GST INTERMEDIATE Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE LEGAL PRACTITIONERS MARCH 2005PROFESSIONAL GST intermediate Norman Kochannek

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

GST INTERMEDIATE Accounting rules

GST INTERMEDIATE 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.

GST INTERMEDIATE 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).

Accounting for GST - cash basis JulyAugSeptOctNovDecJanFebMar 1 July -1 October - Issued InvoiceReceived Payment First QuarterSecond QuarterThird Quarter 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

GST INTERMEDIATE 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.

Accounting for GST –non-cash basis JulyAugSeptOctNovDecJanFebMar 1 July -1 October - Issued InvoiceReceived Payment First QuarterSecond QuarterThird Quarter 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

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

GST INTERMEDIATE Tax invoices

GST INTERMEDIATE invoice for less than $1,000 invoice for $1,000 or more  Sample

GST INTERMEDIATE Accounting - tax invoices Other types of tax invoices:  contracts  written agreements  reimbursements.

GST INTERMEDIATE 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

GST INTERMEDIATE Disbursements

GST INTERMEDIATE Disbursements  Payment of money to lawyer ‘up front’  Incur costs on behalf of client  No win/no fee

GST INTERMEDIATE Trust accounts

GST INTERMEDIATE Trust accounts  Operation of trust account  Operation of general business account  Normal bank account

GST INTERMEDIATE Hire purchase

GST INTERMEDIATE 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.

GST INTERMEDIATE Asset disposal

GST INTERMEDIATE 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.

GST INTERMEDIATE 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.

GST INTERMEDIATE 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).

GST INTERMEDIATE 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?

GST INTERMEDIATE 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

GST INTERMEDIATE Insurance

GST INTERMEDIATE Insurance  If you claim a GST credit, and advise the insurance company of the business usage on the insurance you will not be liable for GST on any insurance pay out

GST INTERMEDIATE Component of payout  Insurance fees  Settlement of clients costs  Loss of income stream  Pain & suffering

GST INTERMEDIATE 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

GST INTERMEDIATE InsurerInsured $ 120 GST $120 ITC Premium $1330 $ $8000 No DA $800 ITC Builder $8800 $800 GST Cash settlement – taxable goods 100% entitlement to ITC

GST INTERMEDIATE Business deductions

GST INTERMEDIATE 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

GST INTERMEDIATE 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.

GST INTERMEDIATE 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.

GST INTERMEDIATE 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

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

GST INTERMEDIATE Tax Office’s legal database

GST INTERMEDIATE

GST INTERMEDIATE

GST INTERMEDIATE

GST INTERMEDIATE

GST INTERMEDIATE Summary  Accounting rules  Tax invoices  Disbursements  Trust accounts  Hire purchase  Asset disposal  Insurance  Business deductions  Tax Office’s legal database

GST INTERMEDIATE Need more information?  Phone  Order a fax  Translating and interpreting service  Hearing or speech impairment  Obtaining copies of publications  Reporting information about tax evasion

GST INTERMEDIATE Questions

GST INTERMEDIATE Our commitment to you The information in this presentation is current at March 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 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.