2.4 gst and tax invoices - qut wiki · $100, the 10% gst must be added, giving a total of $110. in...

April

MYOB Training Manual Part 2: April 2006 2-80 Processing Transactions in MYOB

2.4 GST and Tax Invoices

2.4.1 Introduction to the GST

The Goods and Services Tax (GST) commenced in Australia on 1 July 2000. The principle Act governing the operation of the GST is the Goods and Services Tax Act (1999) as amended. In addition to the Act, the Commissioner has issued a number of GST Rulings and GST Determinations outlining the Australian Taxation Office’s interpretation of the legislation. The major principles of the GST are: the GST is a flat 10% broad-based tax on the private consumption of most goods

and services in Australia; the tax is charged and collected by registered entities at each stage in the

production chain; the GST is remitted by the registered entity to the ATO on a monthly or quarterly

basis in a form entitled the “Business Activity Statement”; each registered entity is entitled to claim a credit for any GST paid. This credit is

known as an “input tax credit”; and the tax is ultimately borne by the consumer.

Each registered entity is required to remit the net amount of GST collected to the Australian Taxation Office each month or quarter via the Business Activity Statement (BAS). This process is illustrated in Diagram 1 on the following page

Diagram 1: How the GST Works

Manufacturer makes and sells chocolate to a wholesaler for

$100 + $10 GST = $110

GST payable $10 Less: input tax credit 0

Net amount owing $10

ATO receives $10

Wholesaler buys chocolate for $110. Pays $10 GST. Sells to

retailer for $200 + $20 GST = $220

GST payable $20 Less: input tax credit (10)


ATO receives $10

Retailer buys chocolate for $220. Pays $20 GST. Sells to customer

for $300 + $30 GST = $330

GST payable $30 Less: input tax credit (20)


ATO receives $10

Customer pays $330 to the retailer to buy the chocolate. Pays $30 GST

ATO receives $30

=

2.4.2 Types of Supplies

There are three types of supplies for the purposes of the GST: (a) Taxable supplies; (b) GST-free supplies; and (c) Input taxed supplies. (a) Taxable Supplies A taxable supply is the supply of goods, services, provision of advice or information, a grant, assignment or surrender of real property, a creation, grant, transfer, assignment, a financial supply and an entry into or release from, an obligation to do anything, to refrain from an act, or to tolerate an act or situation.


Once a registered entity has made a taxable supply it is required to charge the 10% GST. The 10% GST is added to the “value” of the supply. Hence, if the value of the supply is $100, the 10% GST must be added, giving a total of $110. In Australia, all prices are required to be shown GST-inclusive. Hence, to calculate the amount of GST that has been included in the price, you divide by 11. Put another way, the GST payable on a taxable supply is 1/11

th of the price displayed. (b) GST-Free Supplies A GST-free supply is one which does not attract the 10% GST. In other words, it means that the supplier is not required to charge the 10% GST. However, the registered entity can still claim back input tax credits on the inputs used to produce the GST-free supply. This effectively results in no GST being collected on the supply of GST-free goods and services. Examples of GST-free supplies include: basic food; health; education; childcare; exports and other supplies for consumption outside Australia; religious services; non-commercial activities by charitable institutions; raffles and bingo conducted by charitable institutions; water and sewerage facilities; supplies of going concerns; transport and related matters; precious metals; supplies through inward duty free shops; grants of freehold and similar interests by governments; farm land; cars used by disabled persons; and international mail.

When coding a GST-free supply in MYOB, you should use the code “FRE”. If an organisation has a GST-free supply, it may still claim back input tax credits on the inputs used to produce the GST-free supply. This effectively results in no GST being collected on the supply of GST-free goods and services. For more information on the GST concessions provided to the non-commercial activities of charitable institutions, refer to the following ATO fact sheet. For information specific to residential rent, refer to Section 3.6.

Web link:

http://www.ato.gov.au/content/downloads/n7633.pdf


http://www.ato.gov.au/content/downloads/n7633.pdf

(c) Input Taxed Supplies An input-taxed supply means that the registered entity (ie. the supplier) is not required to charge the 10% GST to the consumer. However, unlike a GST-free supply, the supplier is not able to claim an input tax credit on the inputs used to produce the input-taxed supply. Examples of input-taxed supplies include: financial supplies (such as loans, bank charges, account keeping fees and interest); residential rent; residential premises; precious metals; and school tuckshops and canteens.

When coding an input-taxed supply in MYOB, you should use the code ‘INP’.

A summary of the three types of GST supplies is shown in Table 1 below.

Table 1: Summary of the 3 Types of GST Supplies

Type of Supply Charge the 10% GST? Claim Back the Input Tax Credit?

Taxable Yes Yes

GST-Free No Yes

Input-Taxed No No

2.4.3 Registration for the GST

To be liable for GST or to claim input tax credits, an organisation must be registered. An entity is required to register for the GST if their annual turnover exceeds $50,000 per annum. In the case of nonprofit organisations, the registration threshold is set at $100,000 per year. An entity above these thresholds must register for the GST. However, an entity below these thresholds may voluntarily register for the GST. Entities may register by completing the appropriate form available from the ATO or by or registering on-line at http://www.abr.business.gov.au. When an entity registers for the GST, it will be issued with an Australian Business Number (ABN). The ABN is the same as the registration number for GST.

2.4.4 Attribution Basis (Cash v Accruals)

There are two methods of accounting for the GST: cash method; and the non-cash method (the accruals method).


http://www.abr.business.gov.au./

An entity may elect to use the cash basis of accounting if one of the following conditions are met: its annual turnover is less than $1,000,000; it uses the cash basis for income tax purposes; the Commissioner determines that the enterprise can use the cash basis; or the entity is a charitable, gift-deductible entity or government school.

Where an entity falls under one of the above conditions, it may elect to use either the cash or accruals basis of accounting. However, if an entity is not eligible to use the cash basis, it must use the accruals basis of accounting.

Under the cash basis of accounting, the GST is payable in the tax period when the cash is received from the customer in respect of a taxable supply, not the date that the tax invoice is issued. An input tax credit for a creditable acquisition is claimed when the payment is made in cash, rather than the date that the tax invoice was issued. Under the accruals basis of accounting, GST is payable on a taxable supply in the tax period in which: the entity received consideration for the supply; or when the tax invoice is issued to a customer,

whichever is the earlier. Similarly, under the accruals basis of accounting, an input tax credit can be claimed on a creditable acquisition in the tax period in which: the entity provided consideration for the goods or services; or when the tax invoice has been received,

whichever is the earlier. An entity cannot claim an input tax credit unless it has a tax invoice for the purchase at the time of lodging the BAS.

2.4.5 Tax Periods (Monthly v Quarterly)

A tax period is a period for which an entity calculates its GST and lodges its return (known as the Business Activity Statement). An entity has a choice of whether it wants to lodge monthly or quarterly Business Activity Statements (BAS). The quarterly tax periods end on 31 March, 30 June, 30 September and 31 December. The monthly tax period ends on the last day of each month. An entity is required to use a monthly tax period if the entity's annual turnover is $20 million or more or the entity has a history of failing to comply with tax obligations. When lodging its Business Activity Statement, the entity calculates the amount of GST payable in respect of taxable supplies charged to customers. It also calculates the amount of the GST paid (ie. input tax credits). The difference between these two amounts is referred to as the “net amount”. The registered entity must remit the net amount to the ATO on the Business Activity Statement.


Conversely, where an entity determines a negative net amount, this signifies a refund that the ATO owes the entity. The ATO must process the refund within 14 days of receipt of the BAS. For quarterly lodgers, the Business Activity Statement must be lodged within 28 days of the end of the relevant tax period. For example, the BAS for 31 March 2004 is due by 28 April 2004. In the case of the 31 December 2003 BAS, the lodgment date is 28 February 2004 rather than 28 January 2004. In the case of monthly lodgers, the BAS must be lodged within 21 days of the end of the relevant tax period.

2.4.6 Understanding GST Tax Codes

Although there are a variety of tax codes available in MYOB, we have removed the ones which you are not likely to be using – Luxury Car Tax, for example. We have also set up the accounts to reflect the correct codes, so that completing the BAS will be easier. However, it may well be that you will have to add accounts from time to time, so will need to have an understanding of the codes available and applicable. (Please refer to Section 2.1.7, where you are reminded that tax codes may vary between organisations.) The MYOB codes remaining are shown in Table 2 as follows:

Table 2: MYOB Coding System

MYOB Code Description of the MYOB Code

CAP Capital acquisitions tax code – used to record GST on assets purchased by the entity

FRE GST-Free – used to record the entity’s GST-free sales

GNR A supplier that is not registered for the GST

GST GST tax code – used to record revenue or expenses on which the entity has collected or paid GST (eg. telephone expense)

INP Input-taxed – used for bank charges and other financial supplies

N-T No tax – not reported on the BAS – used to record transactions outside the GST system, such as cash transfers and donations

ABN No ABN has been quoted on the invoice or tax invoice. Accordingly, the payer is required to deduct and remit 48.5% ABN withholding tax


2.4.7 Tax Invoices

A registered entity who makes a taxable supply and charges the GST is required to issue a tax invoice. A supplier must issue a tax invoice within 28 days of the date of sale, if requested, for all supplies with a GST exclusive price exceeding $50 (ie. $55 inclusive of GST). The Commissioner takes the view that the $50 test should be applied to the total of the tax invoice and not the value of each separate item (see GST Ruling GSTR 2000/17). This GST Ruling can be found at the following address:

Web link: http://law.ato.gov.au/pdf/gst00-17.pdf

According to Section 29-70 of the GST Act, a tax invoice must include: the Australian Business Number (ABN) of the entity issuing it; the GST-inclusive price of the supply; the words "tax invoice" stated prominently; the date of issue of the tax invoice; the name of the supplier and the name of the recipient; the address or ABN of the recipient; a brief description of each thing supplied including the quantity; and be in a form approved by the Commissioner.

The precise requirements vary according to whether the amount payable is less than $1,000. Where the GST payable on the tax invoice is exactly 1/11th, the tax invoice may either show: the total price inclusive of GST, with a statement confirming that the total amount

payable includes GST; the amount of the supply plus the GST separately disclosed.

Where the GST is less than 1/11th (ie. where the supply consists of a taxable supply and a GST-free supply) the amount of GST payable must be separately disclosed.

2.4.8 Preparing the Business Activity Statement

The Business Activity Statement (BAS) is issued by the Australian Taxation Office. If your organisation has chosen a monthly tax period, this form will arrive every month. Conversely, if the organisation has chosen a quarterly tax period, the BAS will issue and arrive every 3 months. You should receive the BAS a week or so before the end of the relevant tax period. The BAS includes the amount of GST charged by your organisation (and subsequently) collected as well as the GST paid by your organisation on acquisitions. These two amounts are offset to be called the ‘net amount’.


http://law.ato.gov.au/pdf/gst00-17.pdf

The BAS also includes information on PAYG withheld from salaries and wages for the relevant tax period and ABN Withholding tax where no ABN was quoted by the supplier. In the case of private sector entities, the BAS also requires payment of PAYG instalments. Essentially, this is payment of income tax for the current income year each quarter. A sample Business Activity Statement has been included later in this manual.

2.4.8.1 Setting up BAS Information

Whilst MYOB has a useful BASlink function, you must still lodge the ATO’s hard copy BAS. It is not permissible to print off the MYOB BAS and send this to the ATO. Each BAS issued by the ATO has its own unique bar code. However, MYOB can replicate the BAS such that all you need to do is transcribe the figures from the MYOB BAS to the ATO-issued BAS for lodgement.

Before preparing the BAS, the following steps need to be taken: 1. All bank accounts need to be reconciled. 2. Print the report called ‘GST [Detail – Cash]’, assuming that your organisation is on

the Cash method of accounting for GST purposes. To do this, go to the Command Centre on MYOB, and click on the dropdown arrow beside the word ‘Reports’ at the bottom of the screen. Select ‘GST/Sales Tax’. (If your organisation is on the Accruals method of accounting for GST purposes, choose the ‘GST [Detail – Accruals]’ printout instead.)

From the list that appears, select ‘GST [Detail – Cash]’. The following screen will appear:


In this case, we want to select ‘All Tax Codes’; and ‘Both Collected and Paid’ in the section to the lower right. The dates must be changed to collect all activity for the quarter in question – three months. This window has defaulted to the ‘Advanced Filters’ tab – clicking of ‘Report Fields’ will allow you to select the fields you wish to be reported on your report, and ‘Finishing’ will enable you to control the final look of the report. Click on Display, and if satisfied with what appears, ‘Print’. Check every entry to make sure that the correct Tax Codes have been used. When satisfied, move on to setting up BAS Information.


2.4.8.2 Preparing the BAS Worksheet

Select the ‘Accounts’ icon on the Command Centre. Select ‘BASlink’. In the BASlink Window, select ‘BAS Info’. The following screen will appear:

Explanation of the Above Options: (a) Calculation Method:

‘Calculation worksheet’ requires all GST fields to be completed and calculates the tax paid and collected by dividing fields G8 and G19 by 11. ‘Accounts’ means the tax paid and collected derived from MYOB. It is recommended that you use the ‘Calculation worksheet’, and check the resulting figures against the final figures on your ‘GST [Detail – Cash]’ printout. This gives you an extra way to check that figures have been input correctly.


(b) Reporting Options:

‘GST Reporting Frequency’ means either Quarterly or Monthly. ‘GST Accounting basis’ means Cash or Accrual. Check your previous BAS to see whether your organisation has chosen monthly or quarterly tax periods and whether it is on the cash or accruals method. ‘GST Option’ – These are three options provided by the ATO on the BAS. The three options are: Option 1 - Calculate GST and report Quarterly Option 2 - Calculate GST and report Annually Option 3 - Pay GST Instalment Amount

Once again, check your previous BAS to see which option your organisation has chosen. (c) PAYG Instalments

As explained above, most private sector entities are required to pay income tax progressively throughout the income year. For these entities, the ATO gives a choice between: Option 1 - a set $ amount advised by the ATO Option 2 - % of sales advised by the ATO

In the case of most nonprofit organisations, the entity is exempt from income tax. Consequently, if Option 1 is selected, the PAYG Instalment amount will be $0 and if Option 2 is selected, the PAYG Instalment rate will also be 0%.


(d) PAYG Withholding

This is usually set at quarterly – if you are withholding more than $25,000 per year, this will be set as monthly by the ATO, and a monthly Instalment Activity Statement (IAS) will be sent, so that you can report and pay this monthly. (e) Simplified Accounting Method:

The Simplified Accounting Method is predominantly used by businesses such as bakeries and delicatessens. Accordingly, it is not expected that this feature will be used by your nonprofit organisation. When you have finished, click ‘OK’. You will be returned to the previous screen.

TIP: Please ensure that you select the appropriate options for your organisation – however, in many cases, they will not differ greatly from what is already shown here. When finished, click on ‘OK’.

Select your Reporting Period In the ‘Reporting Period’ window, select the LAST month of the quarter in which you are working.

For the purposes of this manual, we will be working on the second quarter of the 2004 financial year – the quarter starts in October 2004 and ends at the end of December 2004. When all the information has been set up to your satisfaction, click on ‘Prepare Statement’.


2.4.8.3 Setting up the BAS Worksheet The first screen to appear will contain a warning. Read the Warning. Click ‘OK’. If your organisation’s ABN has not yet been entered, the Company Information Window will be displayed so that you can enter the organisation’s 11-digit number ABN. A ‘Disclaimer’ window will next appear – simply click ‘OK’. Another window will appear, asking if you wish to view a help screen on ‘BASlink Setup Requirements’. This is entirely up to you, but can prove confusing. For now, we will walk you through the various requirements. Choose ‘No’. The following screen should appear. It is large, and will require you to use the scroll bars to the right and bottom of the window to move around it sufficiently.

Starting at the top, we will set up each field – these correspond to fields on your actual BAS.


TIP: Please note that gifts (donations) fall outside the scope of the GST Act. Hence, they should be coded to “N-T” or no-tax in both MYOB and Quick Books. Gifts (or donations) are not reported on the Business Activity Statement.

G1: Total Sales (including any GST) G1 is used to record the gross sales and any other income earned by your organisation. This figure includes any GST you have collected and includes any amounts shown at G2, G3 and G4. Click on the ‘Setup’ button to the right of the field. The following screen should appear:

In setting up G1, you should click on ‘GST’ and ‘FRE’ Click ‘OK’. G2: Export Sales It is not expected that your organisation will be engaged in export activities. Hence, leave this field blank.


G3: Other GST-Free Sales This field is used to record any sales that are GST-free.

In setting up G3, you should only click on ‘FRE’. G4: Input Taxed Sales As previously mentioned, input taxed supplies include financial supplies such as bank fees, and residential rent and certain fundraising events conducted by charitable institutions. For more information on this, refer to Section 3.6 of this manual for further guidance. G5: G2 + G3 + G4 This field adds together G2, G3 and G4. G6: Total Sales Subject to GST [ie. G1 - G5] MYOB will automatically calculate the total sales which have been subject to GST for the previous quarter. G6 equals G1 minus G5.


G7: Adjustments [if applicable] Adjustments may occur where there has been an overstatement or understatement of GST shown in a previous BAS. For example, you may have discovered that the GST was not declared in a previous BAS in respect of a grant. The amount of the GST collected relating to a previous quarter should be shown here. However, you should consult your accountant before including any amounts at G7. G8: Total Sales Subject to GST After Adjustments [ie. G6 + G7] This field adds together G6 and G7. G9: GST on Sales [G8 divided by eleven] At G9, MYOB automatically calculates the amount of GST on sales. This will be 1/11th of the sales for the quarter. G10: Capital Purchases [Including any GST] Next, we move on to G10 – Capital Purchases [Including any GST]. The following screen should appear:

In setting up G10, you only need to click on ‘CAP’. Click ‘OK’.


G11: Non-Capital Purchases [Including any GST] Next, we set up G11 – Non-Capital Purchases [Including any GST]. Here, you will need to click on ‘GST’ and ‘FRE’ – a message will appear, telling you must also choose ‘FRE’ at G14. Click ‘OK’.

G13: Purchases for Making Input Taxed Sales Once again, this section mainly applies to financial institutions and real estate management companies and is not expected to apply to nonprofit organisations. Hence, it should be left blank, unless your organisation is involved in real estate and fundraising. For more information on this, refer to Section 3.6 of this manual for further guidance. G14: Purchases Without GST in the Price This will record all purchases made which are not, for whatever reason, subject to GST – these could payments for work done for you by a contractor, who is not registered for the GST. In this case, you would not have recorded GST when processing this payment through MYOB.


The next screen should look something like this.

The option you should choose at G14 will be ‘FRE’. Click ‘OK’ to enter it. G15: Estimated Purchases for Private Use or Not Income Tax Deductible Once again, it is not expected that nonprofit organisations will be using this option. G16: G13 + G14 + G15 This field adds together G13, G14 and G15. G17 – Total Purchases Subject to GST [G12 - G16] MYOB will automatically calculate the total purchases which have been subject to GST for the previous quarter. G17 equals G12 minus G16. G18: Adjustments [if applicable] Once again, adjustments may occur where there has been an overstatement or understatement of GST claimed in respect of a previous quarter. For example, you may have discovered that the GST was not claimed in the previous BAS in respect of


electricity paid. The amount of the GST paid relating to a previous quarter should be shown here. However, once again, you should consult your accountant before including any amounts at G18. G19: Total Purchases Subject to GST after Adjustments [G17 + G18] This field adds together G17 and G18. G20: GST on Purchases [G19 divided by 11] At G20, MYOB automatically calculates the amount of GST on purchases. This will be 1/11th of the amounts spent on purchases and expenses during the previous quarter. At this point, you have entered all of the information pertaining to the GST. Now, go back to the tabs at the very top of the screen, and click on ‘Front sheet’. The following screen will appear:

Again, this screen is very large, and we have used the scroll bars to achieve the view above. You will have to use the scroll bars to the right and bottom of the screen to move around it. There are a few details you will need to add at this point. At the top right of the page, the document ID will need to be entered. This is the number that will appear on the hard copy of the BAS, as sent by the ATO. Type it in.


Underneath that, the next requirement will be to enter the contact phone number and contact person who has completed the BAS. Enter this information as well.

If you scroll down to the rest of the screen, the bottom half of your page will look something like this. There is nothing else for you to fill in on the front.


Now, click on the tab at the very top marked ‘’Back sheet’. The next screen should look something like this.

The left-hand side of this page contains information pertaining to PAYG Tax Withheld. Similar to the ‘GST Worksheet’, you need to set this information up, by clicking on the ‘Setup’ button at W1. The following screen will appear:


In this field, click on all Items except the final six – these are unlikely to be used by your organisation, and should not be included at W1. If any of these options have been, or are likely to be used by your organisation, consult your accountant. Click ‘OK’ when finished. The next field is ‘W2 – Amounts Withheld from Payments Shown at W1’. Click on ‘Setup’. The following screen will appear:


The only field that will needs to be ticked is ‘PAYG Withholding’. If the situation arises that the other options become necessary, once again, consult your accountant. The next options are W4 and W3 as below:

These fields are necessary only if you have withheld 48.5% tax where the supplier has not quoted their ABN. If you have withheld the 48.5% ABN Withholding Tax, it should be included at Item W4. The final calculation of these fields will appear at W5. Scroll to the bottom of the sheet. It should look something like this:


You can see that MYOB automatically transfers all of the figures entered into thus far. Don’t forget to fill in the time taken to compile the information and complete the BAS. Once finished, click on ‘Print’ at the bottom of the page. At this point, an error message may appear. Do not be alarmed!!! Click ‘Yes’ to view the errors. Fix any errors that are relevant by clicking on the zoom arrow to the left of each statement – this will take you to the place on the screen that contains the error (or lack of information). Ignore the fact that 5A is not linked, unless this is an option your organisation is taking. A worksheet will be printed, containing all of the figures which appear on the screen. When you have printed this, click on ‘Save Setup and Exit’. This copy of the worksheet will be saved, for future reference.


TIP: Remember that you should not lodge the MYOB-generated BAS with the

ATO. This is purely for your records. You need to transcribe the figures generated by MYOB BASlink to the original hard copy of the BAS sent by the ATO.

When completed and duly signed, take a photocopy, and store the photocopy in a safe place. Send the original BAS to the ATO, along with any payment you may be making (if not, just send the BAS). WARNING FOR BOOKKEEPERS: Many bookkeepers provide BAS-related services including preparation of a client’s BAS. If you are a bookkeeper who provides BAS-related services to clients as part of a business, you need to be aware of the legal restrictions regarding who can charge a client for the provision of tax advice (including preparation of a BAS). Section 251L of the Income Tax Assessment Act 1936 (as amended) prevents any person from charging or receiving a fee for preparing or assisting a client with any income tax matters unless they are a registered tax agent. The ATO has advised that it an offence for bookkeepers to charge a fee for the preparation of a BAS if they are not a member of a recognised professional association or working under the direction of a registered tax agent. There are currently five professional bodies that qualify as professional associations. These five professional associations are listed on the ATO website. Hence, if a bookkeeper who prepares a nonprofit organisation’s BAS is not a registered tax agent or member of one of the five recognised professional associations, they must have the BAS checked and approved by a registered tax agent or a member of one of the five professional associations. More information on this topic can be found at the ATO’s website, being: http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/40604.htm.


http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/40604.htm

2.4 gst and tax invoices - qut wiki · $100, the 10% gst must be added, giving a total of $110. in...

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