1. GST INTERMEDIATE www.ato.gov.au Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE LEGAL PRACTITIONERS MARCH 2005PROFESSIONAL GST intermediate Norman Kochannek

2. GST INTERMEDIATE www.ato.gov.au Overview  Accounting rules  Tax invoices  Disbursements  Trust accounts  Hire purchase  Asset disposal  Insurance  Business deductions  Tax Office’s legal database

3. GST INTERMEDIATE www.ato.gov.au Accounting rules

4. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. 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

7. GST INTERMEDIATE www.ato.gov.au 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. 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

9. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au Tax invoices

11. GST INTERMEDIATE www.ato.gov.au invoice for less than $1,000 invoice for $1,000 or more  Sample 2 3 4 8 9 10 5 6 7 7 1

12. GST INTERMEDIATE www.ato.gov.au Accounting - tax invoices Other types of tax invoices:  contracts  written agreements  reimbursements.

13. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au Disbursements

15. GST INTERMEDIATE www.ato.gov.au Disbursements  Payment of money to lawyer ‘up front’  Incur costs on behalf of client  No win/no fee

17. GST INTERMEDIATE www.ato.gov.au Trust accounts

18. GST INTERMEDIATE www.ato.gov.au Trust accounts  Operation of trust account  Operation of general business account  Normal bank account

19. GST INTERMEDIATE www.ato.gov.au Hire purchase

20. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au Asset disposal

22. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au Insurance

28. GST INTERMEDIATE www.ato.gov.au 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

29. GST INTERMEDIATE www.ato.gov.au Component of payout  Insurance fees  Settlement of clients costs  Loss of income stream  Pain & suffering

30. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au InsurerInsured $ 120 GST $120 ITC Premium $1330 $ $8000 No DA $800 ITC Builder $8800 $800 GST Cash settlement – taxable goods 100% entitlement to ITC

32. GST INTERMEDIATE www.ato.gov.au Business deductions

33. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au 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. GST INTERMEDIATE www.ato.gov.au Tax Office’s legal database

39. GST INTERMEDIATE www.ato.gov.au

40. GST INTERMEDIATE www.ato.gov.au

41. GST INTERMEDIATE www.ato.gov.au

42. GST INTERMEDIATE www.ato.gov.au

43. GST INTERMEDIATE www.ato.gov.au Summary  Accounting rules  Tax invoices  Disbursements  Trust accounts  Hire purchase  Asset disposal  Insurance  Business deductions  Tax Office’s legal database

44. GST INTERMEDIATE www.ato.gov.au Need more information?  Phone13 28 66  Order a fax13 28 60  Translating and interpreting service13 14 50  Hearing or speech impairment13 36 77  Obtaining copies of publications1300 720 092  Reporting information about tax evasion1800 060 062

45. GST INTERMEDIATE www.ato.gov.au Questions

46. GST INTERMEDIATE www.ato.gov.au 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. www.ato.gov.au