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Welcome to: FNSBKG404 Carry Out Business Activity and Instalment Activity Statement Tasks Lisa Genna [email protected] Monday – Room H G.11 6:00 pm to 8:30 pm
Welcome to: FNSBKG404
Carry Out Business Activity and Instalment Activity Statement Tasks
Lisa Genna [email protected]
Monday – Room H G.11 -‐ 6:00 pm to 8:30 pm
Lesson 5
FNSBKG404 Carry Out Business Activity and Instalment
Activity Statement Tasks
Overview 1. What is GST? 2. Types of supply 3. Accounting for GST: CASH basis vs.
ACCRUAL basis
1.
What is GST?
The Goods and Services Tax (GST) is an indirect broad-
based consumption tax which came into effect on 1 July
2000 as part of the Government’s taxation reforms.
What is GST?
The current GST rate is 10% charged on the supply of
most goods and services, including imports, consumed in
Australia.
What is the current rate of GST?
The final consumer pays the GST and the supplier
remits the GST charged to the ATO.
The 10% GST only applies to a transaction that is a
‘taxable supply’ or ‘taxable importation’.
How does the GST work?
Who pays the GST? The final consumer
EnKKes registered or required to be registered for GST must
charge (and will be liable for) GST when they sell or supply goods
or services as part of their business. These are termed taxable
supplies.
What is a TAXABLE SUPPLY?
If the enKty acquires goods or services as part of their business,
it is able to claim a credit for the GST paid that has been included
in the purchase price, known as an input tax credit (ITC).
What is an INPUT TAX CREDIT?
Amount paid to ATO =
GST collected – GST paid (ITC)
The difference between the GST collected through taxable supplies and credit for GST paid on purchases is remitted to the
ATO as part of the Businesses Activity Statement (BAS).
GST | What is the BAS used for?
GST | What is the BAS used for?
The Business AcKvity Statement -‐ Front
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2.
Types of supply (for GST purposes)
What is a supply?
Types of supply
Businesses create a supply when they: 1. Sell goods — e.g. trading stock or capital equipment 2. Supply services — e.g. repair services 3. Hire out equipment 4. Provide advice — e.g. legal advice or tax advice 5. Supply other things — e.g. rights or options* 6. A supply also includes the supply of real property (e.g. leased
premises)
*Ref. additional reading on ‘options’.
Types of supply
Quick class activity à can you guess all three correctly?
Types of supply
Type of supply Include GST? 1. Taxable supplies ? 2. GST-‐free supplies ? 3. Input taxed supplies ?
If a transaction is not a supply then it is described as being an “out of scope transaction”.
Types of supply
Type of supply Include GST? 1. Taxable supplies YES 2. GST-‐free supplies NO 3. Input taxed supplies NO
1. Taxable supplies
A business makes a taxable supply if all of the following condiKons are met:
1. There is a supply of something. 2. The supply is for considera@on.
• ConsideraKon is anything you receive for providing the good or service. 3. The supply is in the course or furtherance of an enterprise you carry on. 4. The supply is connected with Australia.
• Includes goods delivered to or made available in Australia. 5. The business is registered, or required to be registered for GST. 6. The supply is neither GST-‐free nor input-‐taxed. If a supply that a business makes is a taxable supply, GST is payable on that supply.
1. Taxable supplies
Input-‐taxed GST-‐free ×
Registered for GST
Business growth
2. GST-‐free supplies
If the business makes a supply that is GST-‐free, there is no GST payable on that supply. Example include: • Most health and medical care services • Most educaKonal services • Most food for human consumpKon • Certain acKviKes of chariKes (and related bodies) • Interna*onal travel and transport • Sale of a ‘going concern’ (i.e. the sale of an enKre business that includes all things necessary for the business’s conKnued operaKon) • Certain dealings with land • Exports of goods or supplies of things other than goods or real property for consumpKon outside Australia (if certain requirements are met)
3. Input-‐taxed supplies • Generally, GST is paid by the end consumer of the good or
service. The supplier of the good or service simply collects and pays the GST to the ATO.
• However, in certain circumstances it is the supplier who must bear the cost of the GST. These types of supplies are called INPUT-TAXED SUPPLIES (i.e. tax is paid on the input).
• In this situation, when you sell an item that is input-taxed, you don’t include GST in the price of that item and you cannot claim GST credits either for any GST included in the price of inputs purchased e.g. to make the input-taxed item.
3. Input-‐taxed supplies
• Inputs purchased to make input-‐taxed good for $100 + $10 GST i.e.
$100. The supplier has to remit the $10 GST to the
ATO.
SUPPLIER
• Input taxed good sold for $300 + $0 GST i.e. $300 (we cannot charge our customer GST for this
item).
OUR FIRM • The consumer/purchaser buys the input taxed
good for $300 + $0 GST i.e. $300.
CUSTOMER
The supplier bears the cost of the GST, not the end consumer/purchaser
3. Input-‐taxed supplies
Examples include:
• Financial supplies • Supplies of private residenKal premises for rent • Sale of (old) residenKal premises (i.e. new properKes excluded) • Certain transacKons involving precious metals No GST is payable on an input
taxed supply. Therefore, the transac@on is GST-‐free for the purchaser.
• Enterprises with an annual current or projected GST turnover ≥ $75,000 or more must register for GST (and therefore an ABN).
• Not-for-profit organisations with a GST turnover ≥ $150,000 must register for GST as well.
• Enterprises may choose to register for GST if they're below these thresholds.
• Taxi-drivers must register (regardless of turnover).
Registering for the GST
What is GST Turnover?
• GST turnover is gross business income (not profit), excluding any: – GST included in sales to customers – Input-taxed sales – Sales that are not for payment (consideration) – Sales that are not connected with the business – Sales that are not connected with Australia
3.
Accoun@ng for GST CASH basis. vs ACCRUAL basis
The taxing point is when cash passes from buyer to seller.
You owe the ATO GST collected on a sales tax invoice only when
you receive the amount owed to you by the customer >> GST
collected (LIABILITY).
You are entitled to a REFUND from the ATO for GST paid on
purchase tax invoice only when you pay the amount that you
owe to the supplier >> GST paid (ASSET).
Cash basis
The taxing point is at the time the transaction takes place,
regardless of whether or not cash is paid (to the supplier) or
cash is received (from the customer).
You owe the ATO GST collected on a sale when the sales tax
invoice has been issued to the customer.
You are entitled to a REFUND from the ATO for GST paid on a
purchase when the purchase tax invoice has been issued by the
supplier.
Accrual (non-‐cash) basis
Who can use the cash
accounKng method?
1. Provides a more accurate picture of the performance of the business during the reporting period.
2. The financial statements can be used to help prepare the BAS and check against the amounts reported.
Benefits of the accruals basis
Preparing the BAS using the cash method
If you account for your revenues and expenses using
the accrual method of accounting BUT you account
for GST using the CASH method, then you cannot
use your financial statements to prepare your BAS.
You will need to keep of separate record of all your
cash receipts (from sales) and all your cash
payments (for purchases).
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>> This is when revenues are recorded when they are earned and expenses are recorded when they are incurred, regardless of when the cash is paid or received. Example: SALE ON CREDIT >> The sales transaction is entered into the books of WINDOWS TO FIT PTY LTD when the invoice is generated, not when the cash has is (hopefully) collected from the customer.
What is accrual accounKng?
Preparing the BAS using the accruals method
If you account for your revenues and expenses
using the accrual method of accounKng AND
you account for GST using the ACCRUAL
method, then you can use your financial
statements to prepare your BAS.
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What is a valid tax invoice? Purchase invoices
Recipient-‐created tax invoices
For an invoice to be valid it must include the following: • The words “Tax Invoice” should be included and clearly visible. • The Business Name and ABN. • The date. • A brief description of the items sold, including the quantity (if applicable) and the price of the items sold. • The GST amount (if any) payable in relation to the sale. • The extent that each sale to which the document relates is a taxable sale. • If the sale is for more than $1,000 then the purchaser’s name and address or ABN is also required.
What is a valid tax invoice?
• To claim the GST back from a purchase (input tax credit) the purchaser must be issued with a valid tax invoice that meets the requirements for a ‘valid tax invoice’ (refer previous slide).
• The supplier must be registered for GST. This can be checked by visiting the Australian Business Register at abr.gov.au.
What is a valid purchase invoice?
For purchases with a value ≤ $82.50 (including GST), businesses are not required to hold a tax invoice, however, the business must have one of the following: • A tax invoice • A cash register docket • A receipt • An invoice
Where a tax invoice has not been provided at the time of supply, the supplier will be required to provide a tax invoice within 28 days.
Tax invoices must be kept for a period of 5 years after the transaction has taken place.
When is a tax invoice not required?
• If the business deals with a supplier who does not have a valid ABN, the business is required to deduct 49% (2015-16) from
any payment made to the supplier.
• Amounts deducted must included at W4 on the purchaser’s
BAS/IAS.
• The purchaser must also send a Payment Summary to the
supplier and the total of all ‘no ABN transactions’ must be
reported by the supplier on their ‘Annual PAYG Withholding No
ABN Quoted form’.
Purchase invoices
• In certain situations, the purchaser (recipient) can issue a tax invoice called a recipient created tax invoice (RCTI) on behalf of the seller (supplier) once a price has been agreed.
• This situation will typically arise where the purchaser holds the information required to calculate the exact amount payable (e.g. commission payments based on sales made).
• A RCTI is issued by the purchaser of the good and/or service rather than by the seller.
• The ATO website has a list of industries that have been approved to issue RCTIs
• Refer to the applicable Goods and Services Tax Ruling for more information à GSTR 2000/10https://www.ato.gov.au/law/view/document?DocID=GST/GSTR200010/NAT/ATO/00001
Recipient-‐created Tax Invoices (RCTI)
For a valid RCTI, both the seller and the purchaser must meet the following conditions: 1. The seller and the purchaser must be registered for GST. 2. The purchaser must include the ABN of the seller on the RCTI. 3. The purchaser must issue the RCTI (or a copy) to the seller within 28 days of the sale or within 28 days of establishing the price. 4. The purchaser must keep the RCTI (or a copy). 5. The purchaser must issue an adjustment note (or a copy) to the seller within 28 days of any adjustment occurring. 6. The purchaser must reasonably comply with their general tax obligations, such as being up to date with lodgement of activity statements and payments. 7. The purchaser must not issue an RCTI on or after the date on which either the purchaser or seller has ceased to comply with any of the requirements above. 8. The sales for which the purchaser can issue an RCTI are agreed to in writing by the purchaser and the seller either in a separate written agreement specifying the supplies to which each agreement relates or embedding this information or specific terms in the tax invoices they issue.
What is a valid RCTI?
The wrigen agreement between the seller and purchaser must meet all of the following requirements: 1. Be current and effecKve whenever an RCTI is issued. 2. List the type of goods or services that it relates to. 3. State that the purchaser can issue tax invoices for the supplies. 4. State that the seller will not issue tax invoices for the supplies. 5. State that both the seller and the purchaser are registered for GST
at the Kme they enter into the agreement and, if either ceases to be registered for GST, they will noKfy each other.
RCTI | The wrigen agreement
In addition to the requirement for a written agreement, to be valid an RCTI must contain enough information to enable the following to be clearly identified: 1. That the document is intended to be an RCTI 2. The identity and ABN of the supplier (seller) 3. The identity or ABN of the recipient (purchaser) 4. What is supplied, including the quantity (if applicable) and the price. 5. The extent to which each sale is a taxable sale 6. The date of issue of the document 7. The amount of GST (if any) payable for each sale 8. If GST is payable for any sale — that the GST is payable by the supplier
InformaKon required on the RCTI
This week’s homework • Read the relevant chapter(s) (ref. DELIVERY
& ASSESSMENT GUIDE) • Complete all assigned practical exercises. • Prepare your presentation for the class next
week on your assigned GST calculation worksheet label.
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You are now ready to start the next lesson on:
The GST – Part 2
