GST intermediate

1. GST intermediate Norman Kochannek

2. Accounting rules Tax invoices Disbursements Trust accounts Hire purchase Asset disposal Insurance Business deductions Tax Office’s legal database Overview

3. Accounting rules

4. Accounting rules • You can account for GST on a cash basis in three situations: • current or projected annual turnover is $1 million or less • currently accounting for income tax on a cash basis, or • Commissioner’s determination.

5. Accounting rules • If you account on a cash basis, you account for GST when: • you receive a payment for a supply (GST collected), and • you make a payment for an acquisition (GST paid).

6. Monthly and cash basis - GST charged to be sent in by 21 November Quarterly and cash basis - GST charged to be sent in by 28 February Accounting for GST - cash basis July Aug Sept Oct Nov Dec Jan Feb Mar First Quarter Second Quarter Third Quarter 1 July - 1 October - Issued Invoice Received Payment

7. Accounting rules for non-cash basis • If you account for GST on a non-cash basis, you account for GST when: • you issue an invoice or receive any payment for a supply (GST collected), whichever is the earlier, and • you receive an invoice or make any payment for your acquisitions (GST paid), whichever is the earlier.

8. Monthly and non-cash basis - GST charged to be sent in by 21 August Quarterly and non-cash cash basis - GST charged to be sent in by 28 October Accounting for GST –non-cash basis July Aug Sept Oct Nov Dec Jan Feb Mar First Quarter Second Quarter Third Quarter 1 July - 1 October - Issued Invoice Received Payment

9. Cash basis by law • Held to be most appropriate for sole practitioners accounting for income tax purposes* (* FCT v Firstenberg (1976) 6 ATR 297)

10. Tax invoices

11. 1 2 3 4 invoice for less than $1,000 8 9 5 • Sample 10 7 invoice for $1,000 or more 6 7

12. Accounting - tax invoices • Other types of tax invoices: • contracts • written agreements • reimbursements.

13. Commissions • An agent prepares a contract on the sale of a house for $400,000 • An agent charges commission ($22,000) • Agent needs to remit 1/11 of commission • Agent keeps $20,000, GST remitted is $2,000

14. Disbursements

15. Disbursements • Payment of money to lawyer ‘up front’ • Incur costs on behalf of client • No win/no fee

17. Trust accounts

18. Trust accounts • Operation of trust account • Operation of general business account • Normal bank account

19. Hire purchase

20. Hire purchase versus lease • With hire purchase: • cash basis - claim credit for each payment • non-cash - claim all credit on receipt of invoice. • With a lease: • cash basis - claim credit each payment • non-cash - claim credit each instalment.

21. Asset disposal

22. Trade-ins • If you are registered for GST, and you trade-in a business asset, your supply of the trade-in is a taxable supply • Example: • photocopier trade-in value $2,300 • 1/11th, or $209, is GST to be reported on your activity statement and sent in to the Tax Office.

23. Selling a motor vehicle • If you are registered for GST and: • you sell a motor vehicle that was used in your business, then • 1/11th of the selling price is GST which must be reported on your activity statement and sent to the Tax Office.

24. Part private use • If the vehicle was used partly for private purposes, you may be able to claim a decreasing adjustment (also applies to trade-ins).

25. Sale of motor vehicle example • Ian purchased a utility for $1,100 • He used the vehicle 80% for business and 20% for private purposes • He has claimed a GST credit of $80 (80% x $100) • He sells the utility for $550 including GST • What are the GST implications of the sale?

26. Motor vehicle example • Ian will report and pay $50 GST to the Tax Office • Decreasing adjustment claim on sale 1/11 x $550 x (1-80/100) = 50 x 20% = $10

27. Insurance

28. Insurance • If you claim a GST credit, and advisethe insurance company of the business usage on the insurance you will not be liable for GST on any insurance pay out

29. Component of payout • Insurance fees • Settlement of clients costs • Loss of income stream • Pain & suffering

30. Cash settlement • The insured purchased business contents insurance from a general insurer for $1,330 • The policy premium consisted of: • base premium $1,200 • GST on policy $ 120 • stamp duty on policy $ 10

31. $ 120 GST $ 120 ITC $800 ITC Premium $1330 No DA Insurer Insured $8000 $8800 Builder $800 GST Cash settlement – taxable goods100% entitlement to ITC $

32. Business deductions

33. Business deductions • Deductions reduce the amount of tax you pay • To claim a general deduction, you must: • have paid or incurred the expense • show a relationship to your business, and • ensure the expense is not of a private, domestic or capital nature. • You must have kept records

34. Business deductions • Claim deductions for expenses that are necessarily incurred in carrying on your business. The expense: • is not of a private or domestic nature • is not a capital expense.

35. Income tax expenses and GST • Income tax legislation denies a deduction for the GST amount if it can be claimed as a GST credit • The amount of GST is not included in the calculation of a deduction if an entity: • is registered for GST, and • Is entitled to the GST credit equal to the amount.

36. Common deductions • Interest on business loans • Wages to employees • Supreme Court library fees • Occupation-specific clothing • Annual Practising Certificate • Professional indemnity insurance • Advertising • Business premises

37. Expenses that you cannot claim • Admission fees • Club membership fees • Fines • Suspension from practice • Newspapers • Glasses and contact lenses • Driver's licence • Child care

38. Tax Office’s legal database

43. Summary • Accounting rules • Tax invoices • Disbursements • Trust accounts • Hire purchase • Asset disposal • Insurance • Business deductions • Tax Office’s legal database

44. Need more information? • Phone 13 28 66 • Order a fax 13 28 60 • Translating and interpreting service 13 14 50 • Hearing or speech impairment 13 36 77 • Obtaining copies of publications 1300 720 092 • Reporting information about tax evasion 1800 060 062

45. Questions

46. Our commitment to you • The information in this presentation is current at March 2005. • In the taxpayers' charter we commit to giving you information and advice you can rely on. • If you try to follow the information contained in our written general advice and publications, and in doing so you make an honest mistake, you won't be subject to a penalty. However, as well as the underpaid tax, we may ask you to pay a general interest charge. • We make every effort to ensure that this information and advice is accurate. If you follow our advice, which subsequently turns out to be incorrect, or our advice  is misleading and you make a mistake as a result, you won't be subject to a penalty or a general interest charge although you'll be required to pay any underpaid tax. • You are protected under GST law if you have acted on any GST information in this presentation. If you have relied on GST advice in this Tax Office presentation and that advice has later changed, you will not have to pay any extra GST for the period up to the date of the change. Similarly, you will not have to pay any penalties or interest. • If this information does not cover your circumstances, you can seek further information from our website at www.ato.gov.au, or help from the Tax Office or a professional adviser. Since we regularly revise our presentations to take account of any changes to the law, you should make sure this edition is the latest.