Tax, SuperYou. Take Control. Business TaxHOW IS ......Tax, SuperYou. Take Control. PAYING COMPANY TAX. Business TaxHOW IS BUSINESS Activity 6 ears 7-10 TAX COLLECTED? Fact sheet A

Tax, Super+You. Take Control.

PAYING COMPANY TAXThe dates for the lodgment of tax returns and payment of income tax debts vary according to the nature and size of the company.

Business Tax Activity 6

HOW IS BUSINESS TAX COLLECTED?

Years 7-10

Fact sheet

A business activity statement (BAS) is used by businesses to report and

pay tax obligations.

MANAGING BUSINESS TAX PAYMENT OBLIGATIONSA business must understand their tax obligations so they can plan ahead to pay the right amount of tax at the right time. They need to keep good records, budget and manage the cash flow of the business to make sure they can pay their tax bill on time.

To manage their payment obligations, a business should keep money aside:

� for paying their PAYG instalments, income tax payments, and super guarantee payments � from any capital gain made on the sale of a CGT asset, such as property.

Businesses registered for GST should keep GST collections in a separate account.

Tax laws require the ATO to charge interest (the general interest charge, or GIC) when tax is paid late. If a business is experiencing serious financial difficulties or hardship, or is affected by a natural disaster such as bushfire or flood, they should contact the ATO for help. If the business contacts the ATO and seeks to negotiate a solution, the ATO may reduce some or all of this GIC.

See the next page for an example of a Negotiated payment arrangement:

BUSINESS ACTIVITY STATEMENTA business uses a business activity statement (BAS) to report and pay its tax obligations. The format of the BAS is personalised according to the business situation and any options the business has previously selected.

A business can lodge and pay tax electronically, or lodge their tax information by using a form. Businesses must report on time to avoid interest and penalties.

The following taxes are detailed and amounts collected on the BAS:

� GST collected and paid out � pay as you go (PAYG) instalments – an estimated amount of your tax liability for the year on business and investment income � pay as you go (PAYG) withholding – the amount you withhold from payments to employees, contractors and company

directors. A business may also have to withhold from payments to other businesses if they do not quote their ABNs. � other taxes, depending on the nature of the business

A business that is not registered for GST does not collect GST and cannot claim GST credits, but uses an instalment activity statement to account for the other taxes listed above. An instalment activity statement is also used by individuals who need to report their PAYG instalments.

Activity 6: Fact sheetPage 43


HOW DOES THE ATO TREAT A TAX DEBT?The ATO offers a number of different options when a business is having trouble meeting

their tax debt. It is important to talk to the ATO as early as possible to prevent the

problem escalating.

The ATO will take firm action, including legal action, if taxpayers:

� are unwilling to work with the ATO

� continually default on agreed arrangements, or

� do not have the capacity to pay their tax debts.

Under tax law, a person who carries on a business must keep records to explain all of the business’s transactions and related activities. Generally, these records must be kept for five years. Records that refer to the purchase or disposal of CGT assets may need to be kept for more than five years after disposing of the asset.

Businesses need to keep a record of all transactions so that they can:

� prepare an annual tax return � prepare business activity statements � meet other tax obligations.

Records that businesses need to keep are listed below:

Income and sales recordsRecords of all sales transactions – for example, tax invoices, receipt books, cash register tapes, record of cash sales.

Expenses or purchase recordsRecords of all business expenses, including cash purchases. Records include receipts, invoices, including tax invoices, cheque book receipts, credit card receipts and diaries to record small cash expenses. Records showing how you calculated any personal use of something you purchased.

Year-end recordsThese include list of creditors (that you owe money to) or debtors (that owe you money), and worksheets to calculate the depreciating value of your assets, stock take sheets and capital gains records.

Bank recordsDocuments you receive from the banks such as bank

statements, loan records and bank deposit books.

Goods and services tax (GST) recordsThe main GST records you keep are tax invoices from your suppliers. They are needed if you want to claim GST credits on your purchases. To ensure it is acceptable as evidence for tax purposes, each business document must include:

� the date the document was prepared � the date of any purchase � the name and ABN of the supplier or service provider � details of what was purchased � the cost of the purchase, including any GST.

It is not illegal for a business to use cash when buying or selling goods or services, but it is illegal for a business to deliberately use cash transactions to hide its income and avoid its tax obligations. The ATO uses activities like its data matching program to make it harder for people and businesses to get away with not reporting all of their cash transactions.

Employee and contractor recordsIf you have employees or contractors, you will need to keep:

� tax file number (TFN) declaration forms or withholding declaration forms

� record of wages, allowances and other payments you make to them

� superannuation records, including payments you make and records that show you have met your superannuation obligations

� records of fringe benefits you provided � copies of any contracts you have with any contractors.

WHAT RECORDS DOES A BUSINESS NEED TO KEEP?

Scenario: Paying tax debt over timeSole trader Rick runs a painting business. He did a lot of work for a large company and was owed a large payment for this work. Unfortunately, the company closed down and Rick was not paid. As a result, Rick had trouble paying his own bills and soon found himself with a business activity statement tax debt of $30,000.

Rick contacted the ATO and explained that he could not pay this debt immediately because of his cash flow problem. After careful examination of his expected cash flow, the ATO proposed that Rick could pay his debt off over six months, while paying future business activity statement tax obligations on time.

The general interest charge (GIC) added to the debt over the six months of the arrangement was remitted in full by the ATO at the end of this arrangement and refunded to Rick.

The ATO's decision to remit the GIC for Rick was based on his efforts to bring his tax payment obligations up to date and the fact that the circumstances leading to his debt were beyond his control.

Activity 6: Fact sheetPage 44


TASK 1 PREPARING AND LODGING A BUSINESS ACTIVITY STATEMENT (BAS)Business Tax Activity 6: How is business tax collected?

Worksheet

Years 7-10

YOU WILL: � complete a business activity statement to calculate the

amount a business owes the ATO or is owed by the ATO � decide on and justify the most appropriate method for

lodging business activity statement for different businesses � extend your understanding by surveying business owners

and sharing your results with the class.

YOU WILL NEED: � Fact sheet: How business tax is collected? � Answer Sheet: Task 1 – Preparing and lodging a business

activity statement (BAS)

The BAS helps businesses report and pay their:

� goods and services tax (GST) � pay as you go (PAYG) instalments � PAYG withholding tax � other taxes.

Businesses use a business activity statement to report and meet their tax obligations with the Australian Taxation Office (ATO). The frequency of lodgment can vary according to the size of the business.

ScenarioACME Novelties sells party supplies and fun gifts from a shop and over the internet. Higher shipping costs mean all sales are in Australia, with no overseas customers. The business has an Australian business number (ABN) and is registered for GST.

The owner, Will Simons, wants to complete his activity statement to find out whether he must pay the ATO this quarter or whether he is entitled to a refund.

He gives you the following financial information about the business to help fill in the form. Will does not record his PAYG instalments on his BAS as he receives a PAYG instalment notice from the ATO each quarter.

Information Fill in at Amount

Total sales including GST G1 $220,000 (sales $200,000 + GST $20,000)

Non-capital purchases * G11 $66,000 (purchases $60,000 + GST $6,000)

* This is the cost of stock and other normal operating expenses.

Will is going to use Option 1: Calculate GST and report quarterly when he fills in the activity statement.

APPLY YOUR KNOWLEDGE1. Fill in the excerpts from the business activity statement below and calculate whether ACME Novelties has to make a payment to

the ATO or if it is entitled to a refund.

Activity 6: Task 1Page 45


MAKE A DECISIONOptions for lodging business activity statementsOnlineThe ATO will send you a notification to advise when your activity statement is available.

You can lodge BAS online: - directly from your standard business reporting enabled software - through the ATO business portal - using ATO online services for individuals and sole traders (you will need a myGov account linked to the ATO).

Registered tax or BAS agent Your registered tax or BAS agent can only electronically

lodge the GST Annual Information Report using the electronic lodgment service (ELS) or practitioner lodgment service (PLS). Your Tax and BAS agent can view activity statements sent to your myGov inbox and you can still access your activity statements through the Business portal or myGov.

By phone for ‘nil’ statementsPhone 13 72 26 to lodge your monthly or quarterly BAS with nothing to report at any label. You can call this automated service 24 hours a day, seven days a week.

By mailPost your original, completed business activity statement with your cheque using the pre-addressed envelope provided in your BAS package.



2. Decide on the best option for the following customers for lodging their BAS and provide reasons for your choice.

Description Best lodgment method Explanation

Citizen A Has been overseas for the past 3 months and has nothing to report

Citizen B Has a business employing over 30 staff and has complicated tax affairs due to the import and export of goods and several capital purchases

Citizen C Is a sole trader with very simple tax affairs. Does not employ extra staff and keeps financial records using an online accounting program

Citizen D Does not have a computer and has a very simple business but does have GST sales and purchases to report

EXTEND YOUR UNDERSTANDING3. Survey some small business people in your local area and ask them about the following issues/topics:

� Do they experience any problems in preparing their business activity statement? � Who normally prepares the business activity statement for their business? � What records or information do they need to prepare their business activity statement?

4. Report the results of the survey to the class.



TASK 2KEEPING BUSINESS RECORDSBusiness Tax Activity 6: How is business tax collected?

Worksheet

Years 7-10

YOU WILL: � analyse a range of record-keeping practices and identify the

implications of these practices and the tax implications not being met

� provide advice on how to improve the record keeping practices of a hypothetical business

YOU WILL NEED: � Fact sheet: How business tax is collected? � Answer Sheet: Task 2 – Keeping business records

ScenarioAdele and Nalu have set up a business called Beachcrazi that sells surfboards, leisure wear and a range of skate boards. The business has been running for less than a year and is quite profitable. They attended a local business network meeting and heard from a speaker on the importance of keeping good records for tax and business purposes.

Both Adele and Nalu love the selling and marketing side of the business, but are not interested in the paperwork. They hired a business advisor who identifies a number of problems with their record keeping and business practices. These problems are listed below.

Problem 1 The payments are handled poorly. Cheques are often written out with little or nothing being written on the cheque butt. Some bills are paid straight out of the cash register with a slip of paper being left in the till giving details about the payment. All of the invoices for expenses are kept in a desk drawer and filed once a month or when they have time.

Problem 2 They have incomplete records of GST paid out for stock and expenses. Sometimes they sell stock at surf carnivals. This means they have little idea of how much GST they have collected as they only deal in cash.

Problem 3 They have a number of full-time and part-time employees, and they do not realise that they should be paying super on their wages.

Problem 4 They have a poor system of paying employees as they do not give employees a pay slip each week. Adele and Nalu just add up the number of hours the employee works and multiply the figure by their hourly rate.

Problem 5 The couple lives together and pay most of their personal and business expenses from the same bank account or take money from the till.

Problem 6 When Adele and Nalu started the business, they were short of money and did not get business stationery or sales documents printed. They usually write in the name of the business and the ABN on the standard invoice book they bought from the newsagent. They sometimes forget to include the ABN on an invoice. This explains why some businesses who owe them money are deducting No ABN withholding from their payment.

Problem 7 The end of the taxation year is approaching and one of the employees asks when his payment summary will be available. They are unsure what a payment summary contains and why they should prepare them.

Problem 8 Adele and Nalu are not keeping tax invoices or records once they have been paid as they feel that it is unnecessary.



YOUR TASK1. Read the problems listed above. Identify how their recording system may cause taxation and business problems and consider

how the situation might be overcome.

Problem number

Taxation and business issues caused by the record keeping method Strategies to address the problem

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2. Set up a list of things that Adele and Nalu will need to do to get on top of their record-keeping problems.
