Chapter 6 Advanced BAS Topics

6.1 Cash or Accrual Accounting Cash accounting – the taxing point is when cash passes from buyer to seller. GST liability arises when payment is received for a sales tax invoice (GST Collected) and credit entitlements (GST Paid) arise only when purchase tax invoices are paid to suppliers. Accrual accounting - the taxing point is at the time of the transaction, regardless of whether or not payment is made at the point of sale. GST liability arises when a tax invoice is issued for a sale (GST Collected) and credit entitlements (GST Paid) arise when a supplier issues a tax invoice for purchases. Carry Out Business Activity & Instalment Activity Statement Tasks

Cash or Accrual Accounting Benefits of Accrual: provides a more accurate picture of the performance of the business during the reporting period. the financial statements can be used to help prepare the BAS and check against the amounts reported. Disadvantages: when reporting GST on a cash basis, there will be timing differences between when revenue and expenses are recorded in the financial statements and when cash is received and paid. Carry Out Business Activity & Instalment Activity Statement Tasks

Preparing the BAS Using Cash or Accruals The relevant information is when cash was received from sales and when cash was paid for purchases. Accruals: The relevant information is when sales were made and when purchases were made.

6.2 The Accounts Method The accounts method is a way a business can complete its activity statement directly from its accounting records. The business’s accounting records must be able to: Readily identify GST amounts for its: Sales. Purchases. Importations. Separately record any purchases or importations that were for either: Private use. Making input taxed sales. Identify any GST-free or input taxed sales. Carry Out Business Activity & Instalment Activity Statement Tasks

The Accounts Method

The Accounts Method Record Keeping Tax Codes Whichever method is used, the taxpayer is required to keep a copy of the activity statement and the records used to prepare it for five years after it is prepared, obtained or the transactions completed, whichever is the later. Tax Codes Businesses using computerised accounting systems may elect to use the accounts method to complete activity statements, with the reports from the system providing much of the information needed. In order to generate these reports, the tax treatment of each transaction must be recorded by assigning a tax code. Carry Out Business Activity & Instalment Activity Statement Tasks

6.3 Interacting with the Australian Taxation Office Only primary contacts (including public officers), authorised contacts, registered tax agents, registered BAS agents and temporarily appointed tax professionals can contact the ATO on behalf of an entity. A primary contact has authority to access all roles on their client’s account, and add, remove or update the list of authorised contacts. Authorised Contact Primary contacts can authorise contacts to act on their behalf in relation to some or all of the entities’ tax affairs. They are not able to add, remove or update authorised contacts unless the authorised contact declares they have been given authority to act on behalf of the entity in this capacity. Carry Out Business Activity & Instalment Activity Statement Tasks

Entity Types/Primary Contacts Carry Out Business Activity & Instalment Activity Statement Tasks

6.4 Lodgement of Activity Statements Carry Out Business Activity & Instalment Activity Statement Tasks

Lodgement of Activity Statements Carry Out Business Activity & Instalment Activity Statement Tasks

Lodgement of Activity Statements Carry Out Business Activity & Instalment Activity Statement Tasks

Lodgement of Activity Statements Carry Out Business Activity & Instalment Activity Statement Tasks

Due Dates of Instalments Quarterly payments are due 28 days after the end of each quarter, with a one month extension for the December quarter. If a taxpayer’s income year starts on 1 July, their instalments will be due: 28 October. 28 February. 28 April. 28 July. Carry Out Business Activity & Instalment Activity Statement Tasks

Due Dates of Instalments Annual payments are due on 21 October after year-end if the taxpayer’s income year starts on 1 July. The ATO will advise taxpayers if they are eligible to make an annual payment. If the taxpayer wishes to pay on this basis, they must complete the form the ATO sends at the time the first instalment is due. The taxpayer is still required to lodge an annual income tax return at the end of the income year. Any amounts of PAYG instalments that have been paid during that year will be credited to the taxpayer’s assessment and they can either claim a tax refund or pay the balance of outstanding tax. Carry Out Business Activity & Instalment Activity Statement Tasks

Due Dates of Instalments Declaration and Lodgement To finalise the BAS form the declaration box must be signed by an authorised person before lodgement to the ATO. Carry Out Business Activity & Instalment Activity Statement Tasks

Who Can Sign an Activity Statement? Once the activity statement is completed and the taxpayer is satisfied that all of the information provided is true and correct, it must be signed and dated. If the activity statement is being lodged electronically by an agent, the agent will need to sign the declaration on the activity statement using their electronic signature. Where an agent lodges a taxpayer’s activity statement, the taxpayer must sign a declaration stating that: ■ The taxpayer authorises the agent to give the activity statement to the Commissioner. ■ The information provided to the agent to prepare the activity statement is true and correct. Carry Out Business Activity & Instalment Activity Statement Tasks

Lodgement of Activity Statements Taxpayers can lodge activity statements online using the ATO’s Business Portal or electronic commerce interface (ECI). Registered tax agents and registered BAS agents can help prepare and lodge a taxpayer’s activity statement and can lodge them electronically via the electronic lodgement service (ELS). If the taxpayer has no amount to report at any label due to no business activity during the period, lodgement of the BAS/IAS can be made over the telephone. Otherwise, the completed BAS/IAS can be mailed directly to the ATO using the pre-addressed envelope provided. Carry Out Business Activity & Instalment Activity Statement Tasks

Lodgement of Activity Statements Late Lodgement Penalties The penalty for lodging an activity statement late is one penalty unit (currently $170) for each 28 day period, or part of a period, that the activity statement is outstanding, up to a maximum of 5 penalty units ($850). For a business with an annual turnover between $1 million but less than $20 million, the penalty is multiplied by two. For a large business with an annual turnover of $20 million or more, the penalty is multiplied by five, resulting in a maximum penalty of $4,250. Carry Out Business Activity & Instalment Activity Statement Tasks

6.5 Payment and Refunds Methods of Payment If the taxpayer chooses to mail the completed BAS/IAS to the ATO, a cheque may be attached for any required payment. Alternatively, other acceptable payment options available include: BPAY® Credit card (conditions apply) Direct credit Direct debit Cash, cheque or card at Australia Post outlets Carry Out Business Activity & Instalment Activity Statement Tasks

Payment and Refunds Timing of Payment or Refund Where the taxpayer has a net tax liability on the activity statement, payment is due on the same date lodgement of the activity statement is due. Where the taxpayer is in a net refund position, the ATO will issue a refund once the activity statement has been processed. If all the required information has been provided refunds should be processed within 14 working days after lodgement. Processing the Payment or Refund Throughout the tax period, the taxpayer should be recording a liability for their tax obligations as they are incurred. For example, when a sale is made, the GST payable on that sale should be recorded as a liability in the accounting records. Carry Out Business Activity & Instalment Activity Statement Tasks

6.6 Errors and Adjustments Errors may occur in completing the BAS. The ATO has made provisions for this. Errors may increase or decrease the tax liability for the business. If an error on a previous BAS decreases the tax liability, GST credit may be included on a later BAS. The taxpayer may make the adjustment up to four years later, subject to correction limits . Errors of this nature may include: Finding a tax invoice that was lost or overlooked. A GST-free sale was incorrectly recorded as taxable. GST-free sales were incorrectly classified as taxable. Carry Out Business Activity & Instalment Activity Statement Tasks

Errors and Adjustments If an error on a previous BAS has the effect of increasing the tax liability the business may be able to make the correction on a later BAS statement. The adjustment is subject to the timing (time limit) and the amount (correction limit) of the adjustment. Errors may occur in the following circumstances: If there was a clerical error, for example, the preparer double counted some creditable purchases or did not include some taxable sales. A taxable sale was incorrectly recorded as GST-free on an earlier activity statement. Taxable sales were incorrectly classified as GST-free. Carry Out Business Activity & Instalment Activity Statement Tasks

Errors and Adjustments Adjustment Time Limits and Correction Limits Carry Out Business Activity & Instalment Activity Statement Tasks

Errors and Adjustments Penalties for Errors If the taxpayer makes an honest mistake that results in a shortfall in tax payable, the ATO will only require that the taxpayer adjust the activity statement to pay the correct amount plus a general interest charge (GIC). If the taxpayer made a false or misleading statement that results in a shortfall in tax paid, in addition to being required to pay the shortfall plus a GIC, they may be liable for a penalty. The base penalty is a percentage of the tax shortfall as follows: 25% where the mistake is caused by the taxpayer not taking reasonable care. 50% where the mistake is caused by the taxpayer being reckless. 75% where the mistake is caused by the taxpayer intentionally disregarding the law. Carry Out Business Activity & Instalment Activity Statement Tasks