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Business Activity Statement

Small Business, Community and Educational

Adviser Education Programme

Completing the Business Activity Statement (BAS)

C ourse Workbook

Prepared for the GST Start-Up Assistance Office by

TEO Training Pty LimitedP O Box 610 Moonee Ponds Vic 3039, Telephone (03) 9375 7966 Fax (03) 9375 7488Email: [email protected]

Business Activity Statement Adviser Education Programme

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IMPORTANT INFORMATION CONCERNING THIS MATERIAL - PLEASE READ

This material is provided under the Commonwealth’s GST Start-Up AssistanceProgramme, and is designed to provide general information on the GST, PAYG and onbusiness skills, practices and processes necessary to operate with the GST, focused onsmall and medium enterprises and the community and education sectors. Becausebusiness circumstances can vary greatly, the material is not designed to provide specificGST, PAYG or business advice for particular circumstances. Also, because aspects of theGST are complex and detailed, the material is not designed to comprehensively cover allaspects of the GST and PAYG as they apply to small and medium enterprises and thecommunity and education sectors. Further, the laws implementing GST, PAYG andrulings and decisions under those laws, may change.Before you rely on this material for any important matter for your business, you should:

• Make your own enquiries about whether the material is relevant and still current, andwhether it deals accurately and completely with that particular matter; and

• As appropriate, seek your own professional advice relevant to that particular matter.

This material is provided on the understanding that neither the Commonwealth nor itspersonnel, TEO Training Pty Ltd nor its personnel, nor any other organisation or personinvolved in developing or delivering the GST Start-Up Assistance Programme, is therebyengaged in providing professional advice for a particular purpose.These limitations and warnings also apply to information based on this material presentedat any seminars or workshops provided as part of the GST Start-Up AssistanceProgramme.

' Commonwealth of Australia 2000


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ContentsPage

Introduction 5

BAS and Workbook Road Map 6

Course objectives 7

Government Assistance Initiatives 8

Introduction to GST 9

Australian Business Number 10

Entity 11

Business Activity Statement 13

Goods and Services Tax 14

Input Tax Credits 25

The Tax Fraction 26

Attribution Rules 27

Tax Invoice 29

GST Systems 31

Wine Equalisation Tax 38

Luxury Car Tax 39

Wholesales Sales Tax Credit 40

Overview of PAYG 42

PAYG withholding system 43

Terminology for PAYG withholding 45

Registration for PAYG 47

Small Medium Large withholders 48

Practical issues for employers 50

Taxing of allowances 53

Non-cash benefits and PAYG withholding 54

Contractors and Employees under the New Tax System 55

Voluntary agreements 56

Labour hire arrangements 58

Prescribed Payments and Reportable Payments System 61

No ABN withholding 63

Withholders of amounts not related to employment 65

Investment income 66


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Annual reports and payment summaries 67

Terminology for PAYG instalments 69

PAYG instalments 72

Calculation of instalment income 74

Quarterly instalments 77

Annual instalments 88

Transitional provisions for the deferral of 1999/2000 instalment tax balances 94

Summary of payments for company and fund instalment payers 100

Calculation of PAYG instalments by partners 101

Beneficiaries of Trusts 103

New Taxpayers 104

Variation Credits 105

Fringe Benefits Tax 106

Running Balance Account 108

Appendix 109

ACKNOWLEDGMENTTEO Training Pty Limited wishes to acknowledge the assistance received fromThe GST Start-Up Assistance Office, and The Australian Taxation Office, in thepreparation of this Course Paper.


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IntroductionThe course is a stand alone course designed to assist small to medium businesses,community groups and educational bodies with an introduction to the new BusinessActivity Statement and Instalment Activity Statement that forms part of the New TaxSystem that comes into force on 1 July 2000.

The New Tax System is made up of various parts that will affect every organisation withinAustralia. The reporting basis for the New Tax System is the Business ActivityStatement (the BAS) if the entity is registered for GST, or the Instalment ActivityStatement (the IAS) if the entity is not registered for GST.

Included in the BAS is the information required by the ATO for the following,

• Goods and Services Tax

• PAYG Withholding

• PAYG Instalments

• Fringe Benefits Tax

• Wine Equalisation Tax

• Luxury Car Tax

The Instalment Activity Statement requires all of the information detailed above, where itapplies to the taxpayer concerned, except the GST information.

There are two types of Business Activity Statement. The first form is the quarterly BASwhich all entities registered for GST are required to complete quarterly in respect of alltypes of tax that they are liable for. This form will be completed by those required to filea BAS on a three monthly basis, and will also be completed every third month by thoserequired to file a monthly BAS. The quarterly BAS form has two sides. The front side isthe actual BAS, whilst the reverse side is a calculation sheet from which amounts aretransferred to the BAS itself.

The second form is the monthly BAS. This form will be completed in the first twomonths of any quarter by those required to complete a monthly BAS. This form willrequest information and payments in respect of all tax types, except PAYG instalmentsand FBT, for taxpayers required to complete it.

It should be noted that the ATO will provide a monthly or quarterly pre-printed form. Theform will identify the information that has to be provided when that form is completed.

The following page of this workbook shows all the descriptions on the BAS andreferences each one and its Box Number to pages of this workbook.

A course of this nature cannot hope to comprehensively cover all of the various issues thatwill confront different entities. Rather, this course aims to raise issues that individualbusinesses and other organisations may need, or want, to consider as a consequence of theintroduction of the New Tax System.


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THE BAS AND WORKBOOK ROAD MAP

TransactionType

BoxNo.

PageNo.

TransactionType

BoxNo.

PageNo.

Goods and Servicestax payable

1A 14 Credit for Goods andServices tax paid

1B 14

Wine equalisationtax payable

1C 38 Wine equalisation taxrefundable

1D 38

Luxury car tax payable 1E 39 Luxury car tax refundable 1F 39

Credit for Wholesale Salestax

1G 40

Add 1A+1C+1E 2A - Add 1B+1D+1F+1G 2B -

Total amounts withheldfrom all payments

4 44

Income tax instalment 5A 72 Credit adjustment forprevious income taxinstalments

5B 105

Fringe benefits taxinstalment

6A 106 Variation credit fromprevious fringe benefits taxinstalments

6B 106

Deferred company/fundinstalment

7 94

Add 2A+4+5A+6A+7 8A - Add 2B+5B+6B 8B -

8A minus 8B net amountof your obligations

9 - Positive = payable to ATONegative = may be a refundor offset

- -


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Course ObjectiveThe objective of this course is to assist the participants prepare their Business ActivityStatement or their Instalment Activity Statement with particular emphasis on:

The GST and the information required to be supplied to the ATO on the Business ActivityStatement or the Installment Activity Statement.The PAYG withholding system that comes into force on the 1 July 2000.The PAYG installment regime and how this will affect tax payments by entities.An introduction to the categories in the new Business Activity Statements and InstalmentActivity Statements that form the reporting and payments basis of the New Tax System, tothe ATO.


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TAX REFORMGOVERNMENT ASSISTANCE INITIATIVES

The role of the Australian Taxation Office

The Australian Taxation Office [ATO] has the role of providing guidance and assistancewith technical changes that will arise from the introduction of The New Tax System.

The assistance provided by the ATO includes a range of publications from generalpurpose guides, to industry and sector specific publications directed at the specific issuesto be addressed by specific industries and community groups.

The ATO is also providing a wide range of seminars to assist with the introduction and

implementation of the changes.

To obtain details of publications, seminars and other assistance available from the ATOthe following options are available:

Website www.taxreform.ato.gov.au

The business Tax Reform Infoline 13 24 78

A fax from tax 13 28 60

By mail PO Box 9935 in capital cities

The GST Start-Up Assistance Office

To obtain further information visit the GST Start-Up Assistance Office website atwww.gststartup.gov.au or call their enquiry line on 02 6263 4490.

To enquire about, or register for, for the Adviser Education Programme phone 1800 351 754


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The Introduction of Goods AndServices TaxThis section discusses the basic principles of GST. It introduces GST terms and theirimplications in managing the GST process. It also considers the GST portion of the BAS.

Appropriate systems are the key to managing GST in an organisation. Depending on thesize and nature of the entity, some systems will produce only basic accounting data,whereas others will produce comprehensive management reports.

The introduction of GST provides an opportunity for all entities to review their currentsystems. This review should not just focus on accounting for GST, it should also considerhow the information that is required for GST compliance purposes can be captured andused to assist in the effective management of the entity.

This section of the workbook looks closely at various ’GST terms’ and their GST specificmeanings. While some of the terms may seem difficult to grasp, once you have a clearunderstanding of them you will find that many of the mysteries of GST will disappear.

GST is a broad-based tax of 10% on the supply of most goods and services consumed inAustralia. GST started on 1 July 2000. It may affect some transactions entered prior tothat date where performance occurs on or after 1 July 2000.GST is a very visible tax. When goods and services which are subject to the 10% GST arepurchased, it will be mandatory for the supplier to indicate that the price being paid isGST inclusive. This is unlike many of the existing taxes, such as wholesale sales tax,where tax may be included in the price of the goods, but which is not clearly visible to thepurchaser. This is one of the benefits of the introduction of GST. Many existing, hidden,indirect taxes will be phased out and GST will replace them.

Although GST will replace some existing taxes, the GST charged to an organisation by itssuppliers, in many situations, will be recoverable from the ATO. One of the mostfundamental principles of a GST system is that the tax is not an added cost for a ’GSTregistered’ entity.

The key elements of the introduction of GST, as a component of the New Tax System, foran organisation are:

• The abolition of many indirect taxes; this will reduce business costs.• Any resulting cost savings must be passed on to customers.• An organisation may be required to register for GST.• A registered organisation must include 10% GST in the price of 'taxable supplies'.• An organisation will find that GST is included in the prices charged to it by its suppliersfor many of the goods and services it purchases.

• A registered organisation will be able to reclaim this GST from the ATO.


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Australian Business Number

The Australian Business Number (ABN) is critical to the operation of the GST system, asevery entity that is registered for GST will have an ABN and this is the number that mustbe quoted on all your tax invoices.

Even where an entity chooses not to register for GST, it may still wish to apply for anABN. The ABN registration form includes the option to register for GST.

The Australian Business Number (ABN) will enable organisations in Australia to dealwith the ATO and a range of government departments or agencies using the one number.

As a general rule organisations should register for an ABN even if they do not register forGST. Where an enterprise fails to obtain an ABN there may be financial consequences.

If the organisation does not have an ABN, or does not provide that number to otherbusinesses to whom it supplies goods and services, those businesses ordinarily will berequired to deduct withholding tax from payments to that business. There are very limitedexceptions to the rule. This withholding tax is 48.5cents in the dollar.

An organisation will also need to show its ABN on the tax invoices it issues to its GSTregistered clients.. If it doesn’t, the document will not constitute a tax invoice (even if sodescribed) and its registered customers would not be able to claim input tax credits.

The ABN will not replace a tax file number, so tax file information will still be protectedby the existing privacy guidelines.

The ABN will be replacing the Australian Company Number [ACN] over time, and from1 July it will be allowable to quote the ABN in the place of the ACN


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EntityAn entity, in legal terms, is a person, a company, a trust, or some other form oforganisation that has a separate legal identity.

Each entity that conducts an enterprise is entitled, and may be required, to register for anABN. If one entity conducts a number of enterprises only one ABN is required.

It should be noted that some organisations that may not be entities in a legal sense, forexample partnerships and unincorporated societies, may be entities for GST purposes andtherefore may be required to register for GST

Example 1

Mary Smith operates a plumbing business, which also installs central heatingequipment, as a sole trader. In addition to the plumbing business Mary ownsall of the shares in a company, Heating Pty Ltd, of which she is the ’working’director. The company undertakes the prefabrication of central heatingequipment that is, by and large, sold to the company/person who installs it.

In a GST context it is very important to appreciate that whereas Mary may beseen by the world at large to be operating one business, the prefabrication andinstalling of central heating equipment, she is in fact operating through two quiteseparate legal entities. In this example the first entity is Mary Smith, plumber,and the second entity is Heating Pty Ltd. Although Mary is for all practicalpurposes the sole owner and controller of both entities, and may perceiveherself to be running one business, the fact that there are two separate legalentities, means that both Mary and the company may be required to registerseparately for GST.

Example 2

Redsea High School provides various educational related services.

In addition the benefactors of the school have set up a trust which arranges andprovides outdoor educational pursuits for pupils of the school on a subsidisedbasis.

In a GST context it is very important to appreciate that whereas the school andthe trust may be seen by the world at large to be one and the same, the activityis undertaken by two quite separate legal entities. In this example the firstentity is the school and the second entity is the educational trust. Although thetrustees of the trust may be senior staff of the school and they themselves mayperceive they are running one organisation, the fact that there are two separatelegal entities, means that both the school and the trust may be required toregister separately for GST.

Where people own or control one or more separate legal entities, the GST issues arepotentially more complex and professional assistance or assistance from the ATO, may berequired.

Several related entities may be able to register for GST as one group. They will then beconsidered as one enterprise for GST purposes.


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Typical situations that may fall into this category include:

Self employed shareholders and the companies they own.

Partnerships.

Partnerships and companies they own.

Trustees and the companies they own.

Trustees, and beneficiaries of the trust..

Companies and their subsidiary companies.

In all of the above situations it may be necessary to register more than one entity for GSTpurposes. However, if one entity consists of a range of enterprises, only one registration isrequired.

Example 1ABC Pty Ltd currently operates a cafe, a takeaway food delivery service and anews agency from different premises. Only one entity operates all of thesebusiness enterprises, so only one registration is required, and one ABN willcover all these activities.

Example 2KELP Services currently operates a caf , a free food delivery service to elderlypeople in their homes and a shop selling new and second hand books togenerate funds for the food delivery service. They all operate from differentpremises. Only one entity operates all of these business enterprises, so onlyone registration is required, and one ABN will cover all these activities.

Example 3Drake school currently operates a primary school, a bookshop, and a boardingestablishment at different sites. Only one entity operates all of these businessenterprises, so only one registration is required, and one ABN will cover allthese activities. However the school may choose to register each enterpriseseparately.


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Business Activity Statement (BAS)Every entity that registers for GST is required to submit a Business Activity Statement(BAS). Part of the BAS is your GST return.

With the BAS, most entities will make one payment and one statement to the ATO perquarter. That is, most entities will only be required to lodge four returns and make fourpayments per year.

For each tax period the entity will receive from the ATO a single tax form: the BAS.

As from July 1 the BAS will be used to advise the ATO of the GST liability of the entityas well as being used to advise its other tax liabilities. For most entities this means thatthere will only be one form to the ATO and only one payment each quarter. It should benoted however that these organisations will still be required to file an annual income taxreturn, and an annual FBT Return when appropriate.

The exceptions for filing a BAS quarterly will include businesses that are required to remitGST on a monthly basis, or choose to remit GST on a monthly basis, and for medium-sized remittees of source deductions from wages paid to employees. (who will still haveto remit PAYG withholding payments monthly).

A BAS will have to be filed when it is due, even if no tax liability exists for that taxperiod.

The BAS can be sent to the entity, by the ATO either through the mail as a paper form, orover the Internet as an electronic form if you have requested this option.

The entity will be required to lodge its BAS with the ATO twenty-one days after the endof the GST tax period. Note however that there are extensions of time available for the 1st,

2nd and 3rd BAS returns for quarterly remittees of GST. These returns may be filed threeweeks, two weeks, and one week after the standard due dates respectively.

The GST tax period will either be one month or three months. This will have beendetermined when an application for the ABN was lodged.

The entity will be required to keep adequate records so it can accurately complete the GSTsection of the BAS to determine the amount of GST it will have to pay to the ATO or theamount that may be refunded, depending on its circumstances.

Any refunds of GST may be used to reduce other amounts of tax that may need to be paid(such as amounts withheld from salaries and wages) on the BAS for that period.


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Goods and Services Tax

EXTRACT FROM THE BAS

Boxes 1A and 1B plus G1 to G20 on the Business Activity Statement relate to the Goodsand Services Tax transactions for the relevant period, monthly or quarterly.

An Instalment Activity Statement will not have any GST boxes to complete. This isbecause an IAS is only available to those taxpayers that are not registered for GST.

A brief overview of these items follows. It is necessary to accurately accumulate therelevant information in your accounting records in order to establish your liability for GSTin respect of the current reporting period.

Supplies you have made

This section of the BAS determines the GST you have charged your customers [non cashbasis], or collected from your customers [cash basis]. The form takes all supplies madeby the organisation, deducts supplies not subject to GST, and divides the result by 11 toarrive at the GST collected or charged. The boxes are as follows:

G1 Total sales and income and other supplies, regardless of whether they are subject toGST. Ensure that you include supplies made prior to 1 July 2000, on which you chargedGST

G2 Exports (GST-free). No GST is payable to the ATO on this figure.

G3 Other GST-free supplies. No GST is payable to the ATO on this figure.

G4 Input taxed sales and income and other supplies (other than exports and GST-freesupplies) on which you have not charged GST.

Add 1B+1D+1F+1G=2B $

Credit for goods andservices tax paid 1B $

Wine equalisation taxrefundable 1D $

Wine equalisationtax payable 1C $

Luxury cartax payable 1E $

Luxury car taxrefundable 1F $

Add 1A+1C+1E = 2A $

2A minus 2BGST net amount 3$

Goods and servicestax payable 1A $

Credit for wholesalesales tax 1G $


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G5 Total of G2 + G3 +G4 which is the total of all your GST-free supplies and your inputtaxed supplies.

G6 G1 minus G5 provides the total of your taxable supplies for the current reportingperiod. It is this figure on which the 10% GST is payable to the ATO, subject to anyadjustments.

G7 Adjustments arising out of previously reported transactions which alter the totalamount on which GST is calculated for the current period.

G8 Add G6 and G7 to provide the final total figure on which GST is payable.

G9 G8 is divided by 11 to provide the actual GST payable on supplies made during thereporting period.

Transfer the figure in Box G9 to Box 1A on the front of the form

CALCUALATION SHEET

Goods and services tax for the period 01/07/2000 to 30/09/2000

Supplies you have made Acquisitions you have made

GST accounting method Amounts at G1, G10 & G11 are GST-inclusive

G1 $ G10 $

G11 $

G12 $

G13 $

G14 $

G15 $

G16 $

G17 $

G18 $

G2 $

G3 $

G4 $

G5 $

G6 $

G19 $

G20 $

G7 $

G8 $

G9 $

The amount at G9 is your GSTpayable, transfer this amount to1A on the front

Capital acquisitions

Other acquisitions(see exclusions)

Add G10 + G11This is the total of your

acquisitions

Acquisitions for makinginput taxed sales & income

& other supplies

Acquisitions with noGST in the price

Total of estimated private useof acquisitions + non-income

tax deductible acquisitions

Add G13 + G14 + G15This is the total of your

non-creditable acquisitions

G12 minus G16This is the total of yourcreditable acquisitions

Adjustments

Add G17 + G18This is the total of your

creditable acquisitions afteradjustments

Divide G19 by Eleven

Total sales & income &other supplies

Exports

Other GST-freesupplies

Input taxed sales &income & other

supplies

Add G2 + G3 + G4This is the total of your GST-free

and input taxed supplies

G1 minus G5This is the total of your

taxable supplies

Adjustments

Add G6 + G7This is the total of your taxable

supplies after adjustments

Divide G8 by Eleven

GST-freesupplies

The amount at G20 is your GST credit,transfer this amount to 1B on the front


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Acquisitions you have made

The purpose of this section of the form is to identify the GST your customers havecharged you [non-cash basis] or that you have paid to your customers [cash basis] that youare entitled to claim back from the ATO. This is achieved by taking the total ofacquisitions by the registered person, deducting all acquisitions on which no GST hasbeen charged, and dividing the result by 11 to obtain the GST that can be claimed

The boxes on the form are as follows:

G10 Capital acquisitions.

G11 All other acquisitions. Ensure that you include supplies on which you have paid GSTprior to 1 July 2000

G12 Add G10 and G11 to provide the total of all acquisitions for the period.

G13 Acquisitions for making input taxed supplies as well as other supplies in respect ofwhich GST credits are not claimable.

G14 Acquisitions with no GST in the price, therefore no credit available.

G15 Total of estimated private use of acquisitions as well as expenses which are notdeductible for income tax purposes — no credit available.

G16 Add G13+ G14 +G15 to provide the total of your non-creditable acquisitions onwhich you may not claim any input tax credits.

G17 G12 minus G16 to provide the total of your creditable acquisitions for the period.Input tax credits are claimable on this figure subject to any adjustments arising out oftransactions reported in a previous period.

G18 Adjustments to previously reported acquisitions you have made.

G19 Add G17 + G18 This is the total of your creditable acquisitions after adjustments.

G20 Divide G19 by 11 to provide the total GST credit available to you for the currentreporting period.

Transfer the figure in G20 to BAS Box 1B.


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Goods and Services TaxThe GST is intentionally very broad in its coverage. It is intended to capture all forms ofdomestic consumption, so may include a range of things that you may not have thought of.It is important that you charge GST on all taxable supplies, so you need to have a goodunderstanding of what we mean by goods and services.

If you don’t charge GST when you should have, you as the supplier will still be required topay 1/11th of the price charged to the ATO - so making a mistake can be very expensive!

Enterprises produce the huge range of goods and services that are available to consumers.Goods can be grown, made, or imported, and can be bought and sold repeatedly.

Services also come in many different forms. Services can involve a plumber fixing ablocked drain, or the local swimming club teaching the kids to swim. The local Council,Federal Government, and the local Citizens Advice Bureau all provide services. Someservices we use are costly, some cost nothing, and some organisations provide them inreturn for subscriptions and members donations.

Some service organisations are huge, highly structured, and are ’big businesses’ to run.Other service organisations are less formal, less organised, and small. One thing iscommon to all enterprises that provide goods and services. They involve people inplanning, organising, and managing the supply of the huge range of goods and servicesthat people consume every day.

Goods are the tangible things we consume. Services are things people do for others.Goods and services have a cost and generally a price.

Overview of GST

GST is a tax on goods and services

What is a GST? The main principles are that it is a tax:applied to the domestic consumption of goods and services; andit is paid by the final consumer.

The first key concept here is domestic consumption. That means the GST does apply toimports, but does not apply to exports.

As well, it is about the consumption of goods and services. So GST is a tax on goods andservices and not on income. Therefore, an intention to make a profit is irrelevant indeciding whether an organisation must pay GST.

It follows that many organisations that are not currently considered to be carrying on abusiness for income tax purposes will nevertheless be included in the GST net. Suchorganisations (which the legislation calls entities) include charities, trusts, co-operatives,sporting and other clubs, statutory bodies and local authorities.


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Consumers, not enterprises, pay the GST

The next step is to understand that even though the tax is collected at every stage ofproduction, it is the consumer that actually pays the tax. This can be most readilyshown with a simple example of the manufacture and sale of a dining table. TheGST rate is 10%.

Table 1: GST on a dining table

Purchase SalePricepaid(a)

GST

(b)

Total

(c)

Pricecharged(d)

GST

(e)

Total

(f)

Paid toATO(e-b)

Logger 20 2 22 2Timber mill 20 2 22 40 4 44 2FurnitureManufacturer

40 4 44 80 8 88 4

Retailer 80 8 88 100 10 110 2Consumer 100 10 110

10

Note: The total tax collected by the ATO is 1/11 ($10) of the selling price to the consumer($110), or 10% of the price (before GST) paid for the goods.

As you can see, the GST is collected at each stage of the chain of production.

Each person in the chain:

1. charges GST on their sales (column (e)). The BAS calculation sheet describes this asSupplies you have made .

2. claims back from the ATO, all GST paid on the goods they purchase as inputs to theirsales (column (b)). The BAS calculation sheet describes this as Acquisitions youhave made .

3. when they make their return to the ATO on the BAS, they subtract the GST they havepaid on the acquisitions they have made from the GST collected on the supplies theyhave made, to calculate the net amount payable (last column).

Your organisation might be the timber mill in this example, though the same rules apply toall of the organisations in the chain. For you, the GST consequences are as follows:

1. you purchase some logs from the logger for $22. That includes $2 GST2. you turn the logs into timber that can be used by a furniture manufacturer, and charge

the manufacturer $44. That includes $4 GST3. the key points to note are that you must remember to charge and record the GST on

your sales, and to keep a record of the GST you have paid on your inputs (the logs)4. when you prepare the GST section of the BAS and send it to the ATO you are able to

claim back the GST on your purchases, but must submit the GST collected on yoursales. It is the difference between these ($4 collected from furniture manufacturer lessthe $2 paid to the logger) that must be paid to the ATO. That is $2.


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Almost everything else that you will ever read, see or hear about GST will ultimatelybe related to how to calculate the figures for your business in columns (b) and (e). Ifyou understand what to do to get those figures you have got the GST licked! It isworth investing the time to get that straight now.

Because most organisations will claim back the GST on their purchases, and collect theGST on their sales to their customers, you can see that the GST is not a burden onorganisations.

Another way of showing this is that, looking at the example as a whole, you can see thatthe total in the last column shows that businesses have paid $10 to the ATO. But whenyou look at the bottom row of the table, you can see that the final consumer has actuallypaid that $10. The input credit mechanism (that is only available to registeredorganisations, not consumers) means that the final GST cost is borne by the consumer, notthe organisation.


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There are four kinds of supply

1. Taxable Supplies

In the example we have just looked at you charge GST on your sales - this is called ataxable supply. The BAS calculation sheet arrives at the total of your taxable suppliesat Box G6. However you are also entitled to claim back the GST on your organisation sinputs - this is called an input tax credit. The total supplies on which you can 1/11th as aninput tax credit, is shown in Box G17. The example on page X covers the situation thatwill apply for the supply of most goods and services.

However, there are two other kinds of supply that you also need to be familiar with - theseare GST-free supplies and input taxed supplies.

2. GST-Free Supplies

GST-free supplies are different from taxable supplies because GST is not charged onsales. These sales are shown in boxes G2 and G3. However, full credits are stillavailable for all inputs to those supplies. GST-free supplies include things like health,education, child care, exports and so on.

To demonstrate the difference between taxable supplies and GST-free supplies, we canimagine that the retailer in the example above might get an order from overseas for thedining table. In that case, the table would be exported. The example would then look asfollows.

Table 2: GST on an exported dining table

Purchase Sale

Pricepaid

(a)

GST

(b)

Total

(c)

Pricecharged

(d)

GST

(e)

Total

(f)

Paid to

ATO

(e-b)

Logger 20 2 22 2

Timber mill 20 2 22 40 4 44 2

Furniture

Manufacturer

40 4 44 80 8 88 4

Retailer 80 8 88 100 0 100 -8

Overseas sale 100 0 100

0

Because the table is exported, and exports are GST-free, the sale is not subject to GST.However, the retailer is still entitled to input tax credits for the purchases made to producethe table. In this case, then, the retailer is in credit and gets a refund of $8 from the ATO.

The amount of export sales or income is separately recorded on the BAS calculationsheet at Box G2.


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Now, lets demonstrate an example of a retailer who gets an order for stationery from aresidential nursing home which provides services which qualify for GST-free status.The example would look as follows.

Table 2a: GST on stationery as input to GST-free supplies

Purchase SalePricepaid(a)

GST

(b)

Total

(c)

Pricecharged

(d)

GST

(e)

Total

(f)

Paid toATO(e-b)

Logger 20 2 22 2Timber mill 20 2 22 40 4 44 2

StationeryManufacturer

40 4 44 80 8 88 4

Retailer 80 8 88 100 10 110 2Nursing Home 100 10 110 -10Total GSTPaid to ATO

0

Because the organisation provides GST-free services the nursing home is entitled to inputtax credits for the purchases made to provide those services.The next example demonstrates a purchase of computers by a school for use in its teachingprogram, which has GST-free supplies.

Table 2b: Computer equipment bought for use in educational courses

Purchase Sale

Pricepaid(a)

GST

(b)

Total

(c)

Pricecharged

(d)

GST

(e)

Total

(f)

Paid toATO(e-b)

EquipmentSupplier

400 40 440 40

Educationalbodypurchaser

400 40 440 -40

Educationalbody s fees

0 0 600 0 600 0

0

Because the educational course is GST-free, the amount charged to attendees is notsubject to GST. However, the school is still entitled to input tax credits for the purchasesmade to run the educational course. In this case, then, the school is in credit and gets arefund of $40 from the ATO.

As you can see, GST-free is an appropriate way of naming these supplies because in netterms, no GST is collected on these supplies.

All sales or income from GST-free supplies, excluding exports, are totalled and recordedon the BAS calculation sheet at Box G3.

Most organisations will be substantially involved with making and receiving taxableand/or GST-free supplies. The critical point to note is that in respect of both of thesekinds of supply, you can claim back input tax credits for the organisation s purchases to


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make these supplies. The major complication that may arise will be ensuring that youknow which goods and services are GST-free, so that you know when GST does nothave to be charged on your sales.

3. Input Taxed Supplies

Input taxed supplies are the third category. These are different from the other kinds ofsupply because you don’t charge GST on your sales. These are deducted in Box G4 on theBAS. It also means that you can’t claim back any input tax credits on yourpurchases to make those supplies either. These acquisitions are deducted in BoxG13. This is the trickiest kind of supply because it means you have to worry about whenyou charge GST and when you can claim it back too.

The main kinds of input taxed supplies are residential rents and financial services. Thistreatment of financial services means you won’t be charged GST on your bank interest.

For residential rents, it means that a landlord does not charge GST on the rent charged,and is not able to claim input tax credits for anything purchased in respect of the property.For example, if the landlord paints the walls, buys a new oven, or replaces the carpetsGST will be charged on those items, but it cannot be claimed back. The total of inputtaxed supplies is also separately recorded on the BAS calculation sheet at Box G4. Theacquisitions to make those input taxed supplies are separately recorded on the BAS in BoxG13.

4. Supplies by non-registered entity

The fourth category of supply is that made by a non-registered entity - there is noGST charged on the supply they make. They may not claim back GST included in theprice of items they purchase. When purchases are made from an organisation or personthat is not registered for GST, the total of those purchases are recorded on the BAS in BoxG14.

Recapping the kinds of supply

Remember: There are four kinds of supply. They are:

Taxable supplies1. charge GST on sales — BAS, Box G6.2. claim full input tax credits for GST paid on an entity s purchases — BAS Box G17.

GST-free supplies

1. no GST charged on sales — BAS, Boxes G2 and G3.2. claim full input tax credits for GST paid on an entity s purchases included in BAS Box

G17.

Input taxed supplies

1. no GST charged on sales — BAS, Box G4.2. no input tax credits for GST paid on an entity s purchases — BAS Box G13.


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Supplies by non-registered entity1. As no GST has been charged there is no claim available for input tax credits on these

acquisitions. They are deducted on the BAS in Box G14.

To avoid any confusion make a mental note now that input taxed supplies are not the sameas input tax credits. Input taxed supplies have just been described. Input tax credits arethe credits allowed for GST paid on organisation expenses incurred to make taxable orGST-free supplies. The distinction is discussed more fully later in this section.

Clearing up a few queries

Now that you have come this far, you might have a number of queries. It is worth whileemphasising a few points now:

• When you acquire things for your organisation for which you are able to claim inputtax credits, you don’t have to wait until you have used those things to claim the credit -you can do that in your next GST return. Say you buy a year’s stock of stationery for$1100 (including $100 GST). You can claim that $100 in your next return, eventhough you won’t use all the stationery for some time.

• Input tax credits are available for all your inputs, not just "raw materials", and they areavailable to service providers in the same way that they are to providers of goods. Forexample, if you provide counselling services you can claim the GST paid on yourtelephone bills, heating, electricity, room rental and so on.

• Input tax credits can be claimed for all acquisitions you have made (that have a GSTcontent), including capital acquisitions, in the next GST return. So, unlike income tax,where you have to depreciate capital items over a period, GST paid on capital itemscan be claimed in the next return. For example, if you buy a new building, purchase acomputer for the office, or buy a new truck for work, you can claim back the GST onthese items in your next GST return - even though these items will be used over aperiod of time. The amount of capital acquisitions are shown in Box G10 on the BAScalculation sheet.

1. Wages and salaries paid to employees and superannuation contributions paid on behalfof employees are not subject to GST. These are outside the scope of GST and don tappear anywhere on the BAS form, including Box G1 and Box G11.

2. By and large, the examples and the discussion here assumes that the entity making thesupply is registered for GST - most organisations will be required by law to register.Only registered entities charge GST, and only registered entities can claim input taxcredits. If you are not registered, you don’t charge GST on your sales, but you can’tclaim input tax credits either.


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What does this all mean for my organisation?

Turning all this new language into what it means for your organisation comes down to afew key points. A "typical" organisation:

1. Will pay GST on most of their acquisitions

2. Will be entitled to input tax credits on those acquisitions

3. Will need to substantiate claims for input tax credits with valid tax invoices

4. Will charge GST on most of their outputs (with major exceptions - where GST-free orinput taxed supplies are made)

5. Will need to ensure that the GST consequences of every transaction in and out of theorganisation are recorded, substantiated and can be readily retrieved.

The first steps that every organisation needs to take now to prepare for this involves:

1. Identifying all your organisation s inputs

2. Identifying all your organisation s outputs

3. Classifying those inputs and outputs according to their GST treatment (that is, are theytaxable supplies, GST-free or input taxed)

4. Identify any areas of uncertainty, and seek help from the ATO or a professionaladviser if necessary

5. Consider your record keeping systems to see if they are "up to scratch" in being able totrack and record all of these transactions


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Input Tax CreditsEnterprises can claim back from the ATO the GST that is included in the price of goodsand services they acquire for the purpose of making taxable supplies and GST-freesupplies.

These are called input tax credits.

The BAS calculation sheet describes this at Box G20 as your GST credit. The totalamount in Box G20 is then transferred to Box 1B on the BAS.

It is critical that every registered enterprise is able to keep track of these credits as they arereal dollars. An unclaimed input tax credit is like an unclaimed income tax refund.

Working out how much GST to pay the ATO

If an enterprise is registered for GST and makes taxable supplies or GST-free supplies,part of the price the enterprise pays for most goods or services it acquires is GST.

This GST portion of taxable supplies received by the enterprise is available as an input taxcredit provided those goods or services were acquired for the purpose of making thetaxable supplies or the GST-free supplies.

The registered enterprise will deduct its input tax credits from the GST it collects from itscustomers so that only the resultant net amount of GST gets paid to the ATO.

Example

Oz Cartage (Pty) Ltd transports goods nationwide. It charges customers for the services itprovides. It incurs various operating costs. It has the ATO’s approval to operate on a GSTcash basis.In a particular tax period, the company:• Received monies from its customers for services it provided $33,000• Paid its external suppliers $11,000• Paid its employees $12,000

The monies it received from its customers, and the amount it paid its external suppliers, bothare GST inclusive.

The company accounts to the ATO for GST as follows:

GST content of receipts from customers (1/11th of $33,000) $3,000 = BAS Box G9less: GST content of payments to suppliers (1/11th of $11,000) $1,000 = BAS Box G20Net GST to be paid to ATO $2,000 = BAS Box 1A

In this example, $3,000 is the total GST collected from customers, and $1,000 is the totalinput tax credits.

In order to claim GST input tax credits the business must have a valid tax invoice in respectof the goods or services at the time the input tax credits are claimed in the BAS.


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The Tax Fraction

The tax fraction can be important:

• In isolating the GST content of a transaction; and

• Identifying the true 'income' and 'expenditure' of the organisation.

Total price includes cost

Because 10% is added to the value of a taxable supply, the GST component of the GSTinclusive price is 1/11th of that price; the rest (10/11ths) is the value before GST.

In relation to that supply, that remaining 10/11ths of the price is the supplier’s real ’income’as the GST collected must be remitted to the ATO.

Similarly for the acquirer of the supply, that remaining 10/11ths of the price is ordinarilythe true cost of the taxable supply as the GST content is recoverable from the ATO.

With any taxable supply you typically would find:

GST exclusive price $10 [10/11ths]Plus GST 10% $ 1 [1/11th: The tax fraction]GST inclusive price $11

Example

John Brown is registered for GST and sells 10 widgits to Ann Jones who also is registeredfor GST. The value of the supply is $150.00 and John adds 10% GST [$15] and charges Anna price of $165.00.

When John completes the GST portion of the BAS he will disclose the total of his taxablesupplies for the tax period. He will calculate 1/11th [the tax fraction] of the total whichincludes the price he charged Ann, so the 1/11th of that price [ie. $15] will be included in thetotal GST on supplies made that he reports to the ATO, - in BAS Box G9.

The remaining 10/11ths of the price [$150.00] is the gross income that John receives fromthe transaction.

When Ann completes the GST portion of the BAS she will disclose the total amount of heracquisitions. She will calculate 1/11th [the tax fraction] of the total acquisitions which giverise to input tax credits including the price she paid John in BAS Box G20. In this way shewill claim back from the ATO the $15 [1/11th of $165.00] GST she was charged by John.

The remaining 10/11ths [$150.00] is the actual acquisition cost of the item to Ann.


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Attribution RulesWhen an entity completes the GST section of the BAS it is required to include:

• The total amount of taxable supplies made by the entity during the period; in BAS BoxG6 and

• The total amount of the taxable supplies it acquired during the period in BAS Box G17provided those supplies were acquired for the purpose of operating the taxable activity.

There are rules, called attribution rules, that determine the GST return period in whichtransactions must be recorded for the purposes of accounting for GST. The rules dependon whether you use a cash basis or a non -cash basis of accounting for GST. This electionwould have been made when the entity applied for an ABN. The rules are as follows:

CASH BASIS:

Include only the GST included in payments actually received or paid duringthe GST Return Period.

The entity does not have to account to the ATO for the GST charged to it s customersuntil the GST has actually been received in cash.

This means that any taxable supplies made by the entity that include GST, but for whichpayment has not been received are excluded from the Total Sales figure that is recorded inBox G1. These supplies will be included in Box G1 in the GST return period inwhich payment is subsequently received.Where an entity is registered on the cash basis and receives part payment for any taxablesupply that it makes, the supply is included in Box G1 to the extent of the paymentactually received

• Claim relief for the allowable portion of the GST content of payments made in the taxperiod.

Where an entity acquires taxable supplies of goods and services, the price of theseacquisitions will include GST. If that entity is registered for GST on the cash basis itis able to claim as input tax credits 1/11th of the GST inclusive payments it actuallymade in the BAS period. Provided a Tax Invoice is held at the time the claim is made.This means that only the payments actually made for supplies that include GST arerecorded in Box G10 or G11.

For an entity which is GST registered on the cash basis to be able to claim aninput tax credit, it must have:

• Paid the bill; during the period the BAS relates to; and

• Hold the tax invoice that supports the fact that an input tax credit claim is available.

• If the bill is part paid, a partial claim can be made. In this event you include only thepaid amount in Boxes G10, or G11.


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NON-CASH BASIS

• The non-cash basis of accounting for GST requires an entity to include in Box 1 of theBAS all taxable supplies which occur in that return period.

The effect is that you have to include all taxable supplies you make in GST period in BoxG1 of the BAS, This will include all taxable supplies that have been made but not yetpaid for.

• The amount of GST an entity is entitled to claim back from the ATO is the GSTcontent of the consideration for all goods or services acquired during the period,whether or not paid for in the period.

GST input tax credits can be claimed even if payment has not been made, provided alwaysthat a tax invoice is held. Accordingly all acquisitions in the GST return period areincluded in Box G10 and G11, irrespective of whether payment has been made or not.


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Tax InvoiceAlways make sure a Tax Invoice is obtained

If an organisation wants to recover from the ATO any GST it is charged on goods andservices acquired, the general rule is it must hold a tax invoice covering that supply.

A tax invoice is a valuable documentIf an organisation is registered for GST and undertakes a transaction related to creditableacquisitions, then the tax invoice provided by the supplier can be turned into money byclaiming back the GST content from the ATO.Generally, if an organisation does not hold a tax invoice from the supplier, it cannot claimGST input tax credits for the goods or services purchased by that organisation.

A tax invoice is not just any invoiceFor an invoice to constitute a tax invoice, it must contain certain legally requiredinformation. If it does not meet these requirements then it is not a tax invoice and theorganisation cannot claim back the GST content as input tax credits.

THE TAX INVOICE IS THE CORNERSTONE OF GSTThe tax invoice is the single most important source document for the GST. Procedures toensure tax invoices are correctly issued, and recorded and filed appropriately are crucial ina GST environment. The requirements of a ’tax invoice’ are an extension of informationnormally appearing on an invoice.

Tax Invoice ChecklistInvoice total including GST

Greater than $50 but less than $1000 Greater than $1000The ABN number of the supplier The ABN number of the supplierGST inclusive price GST inclusive priceClearly shown the words "Tax Invoice" Clearly shown the words "Tax Invoice"Issue date of the tax invoice Issue date of the tax invoice

Name of the Supplier Name of the SupplierBrief description of items supplied Brief description and quantity of items

supplied

If the GST is 1/11th of the total price If the GST is 1/11th of the total priceeither; indicate total includes GST or, indicate total includes GST orthe amount of the GST the amount of the GST

If the GST is not 1/11th of the total If the GST is not 1/11th of the totalprice (as a result of a mixed price (as a result of a mixedsupply), each supply must be supply), each supply must beidentified, identified,

the amount of GST payable and The amount of GST payable and

the total amount payable The total amount payableThe name and the address of thereceiver or

The ABN number of the receiver


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For registered entities if the transaction is less than $50, including GST, a tax invoice isnot required. Input tax credits can be claimed provided a suitable receipt is held.

Get the tax invoice issues right and you are well on the way to dealing with GST.

As we have seen for the preparation of the GST portion of the BAS there needs to bea split between the amount of taxable supplies, GST-free supplies, and input taxedsupplies. In the context of any organisation, this information will have its origin inthe details that need to be shown on the tax invoices issued by the organisation forboth credit and cash transactions. The system in place should allow the aggregateamount of each such category of supply to be readily generated at the end of each taxperiod.

• Details that need to be recorded in your records in respect of each receipt of funds

• Date that the cash was received (and the date of issue of any related invoice)

• In cases where there is no related invoice, relevant details of receipt

• Total amount banked

• Split between each category for GST purposes (where not already so recorded in theaccounts receivable system).


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GST SystemsWith many organisations, a starting point in considering their systems will be to effect adetailed analysis of their activities, and the transactions they undertake. This analysis willprompt questions such as the following:

• What are the GST implications of those activities and transactions?

• Do GST implications prompt the need to reconsider how those transactions are enteredinto and recorded?

• What additional information needs to be generated by the system to meet GST-relatedobligations, and how best might this be done?

• Is the existing system sufficiently robust to allow it to be suitably adapted for GSTpurposes, or are more extensive systems called for?

At the end of the day, new (or modified) practices and procedures will need to be put inplace to accommodate GST and, at the same time, the requirements of the new PAYGsystem.

In designing a system for the organisation consideration should always be given toplanning the system to meet both business and tax requirements.

To provide the required GST information for insertion in the organisation s BAS,the system (whether it be manual or computerised) will need the followingdocumentation:

• Tax invoices received from suppliers

• Tax invoices issued by the entity

• Bank statements/ bank reconciliations/ cashbooks

• Ledgers, and other summarised information

• GST calculation sheets

• Adjustments worksheets

• Guides and industry specific booklets dealing with GST and the PAYG system


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Source Documents

Source documents are the documented evidence that an entity accumulates when itprocesses transactions. This evidence needs to be kept in a form that facilitates easyretrieval.

Examples of source documents:

Cheque butts Deposit slipsBank statements Tax invoicesPay slips ReceiptsPurchase orders Credit notesExpense claim forms Quotations

Why do we keep source documents?

We keep source documents to provide the information needed to produce accurate reportsfor use by management. In addition to this function, in a GST context, they provide theevidence needed to prove that the entity is entitled to a GST refund or, conversely, howmuch GST it needs to pay to the ATO.

Controls need to be put in place to ensure the system generates the requiredsource documents. The ATO has information available on exactly what sourcedocuments need to be retained and for how long.

You will find it useful to:

• Use standard source documentation that suits the organisation

• File all documentation in a logical and ordered way, consistent with the systems used

• Ensure everybody in the organisation understands the need for, and use of the sourcedocuments

A structured reporting system reduces room for error and enables the users to have agreater level of confidence in the accuracy and usefulness of the information.

A consequence of a good system will be that GST reporting requirements will be easier tomeet. Further:

• The risk of incorrectly claiming back GST on items purchased will be much reduced;and

• If any of the people who procure goods or services from your organisation are GSTregistered, you will be helping them fulfil their documentation needs in respect of theirpurchases from you.

Review source documents at time of transaction

When you create or receive any source document, take the time and care to ensure that allrelevant information is correctly recorded


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The more accurate and detailed the source documents are, the more useful they become,allowing more information to be held in one place. Where possible, source documentsshould be cross-referenced to provide additional detail if required.

Examples of this may be a quote matched to the invoice, or alternatively a cheque numberwritten on an invoice when paid.

Tax Invoices

As we discussed earlier the tax invoice is the single most important source document inany GST system. Procedures to ensure tax invoices are collected, issued and storedappropriately are crucial in a GST environment. The requirements of a tax invoice are anextension of information held on a normal invoice.

Cheque butts

Most payments that an organisation makes are made through a bank account usingcheques. The cheque butt provides an opportunity for the organisation to recordinformation about each payment made. The cheque number is also unique and provides agood tool for cross-referencing the payment against the tax invoice held.

Details that you may wish to write on each cheque butt are:

• Date

• Supplier

• Cheque total

• Any GST content, and whether (any part of) the payment relates to a supply that isGST-free or input taxed.

Cash Payments

It is desirable that actual cash payments, including petty cash, should be kept to aminimum. The reason is to ensure that there is a permanent source document that caneasily be referred to. As mentioned, payments by cheque allow the cheque butt to be usedas the source document. An equivalent methodology needs to be put in place if cashpayments must be made to ensure that those outgoings are correctly accounted for.Drawing a cheque on the business account and banking it as part of normal sales couldachieve this.

If the payment covers an item that costs not more than $50 [including GST] it will not benecessary to obtain a formal tax invoice from the supplier. However, a suitabletransaction receipt is still required for GST purposes.

For the preparation of the BAS there are certain details that need to be shown. There needsto be a split between,


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Capital acquisitions — BAS Box G10

Other acquisitions — BAS Box G11

Acquisitions of input taxed supplies — BAS Box G13

Acquisitions with no GST in the price — BAS Box G14

Private use and non tax deductible acquisitions — BAS Box G15

Deposit book

The bank deposit book is similar to the cheque butt, but instead of analysing payments itmay be used to analyse your receipts. Again this allows a lot of information to be held inone place that can be used for different purposes.

For the preparation of the BAS there are certain details that need to be shown. There needsto be a split between,

Taxable Supplies — BAS Box G6

GST-free supplies — BAS Boxes G2 and G3

Input taxed supplies — BAS Box G4

Care needs to be taken to ensure that if the deposit is outside the GST (such as a receipt ofa loan or transfer of funds between accounts) that this is shown separately and not lumpedinto any of the three GST categories.

Details that may need to be written on each deposit form.

• Date

• Total amount of the deposit

• Total GST portion of the total amount of the deposit

• The portion of the total amount of the deposit that is attributable to each different typeof supply (taxable; GST-free, input taxed)

Nowadays, many credits to the bank account of an organisation are not by way of depositsmade of cash and cheques received. Often, there will be a significant number of eftpos orcredit card transactions. Care needs to be taken to ensure that these too are recordedcorrectly in the systems and GST properly identified and accounted for. One particulararea where GST accounting is all important is that of credit card sales. Here the focusneeds to be on the total consideration (and GST content) of the GST taxable supply made,not on the amount of the deposit made by the credit card company. This becomes an issuewhen the credit card company deducts its fees before the net deposit is credited to theorganisations bank account.


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Bank Statements

The bank statement provides the link between the inwards and outwards transactions of anentity. It shows the deposits made, cheques issued and automatic payments made.

The bank statement provides the first opportunity to reconcile your record of the paymentsand receipts against what the bank actually credited or debited to your account. This isparticularly important when there are automatic payments and direct credits or otherdeposits into the account.

Som e enti ties m ay find that each major activi ty undertaken is m ore easily account ed for wheneach acti vity operates its own bank account. This allows the source documents for each to beeasily identifi ed, collated, anal ysed and reported on.

Rules of thumb for bank statements:

• Keep them all for at least five years (as with all your records)

• Keep the statements for each bank account separate from those of other bank accountsmaintained

• File in date order

• Complete a bank reconciliation at least monthly.

Cashbook

No matter what system an entity chooses to use, the primary purpose of recording GSTinformation is to ensure that all the information required for completing the BAS isavailable. If an entity has an accounts payable and accounts receivable system then atypical flowchart showing how all the information is gathered in one place would be asshown.

Tax InvoicesReceived

Tax InvoicesIssued

CreditorsDebtors

Cashbook

Bank Statement

Reports andinformation


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Because the various types of transactions need to be analysed into their GST effect thereneed to be effective checks and balances in place.

At the end of any GST tax period, the balance in the GST accounts in the general ledger[GST received from customers and GST paid to suppliers] should equal your GST refund,or the total GST payable to the ATO, as disclosed by your workings on your BAS for theperiod.

Checks and BalancesEvery entity needs checks and balances to ensure everything is recorded accurately and inthe correct period. These are called controls. An essential control is the bankreconciliation.The bank reconciliation should be completed at least monthly and before any informationor reports are created. If the cashbook (or computer system) reconciles to the bankstatement then there is accurate information to generate reports on cash movements in theentity. The cashbook will also give the information required for the BAS if the entity isregistered for GST on a cash basis. If the entity is registered for GST on a non cash basis,then further information will be required.


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Assisting Staff To Deal With GST

In modifying or developing systems to record and account for GST the procedures that aredeveloped and put in place must be user friendly. These procedures must be in a form thatenables staff to follow them without being technical experts in GST.

• In developing the procedures the following actions are necessary:

• The Chart of Accounts needs to be suitably modified to classify the various types ofsupply - GST supplies, GST-free supplies, input taxed supplies, by activity whereappropriate

• Implement procedures to ensure that source documents will be coded correctly toindicate the GST status of all supplies made or received

• Ensuring that invoice documentation issued by the business complies with the "taxinvoice" requirements and facilitates accurate recording

• Reviewing current procedures to ensure that the debtors and creditors recordsappropriately capture and classify GST information in an efficient and effectivemanner.

• Ensuring cash flow management procedures are adequate to cope with the impact ofGST

• Ensuring that relevant totals can easily be obtained from the system for entering on theGST return, either from a computerised or a manual recording system

• Ensuring that staff understand and can apply the “attribution rules”

• Reviewing procedures to ensure that records are kept up to date at all times to enablethe completion of the BAS within 21 days of the end of each tax period

• Understand what GST issues fall outside their knowledge and experience and contactthe ATO or professional adviser for assistance


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Wine Equalisation TaxBoxes 1C and 1D on the BAS relate to Wine Equalisation Tax.

For most taxpayers these boxes are not relevant.

What is the Wine Equalisation Tax?

This is a tax payable by relatively few taxpayers on the last wholesale sale (sale to areseller) of wine in Australia. If untaxed wine is sold directly to a consumer then the taxwill apply to the sale or use of that wine. Most taxpayers will ignore boxes 1C and 1D onthe BAS.

The tax is imposed at the rate of 29% on the wholesale selling price of wine.Alternative values are used in the calculation if the wine is not sold wholesale.

The Wine Equalisation Tax (WET) is required to be included in the BAS or IAS at Box1C Wine equalisation tax payable for the relevant tax period.If a refund is claimable this is shown at Box 1D at the heading Wine equalisation taxrefundable .

Calculation of WET payable

The calculations required to determine the amount of WET payable for a relevant periodare shown in the ATO publication Business Activity Statement Instructions . Theyinvolve separating the dealing with the wine into different categories:

1. Wholesale sale of any goods subject to WET

2. Retail sale of grape wine

3. Retail sale of wine that is not a grape wine

4. Application of the wine to own use connected with retail sale of grape wine

5. Application to own use connected with retail sale of wine that is not a grape wine

6. Wholesale sale of wine to a non-arm s length customer

In cases where the WET has been overpaid it is refundable within 4 years of when thereason for claiming a credit arises. Credits may arise in a number of ways including:

• Incorrect calculation of the amount payable

• Exporting wine that was subject to WET

• Writing off bad debts that included WET paid by you

• Entitlement to a Commonwealth Rebate on rebateable dealings ($300,000)

Reference; ATO Business Activity Statement Instruction Booklet.ANTS (Wine Equalisation Tax) Act 1999


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Luxury Car TaxA Luxury Car Tax (LCT) at the rate of 25% is payable on the value of a car above theluxury car tax threshold, but excluding the GST component above the threshold.Essentially this section in the BAS is to be completed only if the motor vehicles are heldas trading stock.

The definition of a car for tax purposes is subject to change depending on the purpose towhich the car will be put. The eligibility for the LCT takes into account the load and thenumber of passengers the car is designed to carry.

A luxury car is a car with a GST-inclusive value that exceeds the luxury car tax thresholdie. the GST-inclusive car depreciation limit for income tax purposes. This limit was$55,134 in the 1999-2000 income year but is subject to change.

LCT on importations of luxury cars will be generally paid with customs duty and in thesecases it will not appear on an Activity Statement.However if you quote your ABN the LCT need not be paid at the point of importation buton the next BAS subject to the following:

• The business must be registered for GST and therefore obliged to submit a BAS

• The business intends to use the car for one of the following purposes, and for no otherpurpose

1. Holding the car for trading stock, other than holding the car for hire or lease

2. Carrying out research and development for the manufacture of the car, or

3. Exporting the car in circumstances where the export is GST-free

The tax is required to be included in the BAS or IAS at Box 1E Luxury car tax payablefor the relevant tax period. If a refund is claimable this is shown at BAS Box 1F at theheading Luxury car tax refundable .

Increasing adjustments to the LCT (as well as any related GST) may arise in the followingcircumstances:

• An increase in the price of the car

• You quoted your ABN at the time of importation or purchase and you now use the car fora different purpose

• You previously claimed a decreasing adjustment in respect of a bad debt which has sincebeen recovered

Decreasing adjustments are also possible if the reverse of the above circumstances arise,as well as in the case of a sale being cancelled after you have paid the relevant LCT.

Reference; ATO Business Activity Statement Instruction Booklet.ANTS( Luxury Car Tax) Act 1999


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Wholesale Sales Tax CreditA once only special credit for wholesale sales tax paid before 1 July 2000 is claimableby some taxpayers provided that:

1. The taxpayer is registered for GST by 1 July 20002. The claim is made once only on a BAS or IAS at Box 1G lodged with the ATO in

respect of any reporting period ending on or before January 7, 20013. The stock in respect of which the WST has been paid is trading stock4. Evidence of the WST paid is available and retained5. All relevant records of the stock-take at 30 June 2000 are available to validate the

claim for the credit.

The claim is calculated in one of two ways:

1. Physical stock-take with details of the actual WST included in the cost of each item. Thiscan be obtained by referring to the original invoices, copies of which should be kept withthe stocktaking records. The total WST is then claimed as a special credit.

2. Where it is not possible to identify the WST content of each item on hand at 30 June youmay use the following formula:Rate of WST applicable to a category of goods multiplied by 50% of the cost of thosegoods.

Eligibility of Goods

Items in respect of which the credit is claimable are those purchased or imported and heldfor sale or exchange (but not for manufacture).

Items on which you may not claim the WST credit are:

• second-hand goods, unless you imported them for sale or exchange and paid sales tax onthem

• plant and equipment which you have used in your business

• demonstration goods, or

• goods for hire or lease.

Alcoholic beverages

A partial credit is available in respect of certain types of alcoholic beverages. You areadvised to contact the ATO or your financial adviser to discuss your eligibility for thespecial WST credit.


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Subsequent adjustments to Claim for WST credit

The ATO advises that any alteration to the amount claimed as a special WST credit mustbe reported by submitting a Revised Activity Statement.

Adjustment may arise in respect of the relevant goods as a result of:

• using the goods for private purposes. Include the market value of the goods at Box 1G onthe Activity Statement.

• receiving discounts or rebates that reduce the price on which the WST was calculated.• returns received back into stock or returned to your supplier.

Reference: ATO Ruling GSTR 2000/8 issued 19.4.2000


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Overview of PAYGThe introduction of Pay As You Go (PAYG) combines all of the various methods andpayments of income tax of taxpayers earnings under one system.

Under the PAYG systems all taxpayers currently liable to file income tax returns will stillhave those obligations but all of the methods of paying the taxes attributable to theirincome during an income year have been combined under the same umbrella.

The PAYG system is broken up into two parts. The PAYG withholding system deals withthe obligations to deduct tax at source. The PAYG instalment system covers income thatwas not subject to PAYG withholding.

(Modified from an ATO publication)

Pay As You Go

PAYG Withholding

means paying amountsyou withhold from others

ReplacesPAYE and other

withholding systems. (ThePPS and RPS systems will

be abolished.)

PAYG Instalments

means paying yourown tax

Replacesprovisional tax and

company andsuperannuation fund

system

one set of due datesone form for reporting and payment


43

PAYG Withholding System

What is the new PAYG system?

It is a part of the New Tax System effective from 1 July 2000.The PAYG withholding system replaces 9 existing systems which require that tax bewithheld by a payer at source and which require certain taxpayers to pay provisional tax inadvance of their final assessed income tax liability.

The withholding systems to be replaced include the current PAYE (Pay As You Earndeductions from salaries and wages), PPS (Prescribed Payments System applicable tocertain contractors), RPS (Reportable Payments System applicable to industries).

The new PAYG withholding system will integrate all the previous systems. A payer willbe required to withhold tax on certain specified payments, including where applicable,some non-cash benefits. Penalties will be incurred if the relevant amounts are not withheldand remitted to the ATO on the due dates.

Payment due dates for all PAYG withholdings will be aligned so that all withholdingamounts deducted by a business will be sent to the ATO at the same time.

Note The new system affects all businesses, whether commercial or not for profit andcharities, as well as some individuals such as self-funded retirees.


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Presenters Note:

Nine Systems replaced by PAYG withholding:

1. PAYE (Pay As You Earn)2. PPS (Prescribed Payments System)3. RPS (Reportable Payments System)4. Dividend withholding tax5. Investment income where no TFN provided6. National resource payments, dividends, interest and royalties paid to non-residents7. Mining on aboriginal land8. Repaid farm management deposits9. Withdrawals from Australian Film Industry Trust Fund Accounts

PAYG WITHHOLDING

Started on July 1 2000

What s new?

Voluntary agreements

Labour hire

No ABN

Nine systems replaced by PAYG withholding

CALCULATION SHEET EXTRACT:

Total of salary wagesand other payments

Amounts withheldfrom investmentdistributions whereno TFN is quoted

W2

Amounts withheldfrom salary wagesand other payments

Amounts withheldfrom payment ofinvoices whereno ABN is quoted

Amounts withheld from all payments for the period ( dates pre-printedby ATO)

Add W2 + W3 + W4 and write the amount at 4 on the front

W3W1

W4


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Terminology for PAYG WithholdingAustralian Business Number (ABN) — the number issued to all entities carrying on anenterprise with effect from 1 July 2000. It is intended that the ABN will replace the ACNand ARBN.

BAS or Business Activity Statement is used monthly or quarterly by entities which areregistered for GST to report their business tax obligations and entitlements

Commissioner s Instalment Rate (CIR) — a rate of PAYG instalment notified by theATO for use when paying instalment of tax

EFT — Electronic Funds Transfer

FBTAA - Fringe Benefits Tax Assessment Act

General Interest Charge (GIC) — an interest charge on late payments of tax calculateddaily on a compounding basis. The daily rate is the weighted average yield for the 13week Treasury Note yield rate plus 8%, divided by 365. This will be adjusted quarterly.(TAA sec 8AAD).

Goods and Services Tax (GST)- a 10% tax on most goods and services supplied inAustralia from 1 July 2000

Higher Education Contribution Scheme (HECS) — employees who have attendedtertiary institutions and have an unpaid debt in respect of the relevant fees are required tohave repayments deducted from their remuneration

IAS or Instalment Activity Statement is used by entities or individuals which are notregistered for GST to report their tax obligations and entitlements.

ITAA - Income Tax Assessment Act

Labour Hire Firm — any firm which wholly or partially arranges for individuals toperform work or services for their clients. If this activity is only incidental to the businessthen it does not fit into this definition.

Payment Summary — replaces former Group Certificate and shows total payments madeto the employee, total tax deducted therefrom as well as other information such asreportable Fringe Benefits, and no ABN withholding.

TAA — Tax Administration Act 1953

TFN — Tax File Number

TFN Declaration — replaces former employment declaration completed by all employees


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General References:

• Guide to Pay as You Go for business (March 2000)• Guide to Pay as You Go for individuals (March 2000)• Transferring from PAYE to PAYG withholding (June 2000)• PAYG Instalment Activity Statement Instructions• PAYG Business Activity Statement Instructions

Note: Forms published by the ATO are available on the ATO website atwww.taxreform.ato.gov.au


47

Registration for PAYGBefore a payer can be part of the new PAYG system the payer must be registered forPAYG withholding.How does a payer register for the new system?

Currently registered for withholding taxes:

If you are currently registered under one of the existing withholding systems you willautomatically be included in the new PAYG system. Most businesses for example arealready registered as group employers, deducting PAYE from salaries and wages.

Registering for the first time:

If you are not currently withholding any taxes then you need to notify the ATO that youwill be doing so before you make the first PAYG withholding payment.

Payers that are required to withhold tax for the first time would include those paying asupplier of goods or services that does not provide an ABN (Australian Business Number)as part of a business transaction

Entities required to withhold tax

Entities required to withhold tax fit into three categories, small, medium or large,depending on the total annual amounts of tax withheld by them.

Payment to the ATO of the amounts withheld will be due on specified dates and normallybe included on one of the following two statements:

Business Activity Statement — BAS — if registered for GSTInstalment Activity Statement — IAS — if not registered for GST

Registration for PAYG

Currently registered for withholding taxesRegistering for the first time

What s required to withhold tax

BAS - monthly or quarterly only if registered for GST

IAS - monthly or quarterly if not registered for GST


48

Small, Medium and Large withholdersDifferent rules apply to each size category of PAYG withholders and may be summarisedas follows:

Annualwithholdings

Remittance due Report required to accompanypayment

SMALLUp to $25,000

QuarterlyOn or before the 21st of themonth following the period end

BAS quarterly if registered forGST orIAS quarterly if not registered forGST

MEDIUM$25,001to $1 million

MonthlyOn or before the 21st of themonth following the period end

BAS monthly or quarterly ifregistered for GST

IAS monthly or quarterly if notregistered for GST

LARGEOver $1million

Weekly:Deductions made fromSat — Tues due following MonWed — Fri due following Thurs

ATO approved form for weeklypayments (EFT Code Type 70)plusBAS monthly or quarterly(EFT Code Type 60 for otherliabilities on BAS)

Small withholders for the year 2000-2001:

• You withheld $25,000 or less in total in respect of all types of withholdings for thefinancial year ended 30 June 2000

Obligations:

• Must pay PAYG withholdings quarterly

Medium withholders for the year 2000-2001:

• You were a medium withholder for June 2000 and would have been even if PPS andRPS withholdings had been ignored

• Your withholdings for the financial year ending 30 June 2000 exceeded $25,000

• The ATO determines that you are a medium withholder


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Obligations:

• Must pay PAYG withholdings monthly

Large withholders for the year 2000-2001:

• Classified as a large remitter for June 2000

• Have PAYE remittances of more than $1 million (alone or as part of a companygroup) for the 1999-2000 financial year

• The Commissioner determines that you are a large withholder

Obligations:

• Must pay PAYG withholdings to the ATO weekly

• Must pay electronically — direct payments or Bpay using EFT code (Type 70)

• Can offset a net GST liability against only one withholding liability by lodging aPAYG Withholding Liability Notification on or before the withholding due date

Note A withholder classified as large as at June 30 (due to obligations under the PPSand/or RPS systems) may be able to request reclassification to medium, or even small,post 30 June 2000.

Large withholders from the year 2001-02 onwards:

The $1 million threshold will be calculated taking into account all payments subject toPAYG withholding, not just withholdings previously classified as PAYE.

The total must include all the PAYG obligations of wholly-owned companies in a groupand of all branches of an entity.

Reference: Large withholders guide to paying PAYG withholding liabilities; BusinessActivity Statement instructions

Note:In calculating the total PAYG withholdings even those amounts withheld from supplierswho do not quote an ABN must be included.Change of status — the ATO can vary the status of a withholder on a monthly basis. Thedetermination will be given before the relevant month to which it will apply.

Classification for PAYG

Small - up to $25,000Medium - $25,001 to $1,000,000

Large - over $1,000,000

Change of status


50

Practical Issues for EmployersCALCULATION SHEET EXTRACT

Under the PAYG withholding system employers have the following obligations:

1. Obtain a valid “Tax File Number declaration” from all employees. Valid employmentdeclarations on hand at 30 June 2000 qualify as TFN declarations.

2. Obtain a “Withholding Declaration” from employees who wish to, or need to, have

their normal PAYG withholding amounts varied (this single page form is accompaniedby 24 pages of instructions). The reasons for requiring a variation would includehaving a HECS debt or being eligible for certain rebates.

3. Determine amount of tax to be withheld using relevant tax tables effective from 1 July2000.

4. Variations issued under the PAYE system expire on 30 June 2000. New variationsneed to be obtained.

5. Where no TFN is provided by an employee the rate of tax is the top marginal rate,

including the Medicare levy. An employer is required to notify the ATO in theapproved form within 14 days if an employee does not provide a TFN.

6. A transitional requirement is to report to the ATO by 31 October 2000, in theapproved form, all employees who have not provided a TFN to their employer.

7. If the payee is not an Australian resident then foreign resident tax rates apply.

Total of salary wagesand all other payments

Amounts withheldfrom salary wagesand other payments

Amounts withheld from all payments for the period (dates pre-printed)

W1 $

W2 $


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8. Deduct PAYE from salaries and wages, termination payments etc.

9. Remit to the ATO weekly, monthly or quarterly depending on the total annual PAYGwithholding threshold of the employer.

10. If the remittance date coincides with the due date for a BAS or IAS then the

calculations are entered into BAS boxes W1 to W4 and the total due is transferred toBAS Box 4.

11. Issue Payment Summaries (previously Group Certificates) for each employee by July14, or when requested by an employee leaving (within 14 days).

12. Provide an annual report (previously the reconciliation statement) to the ATO, by 14August, summarising all payments made to payees and the amount of tax withheld(including Nil amounts). An employer can report on the approved form or providecopies of all Payment Summaries issued, with a summary statement.

PAYER S OBLIGATIONSRegister for PAYG?

Withhold where requiredNotify and remit

Annual report to ATOIssue Payment Summary to payee

NO TFN report to ATO by 31 October

References: TAA sec 16-150; Pay As You Go (PAYG) Withholding Tax Tableseffective for payments made on or after 1 July 2000


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Categories of PAYG Withholding

Employment related:1. Salaries and wages paid to employees

2. Remuneration paid to a director of a company

3. Salary paid to an office holder (e.g. member of the Defence Force)

4. Return to work payment to an individual

5. Payment to an individual under a Voluntary Agreement (NEW)

6. Payment under a Labour Hire Arrangement, or one specified by regulations (NEW)

7. Pension or annuity

8. Eligible termination payment

9. Payment for unused leave on retirement or termination of employment

10. Social security or similar payment e.g. old age pension

11. Commonwealth education or training payment

12. Compensation, sickness or accident payment

Investment related:

13. Investment income paid – recipient provides neither TFN nor ABN

14. Investor becoming ‘presently entitled’ to income of a unit trust

ABN:15. No ABN quoted by recipient of a payment for a supply of goods or services (NEW)

Non-residents:16. Dividend paid to an overseas person

17. Dividend received for a foreign resident

18. Interest paid to an overseas person

19. Interest payment received for an overseas person

20. Interest derived by a lender in carrying on a business through a permanent

21. establishment overseas

22. Royalty paid to an overseas person

23. Royalty received for an overseas person

Mining:

24. Mining payment (refer ITAA sec 128V)

25. Natural resource payment (at least one recipient is a foreign resident)

Note that only 5, 6, and 15 above are NEW types of withholding.


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Taxing of AllowancesPAYG withholding applies to certain allowances that are not included in the normalsalaries and wages paid to employees but which are paid for:

• Working conditions eg. danger, height and dirt

• Qualifications or special duties eg. safety officer

• Expenses that are non-deductible for income tax purposes eg. for travel between homeand work

• Work-related expenses that may be income tax deductible eg. travel between worksites

Allowances excluded from PAYG withholding

Some allowances have been specifically excluded from withholding by the Commissionersubject to the following:

• The payee is expected to incur the expenses and they may be claimed as a taxdeduction at least equivalent to the amount of the allowance, and

• The amount and nature of the allowance is shown separately in the accounting recordsof the payer

Examples of excluded allowances include payment for travel costs based on a cents perkilometre basis but only up to 5000 kms, laundry allowances for deductible clothing up tothe threshold amount.

ATO Schedules

The ATO has produced schedules of the allowances and their treatment for PAYGpurposes.

References: PAYG Bulletin Number 1


54

Non-Cash Benefits and PAYGWithholding

What is a non-cash benefit?

A non-cash benefit includes property or services in any form except money. Bartertransactions are a typical example of this.

PAYG withholding is required in respect of all non-cash benefits provided to persons,other than employees, given in exchange for goods or services where the payment wouldhave been subject to PAYG withholding had it been made in money. This is to ensure thatthe withholding provisions are not by-passed by making payments in the form of non-cashbenefits.

The payer of a non-cash benefit subject to PAYG withholding is required to:

• Establish the market value of the benefit being given to the recipient

• Calculate the relevant tax on that amount

• Remit the tax to the ATO before the benefit is supplied to the recipient

• Provide the recipient with a Payment Summary at the end of the financial year

• Recover the amount of tax paid to the ATO on behalf of the recipient from therecipient either in cash or by offsetting that amount against any further payments dueto the recipient.

No PAYG withholding is required if the benefit is:

• A fringe benefit

• An exempt benefit under the Fringe Benefits Tax Assessment Act 1986

• The acquisition of a share or right under an employee share scheme

Example:Sarah has entered into a Voluntary Agreement with a property developer tolandscape the gardens surrounding a new corporate office block. The propertydevelopers offer her one of their second-hand vans as payment for her services. Thecompany is required to establish the market value of the van and pay over therelevant withholding tax to the ATO before the vehicle is given to Sarah. Sarah isthen obliged to pay to the company the amount of tax paid on her behalf.Alternatively if the company owes her more than the market value of the van it canoffset such amounts against what is due to her.

References: ATO Fact Sheet NAT3066; Fringe Benefits Tax Assessment Act 1986;ITAA 1936 Div 13A of Part 111.s


55

Contractors and Employees underthe New Tax SystemWhen is an individual a contractor and not an employee ?

It is important for a payer to know whether a payee is classified as an employee or acontractor for tax purposes. If the payee is an employee then the payer will be required todeduct tax from the salary/wages at time of payment. Alternatively if the payee is acontractor, tax will only be deducted at time of payment if the PAYEE fails to provide anABN. In this event tax will deducted at the rate of 48.5 cents in the dollar.

Who is an employee within the ordinary meaning of that expression?There are definitions in the legislation and much case law but essentially there must be acontractual relationship between an employer and an employee requiring the provision ofservice on the part of the employee. This is a difficult area of tax law and is by no meanssettled.

In essence this area of the law affects the contractor, and not the person using thecontractors services. Any individual holding themselves out as being a contractor shouldfamiliarise themselves with the ATO s publications and rulings in this area. In particularcontractors should be familiar with Draft Ruling TR2000/D2, and the rulings relating toentities [eg companies] that are interposed between the individual performing the services,and the person who utilises those services.

Individuals who wish to operate as independent contractors would be advised to discusstheir individual situation with the ATO or their financial adviser.

Contractor or Employee?ATO ruling

Control is a significant factor

If an employee — PAYG withholdingIf a contractor — ABN required but no withholding

Organisations using the services of contractors, and not operating under a VoluntaryAgreement,[see page 56] will not be obliged to verify the status of people who holdthemselves out to be contractors. They should however ensure that they obtain an ABN ifno tax is deducted..


56

Voluntary AgreementsThe PAYG system allows for a new form of contractual arrangement between anindividual (the contract worker) offering their services and businesses requiring thoseservices.

This option is available under the following circumstances:

• The contract worker (payee) has an ABN, and

• The payments for the services are not subject to any other PAYG withholding eg. aLabour Hire Arrangement

Payer

If this arrangement suits both parties the business is required to:

• Enter into a formal written contract to be signed by both parties. You may use theATO form NAT2772, A Voluntary Agreement for PAYG Withholding .The original is the payer s copy, the duplicate is the payee s. There is no requirementto lodge a copy with the ATO.

Or the parties may draw up their own contract ensuring that it contains at least thefollowing information:

• Commencement date of contract

• Type of service being provided

• Statement that the payments made are subject to a Voluntary Agreement under sec 12-55 of Schedule 1, Part 2-5 of the TAA

• Payee s and payer s ABN, name, and address

• Rate of withholding

• If the contract worker is engaged more than once it will not be necessary to draw up anew agreement each time the contract worker performs services for the business. TheVoluntary Agreement remains in force until such time as it is terminated in writing byeither party

• Deduct PAYG withholding at the payee s instalment rate as notified by the ATO(Commissioner s Instalment Rate), if greater than 20%. If the CIR is less than 20% thetwo parties must agree to use the lower rate, failing which the rate will remain at 20%.Where no CIR has been supplied then the 20% rate applies.(The rate is applied to the payment net of any GST that may have been charged)

• Pay the withholding tax to the ATO on the next activity statement BAS box W2.Show gross payments in BAS box W1

• Issue the contractor with a Payment Summary by 14 July each year, or earlier ifrequested

• Retain the agreements for the duration of the contract and for 5 years thereafter.

• Give an annual report of all payments withheld to the ATO by 14 August each year


57

The contract worker/payee:

• Will not be required to pay any PAYG instalments on the income earned under theVoluntary Agreement. They effectively end up in a similar situation to an employee,the amounts earned under the agreement being returned in their annual income taxreturn as well as the credit for the withholdings.

• Must retain copies of Voluntary Agreements while they are in force and for a period of5 years thereafter

• Must complete an activity statement by the due date, excluding payments receivedunder a Voluntary Agreement. This is necessary even if it is a Nil statement

• Charge GST on the value of the service only if they are registered for GST and if thepayer is not entitled to a full GST input tax credit

• A GST registered contract worker can claim input tax credits on all inputs used insupplying the relevant services

GST implications for voluntary agreements:

In most cases the supply of the services under a Voluntary Agreement will not be subjectto GST even if the contract worker is registered for GST. However, if the business is notacquiring the services for a creditable purpose then it will be required to pay GST on theservices.

Failure by either party to retain a copy of the Voluntary Agreement for the specifiedperiod may result in penalties.

Example:Tom is registered for GST and provides computer software support to a limitednumber of businesses. He enters into two separate Voluntary Agreements as follows:1. Bird and Associates, a firm of accountants. Tom will not include GST in his

invoices to the firm but he can still claim all relevant GST input tax credits on hisinputs.

2. ABC Bank Ltd., providing financial supplies, all of which are input taxed. Tomwill include GST on his invoices to the bank and he can still claim his input taxcredits.

Reference: PAYG Voluntary Agreements NAT3063-6.2000; TAA sec 12-55

Voluntary AgreementsWritten contract

ABN requiredGST chargeable?

Not included in instalment income of payee


58

Labour Hire ArrangementsLabour hire arrangements involve 3 parties:

1. Labour Hire Firm

2. Client of the Labour Hire Firm

3. Worker (an individual) who is not an employee of either of the other 2 parties

They involve at least 2 contracts:

1. Between the Labour Hire Firm and the client [numbering not quite righthere]

2. Between the Labour Hire Firm and the worker

A Labour Hire Firm is any firm that wholly or partially arranges for individuals to performwork or services for their clients. If this activity is only incidental to your business thenyou do not fit into this definition. The following examples where withholding tax does notapply help to illustrate this point:

Example 1: Incidental use of a third party for a clientA solicitor using the services of a barrister for a client will not be required towithhold tax from payments to the barrister.

Example 2: Contractor using a subcontractor on a projectA contractor using a subcontractor on a project commissioned by a client will not berequired to withhold tax from the payments under the labour hire arrangement rules.However, there may be an obligation to withhold due to some other circumstancesuch as the subcontractor not providing an ABN.

Example 3: Staff recruitment agencyThe agency recruits a new CEO for a client. There will be no withholding obligationon the part of the agency. The client will have a PAYG withholding obligation inrespect of its new employee (and possibly in respect of its payment of commission tothe agency if it fails to supply an ABN).


59

Labour Hire Firm

The PAYG withholding obligations for the parties to such an arrangement are as follows:

1. Labour Hire Firm is obliged to withhold tax from all payments it makes to the workerand pay these to the ATO

2. The client has no PAYG obligations

3. The worker will receive a Payment Summary from the Labour Hire Firm at the end ofthe financial year and return the income in his/her annual income tax return.

ExampleABC Ltd. (the client) contracts with IT Services (the Labour Hire Firm) to supplycontract workers during their peak periods to assist with processing data. Jean Jonesis on the books of IT Services and is sent to work at ABC Ltd. for a month. She willbe paid by IT Services, which is obliged to withhold tax from all payments made toher. There is no PAYG withholding obligation on the part of ABC Ltd.

Reference: ATO publication NAT 3069.

This payment issubject to

withholding

Labour Hire Firm

Worker(individual)

Client


60

Transitional rules for PPS Payees

It is proposed to set rules in place for 2 years from 1 July 2000 enabling some contractorsto retain their classification as contractors rather than becoming employees . Thosetrading through an incorporated entity will continue to be taxed at the corporate tax rateand individuals will still be entitled to business deductions provided that:

• They are currently in the Prescribed Payments System (PPS system)

• They satisfy one of four criteria:

1. Have their own business premises

2. Have 2 or more unrelated clients

3. Have one or more employees that perform at least 20% of thework

4. Able to satisfy the Commissioner that the entity is not a loss-making operation and that the tools of the trade are supplied

References: New Business Tax System (Alienation of Personal Services Income) Bill 2000;NBTS (Alienated Personal Services Income)(Tax Imposition) Bill (No 1) 2000; NBTS(Alienated Personal Services Income)(Tax Imposition) Bill (No 2) 2000;Draft tax ruling TR2000/D2


61

Prescribed Payments and ReportablePayments System

Prescribed Payments System — under this system tax was withheld from certainprescribed payments for construction and other specified contracts under specifiedcircumstances.

Reportable Payments System — under this system payers were required to report to theATO payments relating to specified transactions in connection with the clothing, fishing,smash repair and fruit and vegetable industries. Where no TFN was provided by the payeethere was an obligation to withhold tax at 48.5%.

Both of these systems have been abolished with effect from 1 July 2000 and incorporatedinto the new PAYG withholding system.

The options for a payer are:1. The contractor is registered for GST and provides valid tax invoices – no PAYG

withholding tax

2. The contractor is not registered for GST but provides an invoice with a valid ABN –no PAYG withholding tax

3. The contractor provides an invoice with no ABN – deduct tax at maximum marginalrate, currently 48.5%

4. Contractor enters into a Voluntary Agreement with your entity - deduct PAYGwithholding at the relevant rate from all payments made to him/her

5. Contractor is employed through a Labour Hire Firm – the hire firm pays the contractorand is responsible for deducting PAYG withholding.

6. The contractor is treated as an “employee” – deduct PAYG from all payments inaccordance with the relevant tax tables

Payer s obligationsIf one of the above options requires PAYG withholding tax to be deducted then the payeris required to:

• Withhold tax at the relevant rate at the time payment is made

• Pay all amounts withheld to the ATO together with other PAYG withholdings. Thiswill be weekly, quarterly or monthly depending on the annual threshold of total PAYGwithholdings.

• Provide the supplier/contractor with a Payment Summary on or before 14 July eachyear (or earlier if requested).

• Report the totals deducted as PAYG withholding tax annually to the ATO on or before14 August.


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Payee

The contractor or recipient of income under the new PAYG system will be affected asfollows:

• If registered for GST then the GST charged to the customer must be paid to the ATOmonthly or quarterly. (No GST charged if transaction is subject to a VoluntaryAgreement and the recipient of the services is not input taxed)

• PAYG instalments will be payable to the ATO by the recipient in respect of allbusiness or investment income that has not been subject to PAYG withholding.

Note: It is important to comply with other legislation in regards to employee/contractorrelationships, including Work Cover, superannuation and payroll tax.

References: ITAA Sec 221YHAAF to 221YHZ; Sec 220AA to 220AZH

PPS and RPS

Abolished

Payer s obligations as with all PAYG withholding


63

Withholding when no ABN suppliedCALCULATION SHEET EXTRACT

Most individuals and entities operating a business in Australia will quote an ABN on allinvoices issued on or after 1 July 2000 for goods or services supplied to another business.

Where no ABN is quoted the payer is obliged to:

• Withhold an amount from all payments equivalent to the maximum marginal rate,currently 48.5%. This includes payments made in a form other than cash, in whichcase the value of the transaction is the market value of the payment item

• Pay this to the ATO in the next period. The total of no ABNs must be shown on theBAS or IAS in Box W4

• Issue the supplier with a Payment Summary at the end of each financial year by July14, or earlier if requested, to enable the payee to claim a credit for the tax withheld

• Pay a penalty to the ATO if no withholding is made, equivalent to the 48.5% whichshould have been withheld, or 10 penalty units. These payments are not deductible forincome tax purposes hence the effective penalty is increased

• Keep the payments separate from other payment records because the invoice will notconstitute a valid tax invoice and no GST input tax credits will be available in respectof such payments

• Complete an annual report summarising all such payments and send it to the ATO by31 October.

Amounts withheld frompayment of invoices whereno ABN is quoted

Amounts withheld from all payments for the period (dates pre-printed)

W4 $


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The need to withhold does not apply in the following circumstances:

1. The supply is one of a series and you have the ABN on permanent record.

2. The payer is an individual and the payment is wholly of a private or domestic nature.

3. The payment does not exceed $50.

4. The whole of the payment is exempt income of the payee e.g. the supplier is an ITEC(income tax exempt charity) or a public hospital.

5. The payer is already obliged to withhold under the no TFN rule.

6. The payer receives a written statement from the payee that the supply is wholly privateor domestic in nature, or relates to a hobby.

7. The supplier provides a copy of a notice from the Commissioner stating that theiractivities are not considered to be an enterprise .

8. The supplier of goods or services is a non-resident that does not have a permanentestablishment, agent or branch office in Australia.

9. The supplier is an individual under the age of 18 and the payment totals less than $120per week (does not include an employee ).

Validity of ABN quoted:

What obligation does a payer have to verify the validity of an ABN appearing on aninvoice?

There is no obligation, provided that under the given circumstances any reasonable person

would be entitled to assume that the ABN was valid. If the number looks incorrect (e.g. ithas more than 11 digits, or 14 if it belongs to a branch of a bigger business, or it has anyletters in it) It should then be verified with the Australian Business Register – phone 13 7226.

References: Withholding when an ABN is not quoted — ATO Fact Sheet (12/99);Q & A PAYG Withholding — what to do when your supplier does not quote an ABN; ITAA1997 subdivision 50A

Withholding when no ABN supplied

Withholding rate 48.5%Unless specified circumstances exist

Payee s obligationsPenalties for not withholding


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Withholders of amounts not relatedto Employment

Entities required to withhold amounts other than those related to employment are obligedto:

• Deduct relevant amounts from payments made

• Pay amounts withheld to the ATO in BAS Box W4.

• Report to the ATO in the approved form by October 31 each year the totals of allamounts withheld during the financial year ended the previous 30 June

• Provide the Payment Summaries and a copy to the relevant payees or other specifiedpersons by July 14, or when requested by a payee (unless this request is received in the21 days prior to the financial year end)

References: Guide to PAYG for Business (March 2000)


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Investment Income

Entities paying investment income

Entities such as banks and other financial institutions that are currently required towithhold tax on investment income will be included in the PAYG withholding systemfrom 1 July 2000 and is recorded in BAS Box W3. They will be required to withhold taxin the following circumstances:

• When paying investment income to a recipient who does not provide either an ABN ora TFN — amount will be the maximum marginal rate of tax, currently 48.5%

• Income derived by an investor who becomes presently entitled to income from a unittrust

• Dividend or interest or royalty paid to an overseas person

• Dividend or interest or royalty received by an agent on behalf of an overseas person —the agent will be required pay the relevant tax to the ATO

• Where interest is earned by an entity as a result of investments in a business which hasa permanent establishment overseas that entity will be required to pay the relevantamount of tax to the ATO when the interest is derived

Investors in receipt of income

If you currently pay provisional tax on investment income or business income you willprobably be required to pay PAYG instalments under the new system. Your payment willbe calculated at a rate supplied to you by the ATO. This will be the case even if PAYGwithholding has been deducted because you did not supply the payer with your TFN.

Investors with a base assessment instalment income of $1,000 or more are likely to beissued with an instalment rate.

References: Guide to PAYG for individuals with investment income (3/00)


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Annual Reports and PaymentSummaries for PAYG withholdingAnnual Report

Every entity that makes a payment subject to PAYG withholding during a financial yearwill be required to submit an annual report to the Commissioner. It must be given in theapproved form detailing every payee and include specified details. These include the totalof each kind of PAYG withholding in respect of each payee, and the total of reportablefringe benefits paid to each employee.

The due date for the annual report is:

1. August 14 for payers who withhold amounts for:

• Work or services

• Retirement payments, eligible termination payments and annuities

• Benefit and compensation payments

2. October 31 for payers who withhold amounts for:

• No ABN withholding

• Dividend, interest and royalty payments

• Mining Payments

Payers who fit into both categories will need to submit two annual reports — though for thesake of convenience the payer will be allowable to submit both reports by 14 August ifpreferred

Investment bodies

Note that investment bodies will continue to submit TFN reports (to become ABN reports)and annual investment income reports, rather than the annual report required by all otherPAYG withholders.

Annual Payment Summary

Payers, certain persons acting as agents for foreign residents, and employers payingreportable fringe benefits who have paid to the ATO amounts withheld under the PAYGsystem during the financial year must give a Payment Summary (and a copy) to eachpayee by July 14 each year.

The annual Payment Summary must state the:

• names of the payer and payee

• payee s ABN and/or TFN

• total of the payments made during the year

• total of the amounts withheld from those payments

• financial year covered by the summary

• reportable fringe benefits amount


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Payment Summaries other than annual summaries

A payee may request in writing a part-year Payment Summary during a year provided thatthe request is not made in the period 21 days prior to the financial year end.

Payment Summaries can be obtained from the ATO, or they can be created by you, aslong as they contain the following information:

• your business name and ABN

• name of the supplier, and the address if you have it

• total amount invoiced

• amount withheld from the payment

• date the supplier was paid and you withheld tax

• authorised signature

There are certain circumstances where the payer is not obliged to provide a part-yearPayment Summary e.g. for fringe benefits provided to an employee who is still in theemployment of that employer.

Eligible Termination Payments

A separate Payment Summary is required for each ETP and must be provided within 14days of the ETP being paid to the former employee.

Reference: TAA sec 16-153; sec 16-155


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Terminology for PAYG Instalments

Quarterly payer

A quarterly payer of PAYG instalments is any taxpayer that holds an instalment rate fromthe Commissioner and has not opted (where possible) to be an annual instalment payerbefore the first instalment period.

Annual Payer

An annual payer is:

• an entity that is not registered nor required to be registered for GST, or

• a partner of a partnership not required to be registered for GST, and

• the most recently notified notional tax of the taxpayer is less than $8000.

Note the following:

• An annual instalment payer must notify the Commissioner in the approved form on orbefore the day the first instalment payment would be due.

• There are special rules for companies where, if a company is part of an instalmentgroup, or is a participant of a GST joint venture, it is not able to pay an annualinstalment.

• Most businesses will be quarterly payers, including taxpayers that currently payprovisional tax on an annual basis e.g. primary producers

Instalment income

The instalment income for a period is the ordinary income derived during the period,but only to the extent that it is assessable income of the income year that is orincludes that period.

Even when there is no instalment income for a period the taxpayer must still advise theCommissioner of that position.

The instalment income includes total sales for the period (excluding GST paid to theATO). It is important to note that the sales included here are gross of expenses. Noadjustment is made for the payment of the expenses attributable to these sales. Theadjustment is recognised in the instalment rate determined by the Commissioner.

Other income that may be included is interest paid or credited to an account, dividendsreceived (excluding imputation credits), rental received, commissions received, paymentsfor services rendered.A repayment of a farm management deposit is included in the instalment income of anentity, whereas instalment income is reduced by a farm deposit made during a period.


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Instalment income excludes:-

• Capital gains where the gains are not part of ordinary income. Some taxpayers such asspecified superannuation funds will be required to include capital gains that are part oftheir statutory income in their instalment income.

• Income that is not assessable in the income year. An example of this may be exemptincome.

• Receipts subject to PAYG withholding except those from which withholding hasbeen deducted due to an ABN or TFN not being quoted as required.

Care needs to be taken where an entity is registered for GST on the non-cash basis butaccounts for income tax on a cash basis. The instalment income for the period will notinclude invoices issued but not yet paid by the debtors and will include invoices issued ina prior period and paid for in the current period.(We will look at this in more detail later)

Instalment Rate

Having calculated the instalment income, a percentage rate is then applied to that figureto obtain the amount payable to the ATO as an instalment payment. This rate is theinstalment rate:

• The instalment rate is notified to you by the Commissioner.

• If the Commissioner has not issued an instalment rate for an entity no PAYGinstalment is due.

• The instalment rate is calculated by the Commissioner to two decimal places and isbased on your notional tax and your base assessment instalment income.

• The base assessment instalment income is based on your latest income yearassessment made by the Commissioner.

• When the Commissioner informs an entity of the instalment rate he is also required toinform the entity of the notional tax.

• Your notional tax is a dollar value of tax determined by the Commissioner in amultiple step calculation. It is important to note that in this calculation theCommissioner is able to take into account any likely changes that may reduce theinstalment rate issued.

Calculation of notional tax:

Calculate your adjusted taxable income (i.e. total assessable income less any net capitalgain, deductions claimed and losses carried forward).

Adjust for PAYG withholding income. Your adjusted withholding income is income thathas PAYG withholding deducted at source and any reasonable deductions from thisincome.Using these amounts a calculation of adjusted tax is made. The adjusted tax,after adjusting for the adjusted taxable and withholding income, becomes your notionaltax.

Note: Notional tax is a dollar amountInstalment rate is a percentage to two decimal places.


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Varied Rate

If taxpayers decide not to apply the Commissioner s instalment rate they may estimatetheir own instalment rate for the period. Once a varied instalment rate has been chosentaxpayers are unable to use the Commissioner s instalment rate for the rest of the currentincome tax year. They are however able to choose a further varied rate for the nextquarterly payment of PAYG instalment. If taxpayers decide to adopt a varied instalmentrate the Commissioner will charge a general interest charge (GIC) where the varied rate isless than 85% of the lesser of

1. their benchmark instalment rate (calculated by the Commissioner) or2. the instalment rate issued by the Commissioner.

Where a taxpayer has adopted a varied instalment rate they are required to notify theCommissioner of the rate in BAS box T3.

Benchmark instalment rate and benchmark tax

These are the instalment rates and tax liability actually assessed for an income tax year.Whereas the notional rates are those expected for a period, the benchmark instalmentrate and benchmark tax are calculated on the actual amounts assessed for the period.

GDP-adjusted notional tax

This type of instalment payment requires the Commissioner to inform you of the amountof each instalment based on the current GDP (Gross Domestic Product) adjustment. Aswith the instalment rate it is possible to estimate your own benchmark tax for the year butyou again may attract a GIC where there is a variation between the estimation and actualpayments required.

The choice to be a GDP-adjusted notional taxpayer must be made on or before theinstalment is due. You are required to notify the Commissioner in the approved form.

In order to choose the GDP-adjusted notional tax basis of paying PAYG instalments thefollowing conditions must be met::

• You must not be registered nor required to be registered for GST, and

• You must not be a partner in a partnership registered nor required to be registered forGST, and

• Your most recent notional tax notified by the Commissioner must be $8000 or more.

This system will probably be of most interest to taxpayers such as self-funded retirees.

Note: Examples of instalment rate calculations may be found in the Appendices.


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PAYG Instalments

CALCULATION SHEET EXTRACT

From 1 July 2000 most Australian taxpayers will have a new system of paying instalmenttax. (For those with pre-June balance dates they are already in the new PAYG instalmentsystem.) This will replace the existing company tax instalment payments and provisionaltax payments.

The payment dates for PAYG instalments will be largely uniform regardless of the type orsize of an income tax-paying entity.

The payment of the PAYG instalment will be part of the filing of the Business ActivityStatement (BAS) if the entity is registered for GST. If the entity is not registered for GST,the PAYG instalment will be part of the Instalment Activity Statement (IAS).

The only exception is the option of paying PAYG tax instalments on an annual basis. Thisexception will only apply to a small number of taxpayers.

Otherwise PAYG income tax instalments will be due on a quarterly basis, due and payableon or before the 21st of the month following quarter end.

For those with a June balance date the payment dates for instalment tax will be

First Payment 21 October

Second Payment 21 January

Third Payment 21 April

Fourth Payment 21 July

Pay As You Go instalment for the period (dates pre-printed)

Once you have worked out your PAYG instalment using the instructions,write this amount at 5A on the front

Commissioner /

chosen T2

instalment rate

%

New varied instalment Reason forrate T3 % variation T4

Instalment T1 $

income


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The wash-up payment (assessed tax less instalment payments made) will continue to bedue, based on the filing requirements for the income tax returns. So any balance of tax duein respect of a completed financial year will be payable by the due date indicated on thetaxpayer s assessment.

For tax-paying entities with a balance date other than June, the instalment due dates willbe:

First Payment (for the first three months of the entities financial year)

21st of the fourth month.

Second Payment (for the second three months of the entities financial year)

21st of the seventh month.

Third Payment (for the third three months of the entities financial year)

21st of the tenth month.

Fourth Payment (for the final three months of the entities financial year)

21st of the month following year-end.

The PAYG instalment payments will be based on the instalment income earned for thequarter. The instalment income is then multiplied by the instalment rate (supplied by theATO unless the taxpayer has estimated their own instalment rate).

It is very important to note that when the instalment income for a period is nil the ATOmust be advised of this.

PAYG Instalment System

Starts 1 July 2000

Tax paid throughout the current year on current yearturnover

Aligns payment dates

Not for solely salary and wage earners


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Calculation of Instalment IncomeThe calculation of the instalment income of the entity for the period is an essential part ofthe PAYG instalment system. It is on this instalment income that the instalment is basedregardless of what instalment rate you have adopted for the period. (Unless you are payingon the GDP-adjusted notional tax option)

Where a tax-payer is registered for GST the Total sales and income and other suppliesshown in Box G1 will form the basis of the instalment income.For those registered for GST on a monthly basis this will be the total of each of the threemonths for that quarter. For those registered on a quarterly GST basis it is the informationshown on the current BAS.

Note: Be careful to make any relevant adjustments for the transitional period.

For these taxpayers the instalment income will consist of:-

• Total sales and income and other supplies for the period less any disposal of capitalitems that may be included in this amount (unless capital gains form part of yourstatutory income). The GST that has been included in the sales, income and othersupplies is to be deducted.

• In addition to the sales income and other supplies in the GST portion of the BAS thetaxpayer must be careful to include other income they may have received for theperiod. Examples of this may be interest received or credited to their bank account,dividends received or applied on their behalf (excluding any imputation credits).

• If there is any other income that is not included in your GST calculations of incomethese must be included — the only exceptions are forms of income that are subject tothe PAYG withholding provisions such as wages, salaries or payments underVoluntary Agreements.

• If PAYG withholding has been deducted from income because an ABN or TFN hasnot been quoted this must be included in the entity s instalment income for the period.

• If you are a primary producer any withdrawals from farm management deposits mustbe included in your instalment income for the period. (Conversely any deposits madeinto a farm management deposit account must be excluded from the instalmentincome)

Where taxpayers are not registered for GST they must still ensure that all of the assessableincome for the period has been totalled to arrive at the instalment income. The onlyexceptions are where there is a capital gain or income with PAYG withheld at source.

Taxpayers that are not registered for GST may have the option of paying annual PAYGinstalments. This will reduce the number of times this calculation is required.

It is important to note that this is the GROSS income for the period.No adjustments are allowed to be made for the deductions available.This is allowed for in the instalment rate issued by the Commissioner.


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Examples of income to be included in the instalment income

Gross sales _ InterestGross rents _ DividendsFees for services _ Royalties

Examples for the calculation of instalment income1. Mrs Martin is a sole trader and has a hairdressing salon. She has an ABN and is registered

for GST. She owns the building next door and receives commercial rent. During a threemonth period she has also sold an asset

Sales (including GST) 55,000Commercial rent (including GST) 3,300Interest 150Sale of an asset 5500Total Receipts 63,950 = BAS Box G1

Less capital item (net of GST) 5,000

Less GST 5,800 = BAS Box G9

Instalment income for quarter 53,150 = BAS Box T1

2. JC Plumbing Services. Details for the three month period 1 July 2000 to 30 September2000.

Plumbing Services 44,000Gross income from voluntary agreement 3,000(20% deducted, $600 at source) ______Total receipts 47,000 = BAS Box G1

Less Voluntary agreement earnings 3,000GST 4,000 = BAS Box G9

Instalment income for quarter $40,000 = BAS Box T1


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Beware

Taxpayers that are registered for GST on the non-cash basis but account for income tax onthe cash basis will need to be extra vigilant when calculating their instalment income foreach period. Care needs to be taken to ensure invoices issued in a prior period but paidfor in the current period are included in the correct quarter for PAYG instalments.

This will involve the recognition of both the payments received during the period and theinvoices issued.

Total invoices issued for periodAdd invoices outstanding tobusiness at period start.SubtotalLess invoices outstanding tobusiness at period endNet payments received for period

Example:

Joe Bloggs is registered for GST on the non-cash basis but files his income tax return on acash basis. In working out his instalment income for the period July to September he onlyneeds to include the payments he has received for the period rather than the invoices hehas issued.

Total invoiced sales 220,000 = BAS Box G1Less GST 20,000 = BAS Box G9

200,000Add debtors 30/6/00 (no GST) 50,000

250,000

Less Debtors 30/9/00* 66,000Less GST in debtors 4,000 62,000

Instalment Income for quarter 188,000 = BAS Box T1

*Note that debtors will not necessarily all have GST included


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Quarterly InstalmentsRegardless of the size or type of entity all taxpaying entities that have income withoutPAYG withholding deducted at source will be required to pay PAYG instalment paymentson a quarterly basis.

The only exception is for a small number of taxpayers that may be able to pay the PAYGinstalments on an annual basis.

The payment of PAYG instalments is based on the instalment income for the entity duringthe current period. The instalment income for the quarterly instalment is calculated by thepayer.

The instalment income is then multiplied by a rate to determine the payment due for thequarter.

Where a taxpayer is registered for GST the instalment income is to be calculated and thepayment made with the filing of the quarterly BAS (due on or before the 21st of the monthfollowing the end of the quarter).

Where the entity is not registered nor required to be registered for GST the instalmentincome and payment is made on the quarterly IAS (due on or before the 21st of the monthfollowing the end of the quarter).In both the BAS and IAS the instalment income is shown in BAS Box T1 and the paymentof PAYG instalment is paid in BAS Box 5A.

Payment dates for quarterly PAYG instalment payers

Quarter Period covering Payment dueFirstpayment

One First 3 months of incomeyear

On or before the 21st ofthe 4th month of theincome year

Secondpayment

Two Fourth, fifth and sixthmonths of the income year


Thirdpayment

Three Seventh, eighth and ninthmonths of the income year


Fourthpayment

Four Tenth, eleventh and twelfthmonths of the income year

On or before the 21st ofthe 1st month of the nextincome year

Cash-flow implications

The cashflow implications to your entity with the new PAYG instalment system dependslargely on what type of entity you were under the old company/fund instalment orprovisional tax systems.


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1. Small company instalment payerIf your entity was a small company/fund instalment payer your instalment payments for the yearhave been moved forward significantly. A small company or fund instalment payer is one whoselikely tax is $8000 or less.

Small companyinstalment payer30 June balancedate

New PAYGinstalment paymentdatesYear 1 July 2000 to 30June 2001

Old Instalment dates ifno changes had takenplaceYear 1 July 2000 to 30June 2001

Net effect

First payment 21 October 2000 15 December 2001 Payment broughtforward by approx14 months

Second payment 21 January 2001Third payment 21 April 2001Fourth payment 21 July 2001Wash-up Dependent on when

return is due15 March 2002

Existing rules for small instalment payers

New rules for small quarterly instalment payers

Difference in timing for the first payment of the 2001 year income tax

The special transitional provisions that allow the entity to defer the 15 December 2000 and 15March 2001 payments and pay the full 100% of the total tax due for the 2000 income tax year overthe next five years. We will look at this in more detail later.

4th Inst

21 July

30 June 00 30 June 01

21 Oct 21 Jan 21 Apr

1st Inst 2nd Inst 3rd Inst

30 June 00 30 June 01

15 Dec 15 Mar

1st Inst Balance

30 June 00 30 June 01

21 Oct 15 Dec

14 months


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2. Medium company instalment payerIf your entity was a medium company/fund instalment payer your instalment payments for the yearhave been moved forward significantly. The likely tax of a medium company or fund instalmentpayer is between $8000 and $300,000.

Medium companyinstalment payer30 June balancedate


Old Instalment dates ifno changes had takenplaceYear 1 July 2000 to 30June 2001

Net effect

First payment 21 October 2000 1 June 2001 Payment broughtforward by approx 7months

Second payment 21 January 2001 1 September 2001Third payment 21 April 2001 1 December 2001Fourth payment 21 July 2001 1 March 2002Wash-up Dependent on when

return is due1 March 2002

Existing rules for medium instalment payers

New rules for medium instalment payers


The re are speci al tra nsitio nal pr ovisio ns tha t appl y to a llow t he ent ity to defer the 1 December 20 00pay ment t o Marc h 2001 and t hen ap ply a formul a to p ay up to 42% of th e tota l tax due fo r the period ove r the next f ive ye ars. We wil l look at th is in more d etail later.

1 June

30 June 00 30 June 01

1 Sep 1 Dec 1 Mar

1st Inst 2nd Inst 3rd Inst Final

4th Inst

21 July

30 June 00 30 June 01



1 June

30 June 00 30 June 01

21 Oct

7 months


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3. Large company instalment payerA large company or fund instalment payer is one with likely tax of more than$300,000. If your entity was a large company/fund instalment payer your instalmentpayments for the year have been moved forward significantly.Large companyinstalment payer30 June balancedate

New PAYG instalmentpayment datesYear 1 July 2000 to 30June 2001

Old Instalment datesif no changes hadtaken placeYear 1 July 2000 to30 June 2001

Net effect

First payment 21 October 2000 1 March 2001 Payment broughtforward by approx4 months

Second payment 21 January 2001 1 June 2001Third payment 21 April 2001 1 September 2001Fourth payment 21 July 2001 1 December 2001Wash-up Dependent on when

return is due1 December 2001

Existing rules for large instalment payers

New rules for large instalment payers


Spe cial t ransit ional rules may be appli ed to some o f the 2000 y ear co mpany/ fund i nstalment pa yments tha t were due f or pay ment 1 December 20 00. We will discu ss the se lat er.

4th Inst

21 July

30 June 00 30 June 01



1 June

30 June 00 30 June 01

1 Sep 1 Dec1 Mar

1st Inst 2nd Inst 3rd Inst Final

1 June30 June 00

21 Oct

4 months

30 June 01


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4. Quarterly provisional tax payerIf you or your entity was a payer of quarterly provisional tax, payments for the year have beenmoved backwards.

Quarterlyprovisional payer30 June balancedate


Old Provisional dates ifno changes had takenplaceYear 1 July 2000 to 30June 2001

Net effect

First payment 21 October 2000 1 September 2000 Payment delayedby approx 6weeks

Second payment 21 January 2001 1 December 2001Third payment 21 April 2001 1 March 2001Fourth payment 21 July 2001 1 June 2001Wash-up Dependent on when

return is dueDependent on whenreturn is due

Old rules for provisional payers

New rules for quarterly payers


6 week delay

As a result of the delay in the payment of the tax balances, there are no transitional provisions thatapply here.

Final

1 Jun

30 June 00 30 June 01

1 Sep 1 Dec 1 Mar


4th Inst

21 July

30 June 00 30 June 01



1 Sep

30 June 00

21 Oct

30 June 01


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5. Annual provisional tax payerIf you or your entity was an annual provisional taxpayer for the year your tax paymentshave not been moved for the next two years.

Annualprovisionalpayer30 June balancedate

New PAYGinstalmentpayment datesYear 1 July 2000to 30 June 2001

Old Provisionaldates if no changeshad taken placeYear 1 July 2000 to30 June 2001

Net effect

Payment(including prioryear wash-up)

Earliest date forpayment31 March 2001

Earliest date forpayment31 March 2001

No change

The 31 March payment date remains for both the 2000/01 and 2001/02 years. For the2002/03 year onwards a new payment date of the 21 October is created.

Cashflow Effect

Small Company14 months earlier

Medium Company7 months earlier

Large Company4 months earlier

Quarterly provisional payer6 week delay

Annual Provisional PayerNo change for 2 years


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Amount of Quarterly Instalment

The amount of each instalment depends on the rate used by the payer. There are fouroptions available for quarterly instalment payers.

• Using the Commissioner s instalment rate

• Estimating your own instalment rate for the period (varied rate)- Using the estimated instalment rate from a prior period.

• Paying the GPD-adjusted notional tax amount

• Estimating your benchmark tax for the purposes of GDP-adjusted notional tax.- Using the estimated benchmark tax from a prior period.

1. Using the following formula:-

Commissioner s instalment rate X Your instalment income for that quarter

Under this approach you use the instalment rate given to you by the Commissioner. TheCommissioner would have informed you of this rate in writing prior to the instalment dateand it will be shown on Box T2 of your quarterly BAS or IAS.

• If you use the instalment rate provided to you by the Commissioner you will not incurany general interest charge if there is an underpayment of income tax for the period.

• If the Commissioner has not informed you of your instalment rate and it is not printedin Box T2 you are not required to make a payment of PAYG instalments.

Example of Instalment rate (full example in appendix)

1999 Income Tax Return Jo Bloggs trading as Any Business

Income

Interest on investments 500Residential rent received 10,000Sales (goods or services) 500,000

-----------510,500-----------

Expenses

Rental house deductions 5,000Purchases 300,000Overheads 100,000Wages 60,000

-----------465,000-----------

1999 Taxable Income $ 45,500======


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Income tax due Tax Due Tax rate1999 2000

Income tax 12,167 10,030Medicare levy 683 683

--------- ---------Total tax payable 12,850 10,713

===== =====

Commissioner s Instalment Rate to be used for 2001 year until 2000 income tax return is filed:

10,713 x 100 = 2.10% = BAS Box T2510,500 1

Sales 200,000 100,000Interest 125 125Rent 2500 2500Instalment income = BAS Box T1 202,625 102,625 (excluding GST)X instalment rate = BAS Box T2 X 2.1% X 2.1%

Instalment payment = BAS Box T3 =$4,255 =$2,155Due 21/10/00 21/01/01

30/6/00 30/9/00 30/12/00


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2. Estimating your own instalment rate for the period or using an instalmentrate previously estimated.

Your varied instalment rate X Your instalment income for that quarter

• You are required to inform the Commissioner of your estimated instalment rate on orbefore the date the PAYG instalment payment is due.

• This is done by inserting the rate you have adopted into Box T3 on your quarterlyBAS or IAS.

• When you adopt a varied instalment rate you need to notify the Commissioner as tothe reason why you have adopted the estimated rate. This is done by inserting a twodigit code in Box T4 of your quarterly BAS or IAS. The codes are as follows

Code Reason01 Mergers, acquisitions and takeovers02 Cessation of business activity03 Expected utilisation of losses of a revenue or capital nature04 Significant (abnormal) transactions affecting income or expenses05 Change in trading conditions affecting income or expenses06 Domestic or foreign financial market changes07 Change in investment strategies or policies08 Change in product mix09 Business expansion or contraction10 Change in entity structure11 Internal or external restructuring of business activity12 Change in any legislation13 Change in profit margin

• If you have adopted a varied rate during an income year you are unable to return tousing the Commissioner s instalment rate until the first quarter of the followingincome year.

• If there is a variation between the PAYG instalments that you were liable to pay underthe benchmark instalment rate (rate based on your assessed tax for the income year)and the varied rate you adopted you may be liable for a general interest charge.

Varying Instalment Rates

Why Consider?

Risks of variationGeneral Interest Charge

Possible penaltiesCashflow if large washup


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BEWAREEven if gross income falls,

a variation of rate may not be appropriate

3. Using the GDP-adjusted notional rate

Under this option the Commissioner informs you every quarter of the PAYGinstalment to make. The amount due is based on the notional tax for the taxpayeradjusted for the changes in GDP.

A fresh election to use the GDP-adjusted notional tax must be made annually.

The first payment is 25% of the GDP-adjusted notional tax

The second third and fourth payments are 50%, 75% and 100% respectively less thepayments made to date.

The GDP-adjusted notional rate is only available to taxpayers:-

• Who are individuals and

• Whose most recently notified notional tax is $8000 or more and

• Are not registered nor required to be registered for GST, or

• Is an individual who is a partner in a partnership that is not registered nor required tobe registered for GST, and

• Have notified the Commissioner in the approved form of their choice to payinstalments under the GDP-adjusted rate on or before the first instalment payment datefor the year.

If you become GST registered during an income year you are not able to continue touse the GDP-adjusted notional tax method and must calculate the PAYG instalmentpayment for that quarter and all later instalment quarters.However if during an income year your most recently notified notional tax dropsbelow $8000 you are able to continue using the GDP-adjusted notional rate for theremainder of that income year.

4. Taxpayer s estimation of benchmark tax for GDP-adjusted notional tax.

Individuals are required to notify the Commissioner of their decision to calculatetheir own benchmark tax for the purposes of calculating their GDP-adjusted notionaltax. In later quarters unless the individual decides to again vary the estimatedbenchmark tax the Commissioner will advise the taxpayer of the due amount and thetaxpayer then has 21 days from the date of the notice to pay the PAYG instalment.

• The taxpayer is able to vary the estimated benchmark tax each quarter.

• If the varied benchmark tax is too low, that is it is less than 85% of the actualbenchmark tax for the income year, the taxpayer will be liable to pay a general interestcharge on the shortfall.


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Payment of Quarterly PAYG Instalments

The method of paying the quarterly PAYG instalments is dependent on the method bywhich you pay other amounts due to the ATO. If your organisation is classified as largethe payment for the PAYG withholding and other payments is required to be paidelectronically.

Medium and small entities have the option of making their payments in electronic form ormanually.

TaxpayerType

Method ofCalculation

Instalmentdue dates

Individual or companyand registered for GST

1. Instalment Rate

or

2. Varied instalment rate

Quarterly instalments

21 October21 January21 April21 July

Not registered for GSTand non-individual withnotional tax > $8000

As above As above

Not registered for GSTand individual withnotional tax > $8000

1. Instalment rateor

2. Varied instalment rateor

3. GSP-adjusted notionaltaxorEstimation of GDPadjusted notional tax

As above

Not registered for GSTand eitheran individual, orcompany,with notional tax <$8000

1. Instalment rate(for companies only until

2003 year).or

2. Notional taxor

3. Estimated tax

Annual instalment (ifelected)Due 21/10 after year end2003 year onwardsFor years 2001 and 2002companies due 15/12individuals due 31/3


88

Annual InstalmentsAnnual instalment payers are only required to pay PAYG instalments on an annual basis.These instalments are paid after the end of the income tax year to which the instalmentpayment relates.

In order to qualify to be an annual instalment payer the following criteria must be met:

• You have been issued an instalment rate by the Commissioner and

• You have notified the Commissioner of your choice to be an annual instalment payerin the approved form on or before the day on which your first quarterly instalmentpayment would have been due and you meet all of the following conditions

• You are not registered nor required to be registered for GST

• You are not a partner in a partnership that is registered nor required to beregistered for GST

• Your most recently notified notional tax is less than $8000

• In the case of a company the company is not part of a GST joint venture

• The company is not part of an instalment group. Where a company has majoritycontrol over at least one other company and no other company has a majoritycontrol, these two or more companies become an instalment group.

Once you have met these criteria and so long as you continue to meet the criteria you arenot required to re-elect to be an annual instalment payer on an annual basis.

Must have received an instalment rate

Need to elect to be an annual payer in first quarter

Not registered for GST (nor partnership)

Notional tax less than $8000

Special rules for companies

Payment dates for annual instalment payers

Care must be taken during the transitional period for annual instalment payers. During the2000/01 and 2001/02 years the distinction between the existing instalment payers andcurrent non-instalment payers still exist in determining the date of the annual instalmentpayment.


89

Payment dates for annual instalment payers that were not aninstalment taxpayer before 1 July 2000.

June balance date

• 30 June 2001 Earliest date for payment of 31 March 2001*

• 30 June 2002 Earliest date for payment of 31 March 2002*

• 30 June 2003 21 October 2003

• 30 June 2004 21 October 2004 (onwards)

*Due on or before a date notified by the Commissioner that is at least 30 days after thewritten notification by the Commissioner.If the notification is earlier that 31 March the payment is due on or before the 31 March.


It is very important to note that for annual instalment payers that were not on the companyinstalment regime pre 1 July 2000 there is a gap in instalment payments between 31March 2002 and 21 October 2003.

Payment dates for annual instalment payers that were an instalmenttaxpayer before 1 July 2000.

June Balance Date30 June 2001 15 December 2001

30 June 2002 15 December 2002

30 June 2003 21 October 2003

30 June 2004 21 October 2004 (onwards)

Where the entity does not have a June balance date the annual instalment is due on orbefore the 15th day of the 6th month after the end of that income year for the 2000/01 and2001/02 years.

Instalment payers before 1 July 2000 include the following(a) a company;(b) the trustee of a corporate unit trust;(c) the trustee of a public trading trust;(d) the trustee of an eligible approved deposit fund;(e) the trustee of an eligible superannuation fund;(f) the trustee of a pooled superannuation trust in relation to the current year.


From the 2002/03 years onwards the payment of the annual instalment is brought forwardfrom the 15th day of the 6th month after the end of the income year to on or before the 21st

day of the 4th month after the end of the income year.


90

Annual instalment taxpayers with substituted accounting periods (SAP)payment date for 2002/03 years onwards.

From the 2002/03 years onwards the payment of the annual instalment is on or before the21st day of the 4th month after the end of the income year.

The payment dates for taxpayers with a SAP for the 2000/01 and 2001/02 years isdependent on whether they are existing instalment payers or not. If they are, it is the 15th

day of the 6th month after the end of the income year. If not, the 31 March during theincome year is the earliest date for payment.

2001 and 2002 yearsProvisional payers

31 March

Instalment payers15 December

2003 year onwards21 October (after year end)

Amount of Annual Instalment

The amount of each instalment depends on the rate used by the payer. There are threeoptions available for annual instalment payers:-

• Using the Commissioner s instalment rate

• Paying the notional tax amount informed by the Commissioner

• Paying the benchmark tax estimated by your entity.

1. Using the following formula:-

Commissioner s instalment rate X Your instalment income for the year

• This option is only available from the 2002/03 income year onwards for taxpayers thatare not instalment payers before the introduction of the PAYG instalment regime.

• You are not able to estimate your own instalment rate under the annual instalmentbasis.


91

1. Paying the amount notified by the Commissioner. (The notional tax amount)

• For taxpayers that were not instalment taxpayers this is the amount notified by theCommissioner at least 30 days before the day on which the payment is due. For the2000/01 and 2001/02 years only.

• For existing instalment taxpayers and all annual instalment payers from 2002/03 yearsonwards, this is the most recent notional tax notified by the Commissioner before theend of the income year

2. Paying the amount you estimate to pay. (Your estimated benchmark tax)

• If you estimate you may incur a general interest charge where there is a differencebetween your payment and the assessed income tax for the period.

Commissioner s instalment rate

Pay amount notified by Commissioner

Pay amount you estimate

Note a company can use either option

An individual can only use the last two

Changing from an annual instalment payer to a quarterly instalment payer.

Taxpayers circumstances may change. When the changes mean they no longer fit one ormore of the criteria for annual instalment payments they are required to change to aquarterly basis for PAYG instalments.

If an annual instalment payer does one of the following the entity is required to become aquarterly instalment payer:-

• when it s notional tax is $8000 or more,

• the entity chooses to be a quarterly instalment payer,

• becomes registered or required to be registered for GST,

• becomes a partner in a partnership that is registered or required to be registered forGST,

• a partnership that you are a partner of becomes registered or required to be registeredfor GST,

• in the case of a company becomes a participant in a GST joint venture, or

• is a company that becomes part of an instalment group.


92

If any of these occur during the 2000/01 or 2001/02 income years the annual instalmentpayer is required to become a quarterly instalment payer at the first quarter of thefollowing income year.

If any of these occur during the 2002/03 years onwards (except for where the notional taxis $8000 or more, or the entity chooses to be a quarterly instalment payer) the annualinstalment payer is required to start paying quarterly instalments for the quarter inwhich this occurs onwards.

If the quarter in which this occurs is not the first quarter for the year the instalment payeris not only required to pay the quarterly instalment for that quarter onwards but also anannual instalment for that income year.

Regardless of which income year it occurs, when an entity s notional tax is $8000 or moreor an entity chooses to pay quarterly instalments the taxpayer stops being an annualinstalment payer at the end of that income year. It is then required to pay quarterlyinstalments from the first quarter of the next income year.

Changing from Annual to Quarterly

2001and 2002 yearsfirst quarter in the next income year

2003 onwardsin the quarter it occurs

over $8000 taxalways first quarter next income year

Going from a quarterly instalment to an annual instalment.

Where the entity meets all of the criteria of an annual instalment payer and notifies theCommissioner of its choice by the first quarterly instalment date for the year the taxpayermay change from a quarterly instalment to paying annual instalments.

Transitional provisions for the balance of 2000 instalment and provisional taxdue.

There are no special transitional provisions for the deferral of 1999/2000 income yearinstalment and provisional taxpayers tax balances for annual instalment payers.


93

PAYG Instalment obligations from July 2000 forthose with a 30 June balance date.

No

Yes

Yes

No

Is your current notionaltax less than $8000?

You must pay quarterlyinstalments.

Do you have an instalmentrate issued by theCommissioner?

Are you registered (orrequired to be registered) for

GST?

No need to payPAYG instalments.

Have you elected topay annual instalments

in the required timeframe?

Yes

Yes

No

Dates for annual payments of PAYG instalment tax.

2001 Year• on or after 31 March 2001 (current provisional tax

payers)• 15 December 2001 (current instalment payer)2002 Year• on or after 31 March 2002 (current provisional tax

payers)• 15 December 2002 (current instalment payer)2003 Year• 21 October 2003. All annual PAYG instalment payers.

Dates for quarterly payments ofPAYG instalment tax

• 21 October• 21 January• 21 April• 21 July

Yes

Yes

Are you a partner in apartnership that isregistered (or required tobe registered) for GST?

No

No


94

Transitional Provisions for theDeferral of 1999/2000 InstalmentTax BalancesBAS EXTRACT

There are special transitional rules that exist for company and fund instalment payers thatwould still have 2000 year tax obligations due to the introduction of the new PAYGinstalment system.

The transitional rules only apply to the following:-

• Taxpayers that have filed their 2000 income tax year returns by the required date,

• Taxpayers that are currently company or fund instalment payers.

The amount of the deferral of 2000 instalment tax is dependent on the size of theinstalment taxpayer .

Amount of assessed tax for1999-2000 income year

Maximum deferred amount

Less than $8000 100% of the assessed tax$8000 to $300,000 42% of the assessed taxMore than $300,000 20% of the assessed tax

1. Small company or fund instalment payers

The small company or fund instalment payers also have transitional provisions that allowthe deferral of the assessed income tax for the 2000 income year.

In their case the full payment due on 15 December 2000 is deferred until 15 March 2001.

On the 15 March 2001 the full 100% of assessed income tax for the 2000 income year isable to be paid in equal instalments over the next 21 quarters.

The first date for the payment of the deferred tax is 21 April 2001.

Deferred company/Fund instalment 7 $


95

Example of Cashflow effect of transitional provisions

1. A small company has filed it s 2000 Income Tax Return. The Commissioner has issued aninstalment rate of 10%

2. There was a 1999 instalment payment due on 15/12/00 of $4000 plus a wash-up of $1000. Bothof these have been deferred.

3. The instalment income for the September quarter was $10,000.4. The December quarter also had instalment income of $10,000.5. On the 21 January the Commissioner issued a new instalment rate of 12.5% based on the 2000

income tax return.6. The instalment income for the March quarter was $10,000.

The March instalment payments were as follows,PAYG instalment 1250.00Deferred payment 238.10 = The first of twenty one payments

1488.107. The same applied to the June quarter.

2. Medium company or fund instalment payer

On the 1st of July 2000 a medium company or fund instalment payer will still have threepayments of 2000 income tax instalments due.

The payment due on 1 September 2000 must still be paid.

• The payment that would have been due on 1 December 2000 will be completelydeferred until 1 March 2001.

• On 1 March 2001 58% of the assessed tax for the 2000 income tax year must be paid.If less than this has been paid a top-up payment is due on 1 March 2001 to bring taxpaid to 58% of the assessed tax.

The remaining 42% is able to be paid in equal amounts over the next 21 quarters.

The first date for payment of the deferred tax is 21 April 2001.

The deferred tax payments will usually be printed on the BAS or IAS in Box 7.

12502381488

21 July

30 June 00 30 June 01


$1000 $1000 12502381488Payment $4000

deferred to 15/3Total payment spread over 21quarters

15/12 15/3


96

3. Large company instalment payer

A large company or fund instalment payer with a June balance date will still have twopayments of instalment tax due for the 2000 income year.

The payment due on the 1 September 2000 must still be paid.

However there is a possible deferral option for the 1 December 2000 payment.

If by 1 December 2000 the entity has paid 80% or more of the assessed tax for the 2000income year the balance of 20% or less is able to be deferred and paid over the next 10quarters in equal payments.

If 80% of the assessed tax has not been paid at that date the difference between the amountpaid and the 80% of the assessed tax must be paid on 1 December. The remaining 20%can then be paid in equal instalments over the next 10 quarters.

If the taxpaying entity has paid more than the 80% as at 1 December it is the remainingportion of assessed tax unpaid that can be spread over the next 10 quarters.

The first payment date for this deferred tax is the 21 January 2001.

The deferred tax payments will usually be printed on the BAS or IAS in Box 7


97

Large company instalment payerAssessed tax for 1999-2000 year of more than

$300,00030 June balance date

1 September 2000

1 December 2000

YesNo

Has 80% ofthe currenttax balancebeen paid?

A payment must be madeon 1 December to ensurethat 80% of total incometax due is paid by that

date.

The remaining20% (or less) willbe paid over thenext 10 quarters.

Transitional payments to be made.• 1 December 2000 ( balance of

tax to 80%)• 21 January 2001 Box 7 BAS (1

of 10 payments)• 21 April 2001 Box 7 BAS (2 of 10

payments)• 21 July 2001 Box 7 BAS (3 of 10

payments)• 21 September 2001 Box 7 BAS

(4 of 10 payments)

Thedeferredquarterlyamountsshould bepreprintedon the BAS.If they arenot and youwish to defertheinstalmentbalance youmust work itout and payit.

25% of likely taxmust be paid.


98

Medium company instalment payersAssessed tax for 1999-2000 yearof between $8000 and $300,000

30 June balance date 1 September 2000

1 December 2000Are you a quarterly PAYG instalment payer?

Yes

Yes

No

Has 58% ofthe currenttax balancebeen paid?

A payment must be madeon 1 March to ensure that58% of total income taxdue is paid by that date.

The remaining42% (or less) willbe paid over thenext 21 quarters.

Transitional payments to be made.• 1 March 2001 ( balance of tax to

58%)• 21 April 2001 Box 7 BAS (1 of 21


payments)• 21 October 2001 Box 7 BAS (3

of 21 payments)• 21 January 2002 Box 7 BAS (4

of 21 payments)

The deferredquarterlyamountsshould bepreprinted onthe BAS. Ifthey are notand you wishto defer theinstalmentbalance youmust work itout and pay it.

1 December 2000 defer allpayments to 1 March 2001.No deferral

available.

No

1 March 2001

25% of likely taxmust be paid.


99

Small company instalment payersAssessed tax for 1999-2000 year $8000 or less

30 June balance date15 December 2000

Are you a quarterly PAYG instalment payer?

Yes

Yes

100% of the taxdue is able to be

deferred to be paidover the next 21

quarters.

Transitional payments to be made.• 21 April 2001 Box 7 BAS (1 of 21


payments)• 21 October 2001 Box 7 BAS (3

of 21 payments)• 21 January 2002 Box 7 BAS (4

of 21 payments)

Thedeferredquarterlyamountsshould bepreprintedon the BAS.If they arenot and youwish to defertheinstalmentbalance youmust work itout and payit.

15 December 2000 defer allpayments to 15 March 2001.

No deferralavailable.

No


100

Summary of Payments for Companyand Fund Instalment Payers

Large instalmentpayer

Medium instalmentpayer

Small instalmentpayer

1 September2000

25% of likely tax isdue for 2000 year

25% of likely tax isdue for 2000 year

21 October2000

1st payment of 2001PAYG instalment



1 December2000

Payment required to80% of assessed2000 tax

No payment due

15 December2000

No payment due

21 January2001

2nd payment of 2001PAYG instalmentPlus 1st of 10payments ofdeferred tax

2nd payment of 2001PAYG instalment

2nd payment of 2001PAYG instalment

1 March2001

Payment required to58% of assessed2000 tax

15 March2001

No payment due

21 April 2001 3rd payment of 2001PAYG instalmentPlus 2nd of 10payments ofdeferred tax

3rd payment of 2001PAYG instalmentPlus 1st of 21payments ofdeferred tax

3rd payment of 2001PAYG instalmentPlus 1st of 21payments ofdeferred tax

21 July 2001 4th payment of 2001PAYG instalmentPlus 3rd of 10payments ofdeferred tax

4th payment of 2001PAYG instalmentPlus 2nd of 21payments ofdeferred tax

4th payment of 2001PAYG instalmentPlus 2nd of 21payments ofdeferred tax


101

Calculation of PAYG Instalments ByPartners

Partnerships do not pay income tax on the partnership profits. The assessable income isallocated to the partners and the partners are then responsible for their share of thepartnership income in their own income tax returns.

As a result the liability for the PAYG instalments on the partnership income is passed onto the partners of the partnership.

Partners will be issued an instalment rate by the Commissioner and are then required topay a PAYG instalment based on their share of the income each period. It is important tonote that it is on the share of gross income for the period (excluding GST) that the PAYGinstalment is calculated.

Each partner in a partnership is required to obtain from the partnership the total income forthe quarter (or annually if the partnership is not registered for GST and the partner haselected to be an annual PAYG instalment payer) in order to calculate the PAYGinstalment to be paid. It is therefore very important that the partnership has this availableto each partner before the payment is due to be made (on or before the 21st of the monthfollowing the end of each quarter).

The equation that is to be used for the current income year is based on the percentage ofthe total partnership income the partner was entitled to in the prior income year.

The calculation required is as follows

Partner s assessable income from the partnership for last year Partnership s instalment

X income for current period Partnership s instalment income for last income year

If the partner did not have income allocated in the previous year or the partnership sinstalment income for that year did not exist the partner s instalment income for thecurrent year must include an amount that is fair and reasonable taking into considerationthe following:-

• The extent of the partner s interest in the partnership in the current period

• The instalment income of the partnership in the current period

• Any other relevant circumstances.

This means that where a partner has recently joined a partnership or the partnershipincurred a loss in the previous year, that the PAYG instalments are being paid from theoutset.


102

If the partner s share of income from the partnership has changed in the current year thepartner may choose to estimate in the current year by adopting a varied instalment rate.The partner may then be liable for a general interest charge if the estimation results in lessPAYG payments being made than should have been.

In addition to the partnership income for the period each partner is required to include intheir instalment income any other income earned outside of the partnership such asroyalties other business income, interest and dividends.Any income earned that had PAYG withholding deducted at source such as wages andsalaries is not required to be included in the partner s instalment income.

Example

Mrs Ashton has a son and they are in partnership. For the first quarter of the 200/2001 income year thedetails were as followsSales (including GST) 44,000No other receipts ______

44,000 = BAS Box G1Less GST 4,000 = BAS Box G9Partnership instalment income 40,000

Mrs Ashton s share of income from 1999 year was as follows;1999 Partnership gross income 170,000Expenses 120,000Net Profit 50,000

Share for Mrs Ashton 50% $25,000

To calculate Mrs Ashton s share of the partnership s instalment income for the quarter the following isrequired:-

Share of partnership income X Instalment income = 25,000 X 40,000 = 6,000Income partnership 170,000

Partnership Instalment income $40,000

Mrs AshtonPartnership instalment income 6000Other instalment income 53150Instalment income $59150 = BAS Box T1

SonIAS instalment income $6000 = BAS Box T1


103

Beneficiaries of TrustsThe calculation of instalment income for a beneficiary of a trust is similar to that of apartner in a partnership. A beneficiary that had income distributed from a trust in the priorincome year is liable to pay PAYG instalments on the trust s income in the current year.

If the beneficiary did not have income allocated in the previous year or the trust sinstalment income for that year did not exist, the taxpayer s instalment income for thecurrent year must include an amount that is fair and reasonable taking into considerationthe following:-

• The beneficiary s interest in the trust in the current period

• The extent of the beneficiary s interest in the income of the trust for the current period

• The instalment income of the trust in the current period

• Any other relevant circumstances.

The calculation for the beneficiary s share of the trust s instalment income is as follows

Beneficiary s assessable income from the trust for last year Trust s instalment

X income for current period Trust s instalment income for last income year

Beneficiaries paying PAYG instalments are required to include in their instalment incomeany other income earned in addition to the income from the trust such as royalties, otherbusiness income, interest and dividends.

Any income earned that had PAYG withholding deducted at source such as wages andsalaries is not required to be included in the beneficiary s instalment income.


104

New TaxpayersWhen taxpayers first start in business they will not have an instalment rate issued by theCommissioner. The Commissioner will not issue an instalment rate until after the firstincome tax return is assessed.

As a result new businesses will not be liable for PAYG instalments until an instalment rateis issued by the Commissioner. This could lead to the situation where the business istrading for over 12 months before the first PAYG instalments are paid and will have thefull balance of tax from the first year of trading and the current year PAYG instalments topay. This will have an adverse effect on the cashflow of the business unless money hasbeen put aside to cover the taxes unpaid for the period.

New businesses should always ensure that included in their budgeting is an allowance forthe taxes not yet required to be paid.

It is possible, and will be encouraged, for a new business to make voluntary payments ofPAYG instalments before an instalment rate is issued by the Commissioner.

Tax Planning Always required

No PAYG instalments due until instalment rate issued byCommissioner

Instalment rate unable to be issued until tax return filed

PAYG instalment

File 2000 ITR2000 yearTax due

Start inbusiness

30/6/00 30/6/01

1/12 15/1

Instalment rateissued

15/2 21/4

PAYGinstalment


105

Variation CreditsBAS EXTRACT

Where a taxpayer has paid one or more PAYG instalments based on the Commissioner srate and then decides to make a variation to the rate there may be circumstances where thetaxpayer has overpaid the previous instalments.

Where the estimate made has significantly reduced the expected total of PAYGinstalments, there may be credits available from the prior payments. These cannot negatethe current PAYG instalment liability. However the variation credit is included in Box 5Bin the instalment statement and offset against taxes due.

To claim a credit in the current period either one of the following must exist

• The instalment rate used to calculate the instalment income for this has dropped fromthe instalment rate advised by the Commissioner used in previous quarters of the sameyear or

• The estimated instalment rate you are using this period is less than the instalment ratesused in the previous quarters of the income year.

There is a four step equation that must be done to ensure that there is a credit available.This is detailed in the Business Activity Statement Instruction booklet issued by the ATO.

Once you have determined that there is a credit available to be credited to the RunningBalance Account (RBA) you must notify the ATO in the approved form on or before thedate for payment. The approved form in this case is to complete Box 5B on the BAS orIAS.

Variation credits

May arise on variation of instalment rate

Need to calculate current instalment regardless of credit

Variation offset against all tax liabilities in RBA

Credit adjustment forprevious income 5B $tax instalments


106

Fringe Benefits TaxCALCULATION SHEET EXTRACT

The payment of Fringe Benefits Tax (FBT) by employers providing certain benefits totheir employees or to the associates of their employees will be included on the quarterlyBAS or IAS with effect from 1 July 2000.

Employers providing fringe benefits to employees:

• Calculate taxable value of fringe benefits

• Calculate FBT payable thereon for the year

• Pay one quarter of the annual FBT to the ATO using the relevant activity statement(BAS or IAS) on 21 October, 21 January, 21 April, 21 July. This must be shown onthe BAS or IAS in Box 6A

• Ensure that the grossed up value of all fringe benefits are shown on employeesPayment Summaries for the financial year

Fringe benefits tax is treated as an annual tax but is payable to the ATO in quarterlyinstalments where the FBT exceeds $3,000. An income tax deduction is allowed toemployers for the FBT paid to compensate them for the fact that the tax is calculated on agrossed up value. Taxpayers who are exempt from paying income tax are able to reducetheir taxable amount by a specified amount when calculating their FBT liability.

Fringe benefits

tax instalment F1 $

Fringe benefits tax (annual liability under $3000-instalment not required

Transfer your elected fringe benefits tax instalment to 6A on the front

Estimated totalfringe benefitstax payable F2 $

Varied fringe benefitstax instalmentamount F3 $

Reason forVariation F4


107

Quarterly FBT instalment payer:

• Has an FBT annual liability in excess of $3,000

• FBT instalment will be pre-printed in BAS Box F1

• FBT variations are available but must supply the following:Dollar value = BAS Box F2Varied instalment amount = BAS Box F3Reason for variation = BAS Box F4

Code Reason for variation01 Benefits ceased/reduced, salary increased02 Benefits ceased/reduced, no compensation to employees03 Fewer employees04 Increase in employee contributions05 Rebate now claimed06 Liquidation receiver/manager appointed07 None of the above

Annual FBT payer:

• Has an annual FBT liability of $3,000 or less

• No instalment due on BAS or IAS

Fringe Benefits Tax

6A = F1 or F3

FBT and GST

Some benefits provided by an employer will have been the subject of a GST input taxcredit. In this case the gross-up rate must be increased from 1.9417 to 2.1292.There are special rules for employers who make financial supplies to ensure they are notdisadvantaged where only a partial input tax credit would otherwise trigger the highergross up rate.

References: Fringe Benefits TAA 1986; Guide to PAYG for Business Fringe Benefits Tax:A guide for Employers.


108

Running Balance AccountFrom 1 July 1999 the ATO has been operating Running Balance Accounts (RBAs) whichaccumulate all the taxes owing by an entity and the payments and/or credits accruing. Itis possible to have more than one RBA but in establishing the total tax liability of an entityall its RBAs will be aggregated.

RBAs are intended to improve and simplify the calculation, management and recovery oftax debts through:

1. The production of regular account statements showing the total of the outstanding taxdebts, including all amounts owing under the PAYG withholding system

2. The application of general interest charge to the outstanding balance, if applicable

Credits accruing to the taxpayer e.g. from GST input tax credits and payments made to theATO by the taxpayer will be attributed against the outstanding taxes at the discretion ofthe Commissioner. The Commissioner may refund any surplus on an RBA provided thatthere are no BAS outstanding.

References: TAA Pt IIB sec 8AAZA-N


109

APPENDIX

1999 Income Tax Return

Jo Bloggs trading as Any Business

Income


-----------510,500-----------

Expenses


-----------465,000-----------

Taxable Income $45,500=======

1999 Tax New Tax rate 2001



====== ======

Commissioner s Instalment Rate:

10,713 x 100 = 2.10%510,500 1


110

APPENDIX


Jo Bloggs trading as Any Business

Income


-----------523,500-----------

Expenses


-----------468,000-----------


2000 Tax New Tax rate 2001



====== ======


12,422 x 100 = 2.37%523,500 1


111

APPENDIX


A Smith trading as Another Business

Income

Interest on investments 500Residential rent received 10,000Sales (goods or services) 500,000Capital gain on sale of shares 40,000

-----------550,500-----------

Expenses


-----------465,000-----------


1999 2000 2001

Income tax 30,067 30,067 27,565Medicare levy 1,283 1,283 1,283

--------- --------- ---------Total tax payable 31,350 31,350 28,848

====== ====== =====


1. Calculate notional tax:Tax and medicare levy on $45,500 (85,500 - 40,000 capital gain)= $10,713

2. Divide by instalment income $510,500 (550,500 — 40,000 capital gain)

10,713 x 100 = 2.10%510,500 1


112

APPENDIX

Application of Instalment Rate

TOTAL for year

Sales 220,000 110,000 99,000 231,000 660,000Interest recd 125 125 125 125 500Rent received - house 2,500 2,500 2,500 2,500 10,000GST included (20,000) (10,000) (9,000) (21,000) (60,000)

Total Income 202,625 102,625 92,625 212,625 610,500====== ====== ====== ======= ====== x 2.10% x 2.10% x 2.10% x 2.10% x 2.10%= $4,255 = $2,155 = $1,945 = $4,465 =$12,820

Date due Oct 21 Jan 21 April 21 July 21 Total paid

Final Tax Return for 2000/2001

Income per above 610,500Expenses (say) 490,000

Taxable Income for the year $120,500=======

Tax thereon 44,015Medicare levy 1,808Instalments paid (12,820)

Additional tax payable $33,003=======

This tax is payable 4 weeks after an assessment is issued

30.6.00

30.9.00

31.12.00

31.3.01

30.6.01


113

APPENDIX

Example One

Vera Pots flower shop is registered for GST. She operates a cash book system foraccounting purposes. She is also using the cashbook for her GST calculation.

The following are a series of payments and receipts for the entity that need to beentered into the cashbook. For the purposes of our examples we will separate GSTfrom the total.

All transactions 7.8.00

1. Cheque number 121 power bill $132.00

2. Direct Debit for rent $2200.00

3. Flowers bought for the week ending 31 August Chq 122 $880.00

4. Payment of PAYG for employees Chq 123 $2560.00

5. Payment for stock to a unregistered supplier Chq 124 $165.00

6. Purchase of Ribbons and cellophane Chq 125 $154.00

7. Purchase of a new till Chq 126 $2750.00

8. Repairs to the business car Chq 127 $660.00

9. Personal Expenses Chq 128 $320.00

10. Payment of credit card. Chq 129 $563.00

This consists of Petrol costs $154.00

Entertainment $330.00

Misc Stock items $66.00

Interest $12.00

Fees $1.00

In addition to this Vera has the following deposits for the week (all deposits are a mix ofcash and eftpos transactions.)

1. Cash sales Saturday ( 5.8.00) deposited Monday $4400.00

2. Additional Saturdays sales paid by credit card Total sales $187.00

Net deposit $178 (credit card fees $9)

3. Sales made Monday deposited Tuesday $770.00

4. Tuesday sales $990.00

5. Wednesday sales $1320.00

The amount banked was $190. This was because $920 of the cash received wasnot banked because the money was used to pay the following items: wages $900,tea and milk $10, and cash taken for Vera s personal $220. For the purposes ofensuring accurate records are kept Vera will write a cheque for these cash paymentsand bank the cheque.

6. Thursday sales $2750, cash withdrawals from eftpos by customers $150.


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Example Two

Peter Pots operates a Caf . Above the caf is a flat that he rents out.(Assumption no fruit juices or bottled water sold.)

We will work through his transactions for a short periodPayments made 7.8.00

1. Telephone bill (chq 156) for one month for caf $176.00

2. Purchases from supplier (chq 157) $2021.00

This was made up as follows

Bread $1658.00

Pies $220.00

Veges $143.00

3. Confectionery purchased (chq 158) $77.00

4. Repairs for flat (chq 159) $280.00

5. Tables and Chairs for Caf (chq 160) $1650.00

6. Loan payment on computer (principal only) DD $253.00

7. Purchases of soft-drinks (chq 161) $99.00

8. Payment of wages (chq 162) $690.00

9. Purchase of paper bags (chq 163) $330.00

10. Refund of purchase to customer (chq 164) $11.00

Inwards Cash

1. Saturday sales (5.8.00) deposited Monday $5940.00

2. Sunday sales deposited Monday $4400.00

3. Rent from Flat $180.00

4. Refund from Supplier for spoiled cream buns $286.00

5. Monday sales $920, including containers of milk on-sold $40.00

6. Sale of old chairs from caf $220.00

7. Sales Tuesday $2200 less cash purchases of fruit $55, deposit $2145.00

8. Transfers of funds from the business savings account of $1000.00


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Simplified GST Accounting Methods

Hans operates a hot bread shop. He has registered for GST on a cash basis. The annualturnover is approximately $350 000. He has not upgraded his till and is conscious that hisGST-free supplies and taxable supplies made will need to be recorded. What are hisoptions?

Under the Simplified GST Accounting method there are three options;Example for PeriodTotal sales $160,000Total stock purchases $55,000Other acquisitions including GST $12,000

1. Business norm method

The ATO business norms for a hot bread shop are GST free sales 50%., GST freepurchases of stock 75%.

GST-free sales GST-free stock purchases

Business norms hot breadshop

50% 75%

Implications for Hans $160,000*50% $55,000*75%

GST-free supplies $80,000 [sales] $41,250 [purchases]Taxable supplies $80,000 [sales] $13,750 [purchases]

Taxable supplies made $80,000 Taxable acquisitions made Stock $13,750Other $12,000

$25,750

2. Snapshot methodFor the two weeks 1 June to 14 June Hans kept a detailed account of sales for theperiod. The proportion of GST-free sales were 43.65% of total supplies made in thattime.

For the four weeks 1 June to 28 June Hans also kept a close record of all GST-freepurchases. These were 83.5% of all stock acquisitions.

Using the snapshot methodTotal supplies made for period (as above $160,000)GST-free supplies 160,000*43.65% equals $69,840.

Taxable supplies 160,000-69840 equals $90,160.

Total supplies acquired for period, Stock $55,000, Other acquisitions including GST$12,000

GST-free stock acquisitions $55,000*83.5 equals $45,925Taxable stock acquisitions $55,000-45,925 equals $9,075

Total taxable acquisitions $9,075 + $12,000 equals $21,075


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3. Stock purchases methodThis is not an option for Hans as he does not resell stock without conversion of someGST-free supplies to taxable supplies.