrange payment.
Reconcile your IAS figures against your payroll records every period. The amount reported on your IAS should match the PAYG withholding reported through STP. Discrepancies between IAS and STP data are one of the most common ATO audit triggers.
If your business income has dropped significantly, consider varying your PAYG instalments down. You can do this on the IAS itself by completing the relevant variation fields. However, if you vary down too aggressively and your actual income is higher than estimated, you will face a shortfall plus GIC interest at year end.
Keep copies of all lodged IAS forms and payment receipts. The ATO requires you to retain records for five years. If you ever receive a DPN or face an audit, these records are your first line of defence.
As a registered BAS agent (registration #26346881), Scale Suite prepares and lodges IAS and BAS on behalf of Australian SMEs. Our embedded finance team handles PAYG withholding reconciliation, STP reporting, instalment management, and ATO correspondence as part of our finance service. If you want to stop worrying about lodgement deadlines and penalty exposure, talk to us about how an outsourced finance function works.
What is the difference between an IAS and a BAS?
An IAS reports PAYG withholding, PAYG instalments, and FBT instalments for entities not registered for GST. A BAS reports all of those plus GST. If you are registered for GST, you use a BAS. If you are not, you use an IAS. Some GST-registered businesses also lodge IAS in months where they do not lodge a BAS (medium withholders).
Do I need to lodge an IAS if I have no employees?
Only if you have other IAS obligations, such as PAYG instalments on your business income or FBT instalments. If you have no employees, no PAYG instalment obligations, and no FBT obligations, you generally do not need to lodge an IAS.
Can I lodge an IAS through Xero?
Yes. Xero can prepare and lodge IAS electronically through its ATO integration. You need to ensure your payroll is set up correctly and your Xero organisation is linked to the ATO via Standard Business Reporting (SBR).
What if I made a mistake on a previously lodged IAS?
You can submit a revised IAS for the relevant period. If the error resulted in underpayment, lodge the correction and pay the difference as soon as possible to minimise GIC exposure. If you overpaid, the ATO will credit the overpayment to your account.
How does STP affect IAS reporting?
Single Touch Payroll reports employee payment details to the ATO in real time (or close to it) with every pay run. The ATO uses STP data to cross-check IAS figures. Your IAS totals should match your cumulative STP reporting for the period. Mismatches are flagged automatically and can trigger compliance action.
Disclaimer: We review and check articles periodically. At the time of writing, this information was up to date from our assessment. Tax obligations, thresholds, and penalty amounts change regularly. Always verify current requirements with the ATO or a registered tax professional for advice specific to your circumstances.
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