Welcome back to the blog!!
By far, my most common queries are related to the BAS or Business Activity Statement. And as we’ve just finished a quarter, this is starting to be top of people’s minds and most certainly top of every bookkeeper's mind.
Unfortunately, the ATO has not been kind enough to call it what it is – a GST return. Anyone reading from New Zealand will thank their lucky stars theirs is called that!!
So, the BAS. And PAYG. And anything else related to tax feels really grey and under-explained in laymans terms. Let’s start at the beginning. You are a business that is registered for GST. Every quarter (or month depending on preference or revenue) you need to lodge one of these returns and either make a payment or receive a refund. If you have employed a bookkeeper and they are a BAS agent, they can lodge this return for you. Or you can do it or an accountant can do it.
Bear in mind the following:
- If you lodge it it is free, but you need to do all the work.
- If a bookkeeper does it, it’s normally a small cost (ask about our rates) or included in a fixed rate package.
- An accountant/tax agent may charge more than a bookkeeper or it’s included in the fixed rate contract.
- It’s always handy to have a bookkeeper prepare your books. They are equipped with the knowledge that you need to remain tax compliant as well as making sure you claim the maximum that you’re able to. When they’re lodging online they also receive the BAS agent extensions due to the BAS agent program. Remember not all bookkeepers are BAS agents. After a change in laws, bookkeepers needed to gain the registration. Check they have it!!
Back to the basics. If you are GST registered, everything you sell in Australia– products or services – must include GST, unless it’s on the GST exempt list. In the same way, there are a huge amount of things, besides basic groceries and a few products, that include GST on them so you can claim the GST back from them. What the BAS does is record all the amounts of GST you’ve charged and you subtract all the GST you’ve paid and get a figure. Either that is a positive or a negative and you’ll make a payment or expect a refund. This is why it’s called a Business Activity Statement. It collates your business’ financial activity.
You either run your BAS on an accruals or cash basis. An accrual-based BAS is based on when the invoice is DATED and once you are over a certain threshold of turnover you have to report this way. A cash basis BAS is based on when the invoice/bill was PAID.
If you employ staff and your annual turnover is less then $1m, you’ll include the PAYG tax that you’ve withheld from their pay in this return. If you have a turnover of more than $1m, you’ll lodge the PAYG and pay it monthly.
This PAYG (Pay As You Go) tax is different from the one you pay as a sole trader or when there is an income tax payment plan set up. This amount is what you held back from your employees wages before you paid them.
If you have been in business for more than a year, you may be required to, or choose to pay an income tax percentage. This is based on the previous years earnings and is worked out as a percentage. This is helpful as you don’t have to then pay a massive end of year tax bill. More on that to come.
So to recap:
- The BAS is for GST to be paid/refunded
- The BAS is where you pay the employees PAYG tax if you have employees
- Speak to your bookkeeper about your product/service to see whether you are on the GST exempt list.
- Have great accounting software (like Xero) to record all your transactions, and keep the tax man at bay!
- GST is calculated on a cash or accruals basis. This comes down to choice (under $2m) or requirement (over $2m turnover). Most small businesses will run on a cash basis to begin with.
Until next time,