Businesses with GST registration requires lodgement of a Business Activity Statement, or BAS to the ATO. BAS statement contains many things including GST, PAYG withholding tax, PAYG Instalments and other taxes such as luxury car tax and fringe benefit tax.
The appropriate method of reporting GST depends on your cash flow for most small businesses. As you know there are two options when it comes to completing your GST registration with the ATO – cash or accrual accounting.
What is cash accounting method for GST?
Cash accounting is when you report your transactions to the ATO as they happen in your business bank statements. If you have a business that has no debtors or creditors, the cash accounting method for GST is suitable for your business.
Consider using the cash approach for your accounting if you run a cash-based business.
For example, on your bank statements, the total sales is $33,000. Expenses are $22,000. On the BAS reporting of the quarter, you will enter these data in your BAS. This is BAS reporting on a cash basis.
A restaurant owner for example has no outstanding debtors. They pay the vendors on time. In this case you register for GST and are reporting the goods and services tax GST return on a cash basis is sensible.
The accrual method enables you to make a claim for the GST on purchases as soon as possible. Even if you delay payments for some items. The downside is in the collection of GST if the debtors do not pay on time and yet you will need to pay the ATO upfront.
Ensure that GST reporting method you have chosen represents your business cash flow. Also another important thing to remember is make sure the accounting software can generate the relevant reports so that you report and pay the correct amounts.
What is PAYG Withholdings and how do they relate to wages declaration
If the total PAYG is more than $25,000 annually your reporting cycle will change to monthly from quarterly. You will become a monthly lodger for PAYG withholding.
Usually, you file the PAYG withholding every three months in the business activity statement bas return. As you transition to the monthly PAYG withholding cycle, your cashflow will be affected.
PAYG Instalments and how it can effect your cash flow and ATO compliance
You report total sales for the period in Box G1 of your BAS. This includes the amounts reported in Boxes G2 and G3 respectively.
You also need to indicate whether these numbers include or exclude the GST in the appropriate field. Because the ATO cross-references submitted income tax returns and BAS checks for anomalies, correct reporting is critical. If you don’t have access to professional advice, you should avoid changing the amount of your PAYG income tax installments.
The amount of income tax estimated by the ATO is frequently one to two years behind real time. During this time period, your business situation may change. So you may need to update or adjust your installment payment.
Before making any changes, you should discuss the matter with your tax accountant or registered BAS agent. The reason for this is that if you reduce your PAYG installments during the year without first seeking suitable assistance, it may not be accurate. This could result in higher tax owing at the end of the financial year and you may not be able to meet your tax obligations.
When are BAS statements due?
The deadlines for submitting your BAS are quite important. Each period your bank reconciliation should be up-to-date. Each BAS is due on the 28th day of the month after the quarter if you self-lodge. There is an exception, though, with the December quarter, which has a due date of the 28th of the next month, which is February.
You have an additional month to lodge your tax return if you use a registered BAS or tax agent.
The ATO takes late lodgments very seriously. It has the right to impose a penalty of up to five months’ interest for each month that your BAS is late. It is absolutely necessary to make timely submissions in order to avoid these penalties.
The due dates are listed below so that you as a business owner can input these dates in your calendar.
Quarter 1 (July – September) 28 October
Quarter 2 (October – December) 28 February
Quarter 3 (January – March) 28 April
Quarter 4 (April – June) 28 July
Align your balance sheet with your PAYG and GST payments.
Here are some of our professional tips that may assist you in avoiding typical traps when it comes to GST and the BAS returns and what to look out in a BAS service.
Imagine your internal bookkeeper or yourself have processed a list of transactions after you lodged your BAS. Similarly imagine the GST codes are changed as well. Those transactions will not show up in your next BAS. This will cause discrepancies, and it will cause an issue when lodging your annual tax return.
You need to compare the quarterly reports to the balance sheet accounts in order to identify these inconsistencies.
When you are using the accrual approach, this is a simple process, but when you are using the cash method, it can become complicated. You may need to adjust the GST component. This is relevant only for the accrual accounting as profit and loss statements are presented on an accrual basis.
At a minimum of once per year, you should think about getting a tax accountant to look over your BAS lodgement and complete this reconciliation for you.
When you work closely with us, we guarantee that your Business Activity Statement is reported correctly. Having your accountant review your books will allow you to avoid making mistakes that might be very expensive later down the track. It can become a time consuming and costly exercise down the track to keep you in compliance with the ATO.
There are many businesses that provide support and direction in relation to accounting services, which can help you directly in the process of compiling and analysing your BAS.
When doing improper bookkeeping, one of the most prevalent blunders that we have encountered is applying the GST in situations where it should not be applied. For example, there is a good chance that the BAS statement will not include any claims for GST credits related to the transactions described below.
Business owners commonly make the most common BAS error in the treatment of repayments on vehicle and equipment financing loans. Chattel mortgages and lease payments are complex sections of the BAS, with various GST implications. Other common mistakes are also found in;
- Registrations of motor vehicles
- Bank fees
- ASIC fees
- Interest
- Director withdrawls and private expenses
If you are a sole trader or a company owner in need of reviewing your books and you need assistance our services include reviewing your past your BAS returns. Our BAS service will ensure that not only you are compliant with the ATO but also aligned with the cash flow contact us now.
