CHAPTER 8 Business activity statements and instalment activity statements

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis 2011 McGraw-Hill Australia Pty Ltd

CHAPTER 8 Business activity statements and instalment

activity statements

Learning outcomeTo understand the preparation of activity

statements for GST, PAYG withholding tax, PAYG income tax, fringe benefits tax and other taxes

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KEY TERMS• Australian Business Number (ABN)• Australian Taxation Office (ATO)• Business Activity Statement (BAS)• Fringe benefits tax (FBT)• Fuel tax credits (FCT)• GST-free sales

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KEY TERMS cont.• GST input taxed sales• Instalment Activity Statement (IAS)• Luxury car tax (LCT)• Pay-as-you-go income tax• Pay-as-you-go withholding tax• Tax invoice• Wine equalisation tax (WET)

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The difference between BAS and IASThe Business Activity Statement (BAS) is used for:

• businesses registered for GST

• GST monthly or quarterly

• PAYG income tax

• PAYG withholding tax

• fringe benefits tax

• wine equalisation tax

• luxury car tax

The Instalment Activity Statement (IAS) is used for all of the above items, except GST

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GST checklist for a businessA business with a turnover of $75 000 or more that wishes to engage in the GST provisions must:

•register for GST

•separate sales into taxable, GST-free or input-taxed items

•include the price of GST in its sales

•use properly prepared tax invoices

•account for GST on a ‘cash’ or a ‘non-cash’ (accrual basis)

•report and pay GST using a BAS form

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Accounting for GST on a ‘cash’ or a ‘non-cash’ basisCashCash sales are reported for GST in the same reporting

period in which the business receives the actual payment for the sale. GST input tax credits are claimed in the period in which the business pays for them. The conditions are that the business’s annual turnover is less than $2 million and the business income tax is also accounted for on a cash basis.

Non-cashUsually the full GST is collected and is payable in the

period in which the invoice is issued, irrespective of the date of payment of the account. For GST input, this can be claimed in the reporting period in which the supplier issues the invoice.

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GST revisited—A summary of GST on business purchases and sales

GST sales

GST purchasesAny business that is registered for GST can claim input tax credits. Examples are:

Taxable salesCollection of GSTinput tax credits available where taxable purchases apply

GST-free salesNo collection of GST

Input tax credits available where taxable purchases apply

Input taxed salesNo collection of GST.No input tax creditsavailable

Examples: Examples: Examples: Examples:Inventory purchases Inventory sales Council rates Financial suppliesAsset purchases Asset sales Water rates Lending costsAdvertising Commission revenue Most foods Buying sharesTelephone Rent revenue Education fees Selling sharesInsurance Sales of services Medical and health exports Residential rents Motor vehicle expenses Religious and charities Bank fees

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Mixture of GST-free and GST-collected sales

The ATO gives an example where there is a mixture between two groups of sales:

PLANT NURSERY –sells seedlings GST collected MARKET GARDENER –sells vegetables GST-free

WHOLESALER GST-free

RETAILER RESTAURANT

GST-free GST-free CONSUMER

RESTAURANT PATRON GST-free GST collected

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Mixture of GST-free and GST-collected sales cont.

There is GST on the nursery plants, but when converted to vegetables by the market gardener the products become a basic food item and therefore GST-free. The goods are sold to the wholesaler, then to the retailer and finally to the end consumer and remain GST-free.

The sale to the restaurant is also GST-free but GST needs

to be collected in the price of the meal because the vegetables have been converted into a cooked item.

Source: Adapted from ATO publication ‘GST food guide’ (Australian Government)

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Reporting GST to the Australian Taxation Office• If a business turnover is $20 million or more GST must be

reported and paid monthly and it must be paid electronically.

• If a business turnover is less than $20 million, GST must be reported and paid quarterly, and an annual GST information report must be lodged.

• If a business turnover is less than $2 million GST can be reported by activity statements quarterly supported by an annual GST return. Businesses must pay the GST instalment pre-printed by the Taxation Office, which can be varied if the business believes that circumstances have changed during the financial year.

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Pay-as-you-go (PAYG) withholding obligations• Businesses need to withhold amounts of tax from payments made

to employees on their payroll sheets and to directors

• There may also be deductions from amounts paid to contractors and for labour hire depending upon the circumstances

• These deductions are called ‘withholding tax’ and these amounts must be passed on the ATO

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PAYG withholding tax cont. The employer must:• register for PAYG withholding• ascertain the tax status of workers• calculate the amounts to be withheld• report and pay the withheld amounts to the ATO• supply payment summaries and lodge an annual return

after 30 June each year

In addition, tax must be withheld from other businesses that do not quote their Australian Business Number on their invoices or other documents

The owner’s drawings from the business are not subject to a withholding tax

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PAYG withholding tax cont. Employees must:• complete a tax file number (TFN) declaration, with the

original being sent to the ATO• complete a withholding declaration, to be held by the

business, if they:

─ wish to claim tax offsets─ increase the amount withheld by the business─ advise changes in the tax-free threshold

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How to report PAYG amounts withheldThese are reported to the ATO on an activity statement

The amounts are payable:

• for a small business that withholds $25 000 or less per year—quarterly

• for a medium-sized business withholding up to $1 million—monthly; or

• for a large business withholding amounts over $1 million per year, the amounts owed must be paid electronically

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Payment summaries• Within 14 days of the end of the financial year the

employer must supply to employees ‘payment summaries’. These contain the total amount earned for the year and the amounts of total tax withheld. These used to be called ‘group certificates’.

• The original payment summary for each employee is sent to the ATO and is used when individuals complete their annual tax returns.

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PAYG income tax obligations of a business• Australia’s income tax system is based on the

principle of self assessment. • The information is provided by the business and

the ATO has the power to request the business records to verify the information supplied to it.

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PAYG income tax obligations of a business cont.• The ATO will calculate the taxable income for a

business using this formula:

Assessable income

less assessable deductions

= Taxable income

• The ATO will supply the relevant activity statement to the business with the pre-calculated tax payable, which can be paid in quarterly instalments. This amount may be varied if circumstances change, but reasons must be given.

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Other taxable areas

Fringe benefits tax (FBT)An employer may provide their employees with fringe

benefits.

The employer must be registered for FBT. FBT needs to be lodged quarterly for any business for which the FBT liability exceeds $2000 calculated for a year from 1 April to the following 31 March.

If the employer is not required to pay quarterly then the whole amount of FBT must be paid annually using an Annual FBT return.

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PPTs to accompany Accounting and Bookkeeping Principles by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd 8-17

Other taxable areas cont.

Common fringe benefits include:•low interest loans•private use of a work car•payment of parking fees•health insurance costs•school fees •holiday expenses


Wine equalisation tax (WET)• WET is based on a tax of 29% of the wholesale

price of wine • Manufacturers, wholesalers and importers collect

the tax and forward it to the ATO• The Customs Department collects WET on

imported wine but, generally, retailers do not have to pay the wine equalisation tax

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Luxury car tax (LCT)• Cars with a GST included value in excess of a threshold

of $57 466 (the rate for the years 2009/10) are subject to LCT

• The threshold rate changes each year• Retailers, wholesalers or importers may have a liability

for LCT• The rate is 33% for the amount above the threshold

figure• Businesses need to be registered for FBT, WET and LCT

and activity statements are used to report and pay the taxes

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Fuel tax credits (FTC)• Credits for fuel tax excise or duty (included in the price

of fuel) may be claimed for machinery, plant and equipment and heavy vehicles used by a business. The firm needs to register to be eligible to claim a fuel tax credit.

• Aviation fuels and fuel for light vehicles on the road are excluded from claiming LCT.

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Tax agents legislation• The Tax Agents Act 2009 provides for registration of

tax agents and BAS agents.

• The Tax Agents Services Regulations 2009 list the qualifications and the relevant experience requirements for registration.

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Registration of a BAS agent• Only individuals, partnerships or a company providing

BAS services for a fee need to register as agents.

• Persons who provide BAS services for their employer do not need to register. These persons are providing an employment service for a salary or a wage and are not supplying a BAS service.

• Registration can be made to the Tax Agents Board and will cover a period of at least three years. A registered person may provide a BAS service.

• There are detailed requirements for registration, including those regulating the qualifications and the relevant business experience required.

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BAS servicesBAS services include:

• preparing and lodging approved activity statements about a taxpayer’s obligations and entitlements under a BAS provision

• advising a taxpayer about a BAS provision

• handling client queries relating to a tax provision with the taxation commissioner on behalf of a taxpayer

BAS provisions

These are the taxes mentioned in this Chapter:

GST, PAYG withholding tax, PAYG income tax, fringe benefits tax, etc.

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CHAPTER 8 Business activity statements and instalment activity statements

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