Training you – Solving Problems – Or We do your books for you! For Business owners and fellow bookkeepers!

Bookkeeping – Train Troubleshoot or we do it for you! MYOB Reckon Xero


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Business Finance 101 – How the Cash Flow Statement is Prepared

Business Finance 101 – How the Cash Flow Statement is Prepared

How the Cash Flow Statement is Prepared

 Last month we discussed what the Cash Flow Statement tells us, and here we show and example of how the Cash Flow Statement is prepared.
Three sources are used to gather information for the cash flow statement rather than from the Trail Balance –

  1. Comparative balance sheets provide the amount of the changes in assets, liabilities, and equities from the beginning to the end of the period – that is, year or period before and current period
  2. Current income statement to determine the amount of cash provided by or used by operations during the period – profit and loss prior and current
  3. Selected transaction data from the general ledger provide additional detailed information needed to determine how cash was provided or used during the period – eg asset purchase

Three steps lead to preparing the statement of cash flows from these sources

Step 1. Calculate the change in cash:
This is the difference between the beginning and the ending cash balance from the beginning and end period on the balance sheet.

Step 2. Calculate the net cash flow from operating activities:
This procedure is complex. It involves analysing not only the current year’s income or profit & loss statement but also comparative balance sheets and selected transitions data.

Step 3. Calculate net cash flows from investing and financing activities:
All other changes in the balance sheet accounts must be analysed to determine their effects on cash.

A worked Example – Compiling the Cash Flow Statement

To illustrate a statement of cash flows we will use the first year of operations for Business Pty Ltd.

The company started on July 1, 2014, when it issued 60,000 shares of $1 value common stock for $60,000 cash.

The company rented its office space and furniture and equipment, and it performed services throughout the first half year.

The balance sheets at the beginning and at the end of the 6 months are as follows.

1 Bal Sheet Jul-Dec

The Profit & Loss or Income statement and additional information for Business Pty Ltd are –

Business Pty Ltd
Profit & Loss Statement
For the period ended December 31, 2014

2 Profit and Loss

Step 1. Calculate the change in cash:
The company has no cash on hand at the beginning of the period, but $49,000 at the end of 2014. This is an increase of $49,000

Step 2. Calculate the net cash flow from operating activities:
First the net profit/income must be converted. Under generally accepted accounting principles (GAAP), most companies must use the ACCRUAL basis of accounting, requiring revenues be reported when earned/invoiced and that expenses be recorded when incurred/authorised. Net income can also include credit sales that have not been collected in cash and expenses incurred that have not have been paid in cash. Thus, under the accrual basis of accounting, net income will not indicate the net cash flow from operating activities.

To calculate net cash flow from operating activities, it is necessary to report revenue and expenses on cash basis and can be calculated via either a direct method or an indirect method

1. Direct Method: (also called the income statement method) –

Business Pty Ltd shows sales/revenues of $125,000. However, because the company’s accounts receivable increased during 2003 by $36,000, only $89,000 ($125,000 − $36,000) in ACTUAL cash was collected on these revenues.

The company also shows operating expenses of $85,000, but accounts payable increased during the period by $5,000. Assuming that payables related to operating expenses, the ACTUAL cash operating expenses were $80,000 ($85,000 − $5,000).

Because no taxes payable exist at the end of the year on the Balance Sheet, the $6,000 income tax expense must have been paid in cash during the year. Then the computation of net cash flow from operating activities is as follows:

3 net cash flow(1)

“Net cash provided by operating activities” is equivalent of cash-basis net income or the CASH Profit & Loss.

2. Indirect Method: (or reconciliation method) –

starts with Net Profit/income and converts it to net cash.

Increase in Accounts Receivable―Indirect Method:
If accounts receivable increase during the year, revenues on an accrual basis are higher than on a cash basis because goods sold on account are reported as revenues. In other words, operations for the period led to increased revenues, but not all of these revenues resulted in actual cash, but appear as an increase in accounts receivable. Therefore the increase of $36,000 in accounts payable must be deducted from net income.

Increase in Accounts Payable―Indirect Method:
If accounts payable increase during the period, expenses on an accrual basis are higher than they are on a cash basis because expenses are incurred for which payment has not taken place yet. Therefore the increase of $5,000 in accounts payable must be added back to net income.

As a result of the accounts receivable and accounts payable adjustments, net cash provided by operating activities is determined to be $3,000 for the year 2003. This calculation is shown as follows.

4 ar and ap cash flow(1)

Observe that net cash provided by operating activities is the same whether the direct or indirect method is used.

Step 3: Calculate Net Cash Flows from Investing and Financing Activities:
Finally, we need to determine whether any other changes in balance sheet accounts caused an increase or decrease in cash.

For example, an examination of the remaining balance sheet accounts shows that both common shares and retained earnings have increased. The common shares increase of $60,000 resulted from the issuing of common shares for cash. This is a receipt of cash from a financing activity and is reported as that in the statement of cash flows. The retained earnings increase of $20,000 is caused by two items:

  1. Net income of $34,000 increased retained earnings, less
  2. Dividend declared of $14,000 decreased retained earnings.

Net income has been converted into net cash flows from operating activities, as explained earlier. The additional data indicates that the dividend was paid. Thus, the dividend payment on common stock is reported as cash outflow, and classified as financing activity.

We are now ready to prepare the statement of cash flows. We start with the operating activities section. Either the direct or indirect method may be used to report net cash flow from operating activates.

The statement of cash flows under indirect method for Tax Consultation Inc. is as follows.

Business Pty Ltd
cash flow statement-Indirect Method
For the period end 31 Dec 2014

5 Net Cashflow Stmt(1)

As shown, the $60,000 increase in common shares results in a cash inflow from a financing activity. The payment of $14,000 in cash dividends is classified as a use of cash from a financing activity. By coincidence in this example, the $49,000 increase in cash reported in the statement of cash flows agrees with the increase of $49,000 shown as the change in the cash account in the balance sheet.

What are your thoughts?

Call for FREE 30min advice / strategy session today! 0407 361 596 Aust

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Cashflow Tips – Handle your business growth plan carefully to avoid disaster!

Cashflow Tips - Handle your business growth plan carefully to avoid disaster!

Cashflow Tips – Handle your business growth plan carefully to avoid disaster!

For many, your business growth plan will solve most business problems.

But growth can also be a disaster for a business if not handled well – and here are some common miss-beliefs.

  1. Build it and it will sell itself – Many new ideas come to entrepreneurs all the time – but not everything succeeds for outside and internal reasons – no real demand, lack or poorly-prepared marketing plan (often a weak spot for small business owners), lack of financial budget plan.
  2. I can/will do it all – Common error to fall into the “if it’s to be done no-one does as it well as I do it” trap. Yes in the early days you have to do most yourself – but document the method that you find works best, then teach someone else to do it so you can move on to other things. A good explanation is found in “The E Myth” by Michael Gerber. Paint a clear picture of what the future business will look like/become, write out the Organisation chart of the key roles of the organisation and job descriptions, find/create the systems required to make the business efficient, and get employment/HR help as it is a whole new mine-field of managing people and financial responsibility!
  3. Bigger is better When owners work on business growth, they often focus on sales, but a look at industry benchmarks often reveals that businesses in higher sales brackets aren’t always the most profitable.  Often, businesses with modest turnover can achieve better profits, where-as too often, as a business grows, overheads can get out of hand and the extra sales get eaten up then profit falls.  So sales and marketing plans are very important – and testing and measuring as you go is paramount – set budgets and create reports at least monthly to track how you are going.
  4. Growth solves Cashflow problems Nothing just happens without careful measuring and managing carefully!!! Ensure the budget is created as already mentioned, know your margins (Gross Profit, Net Profit as minimum). See if there are supplier discounts with larger purchasing volumes, and importantly, if you sell on account instead of retail, keep monitoring debtor days and don’t get slack on customers taking their time to pay!

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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Bookkeeping – Accounting for Barter Transactions and Trade Exchanges

Bookkeeping – Accounting for Barter Transactions and Trade Exchanges

Bookkeeping – Accounting for Barter Transactions and Trade Exchanges

If you are a member of a barter organisation eg Bartercard in Australia, you are still required to ensure you are accounting for barter transactions for the sales and purchases as if made by regular cash methods, and GST and tax still applies.

Here is how the ATO website explains it as at today –

How barter works

In its simplest form, bartering involves the direct exchange of goods or services for other goods or services without reference to money or money value.

There are sophisticated forms of bartering in the market place, both locally and internationally. These arrangements are typically controlled by member-only organisations, with credit units the medium of exchange.

The terms ‘exchange’, ‘barter exchange’, ‘trade exchange’ and ‘countertrade exchange’ are used to describe the organisation that manages the bartering operation. Various terms are used to refer to the medium of exchange, such as units, credits, trade dollars or barter dollars. The most commonly used term is trade dollar.

Trade exchange operations vary in size and sophistication, from community-based to business-based operations.

A trade exchange provides its members with a trading account for the purpose of recording member transactions. The trade exchange credits or debits the account each time a member makes a sale or purchase respectively. The account is also debited for fees the trade exchange charges its members. The trade exchange may buy and sell in its own right, acting as a member with its own trading account.

Tax treatment of barter transactions

Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions.

When an entity that is a member of a trade exchange makes a taxable sale to another member, there is a liability for tax, including GST.

Payment may be in money or in kind, or in some instances a combination of these. The payment for sales between members of a trade exchange is the debiting of the recipient’s account and the payment received is the crediting of the supplier’s account.

Value of supplies made through a trade exchange need to be taken into account when determining whether an entity meets the GST registration threshold and is required to register for GST. For example, if an entity has $60,000 of cash transactions and barter transactions valued at $20,000, it meets the GST registrations threshold.

As a general rule, when valuing the payment arising from barter or countertrade transactions, we will accept a fair market value as adequately reflecting the money value or arm’s length value, as applicable. In most cases, we will accept as a fair market value the cash price that the taxpayer would normally have charged a stranger for the services or for the sale of the goods or property.

The rules of most business-oriented countertrade organisations specify a rate for converting credit units into an Australian dollar equivalent. Customarily the rules specify that each credit unit has a value equivalent to one Australian dollar. Where the monetary value worked out using the rate specified in the rules represents a fair market value of the goods or services provided, that rate is to be applied when valuing the payment. In all other cases, a conversion rate that values the goods or services provided at their fair market value is to be applied when valuing the payment.

Transactions where the values are set at artificially high levels for the purpose of establishing an inflated income tax deduction may indicate fraudulent activity. Parties to transactions that involve inflated credit unit values may have consequences other than an adjustment to the amount of income returned or the amount of income tax deductions claimed.

Personal purchases are not deductible for income tax purposes and a GST credit cannot be claimed, whether the purchase is made using trade dollars or Australian currency.

Example: GST payable on a taxable supply between members of a trade exchange

Harvey and Tracey are registered for GST and are both members of the Better Bartering Exchange. Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey’s trading account is credited with 440 Better Bartering credits (BBs) for the supply of services to Tracey.

Under the rules of the exchange, one BB equals $1 and the commercial value of the services is $440. The price of the supply is 440 BBs. Before calculating the value of the supply, the 440 BBs are converted to their Australian dollar equivalent ($440). The value of the taxable supply that Harvey makes is $440 × (10÷11), which is $400. The GST on the supply is, therefore, $40 (that is, 10% of $400).

Harvey will declare $400 as assessable income on his income tax return, and Tracey will claim $400 as a deduction on her tax return.

Payments to ATO

Payments to us of GST, income tax and the super guarantee levy must be made in Australian currency.

Generally, only other members of the trade exchange and the trade exchange itself may accept payment in trade dollars.

Tax invoices and ABNs

A tax invoice is required for a barter transaction as it is for any other business transaction. However, where a member of a trade exchange makes a taxable sale and the payment is expressed in credits, the tax invoice must comply with all of the usual requirements for a tax invoice, and include either:

  • The GST inclusive price expressed in Australian currency
  • The GST payable in Australian currency.

Australian business number (ABN) obligations apply to bartering transactions to the same extent as for any other business transaction.

Example: Tax invoice

Harvey and Carol are registered for GST. Harvey uses his Better Bartering credits (BBs) to purchase a new computer from Carol for his bookkeeping business. The rules of the exchange specify that one BB equals $1, and the market value of the computer is actually calculated in BB credits on this basis.

Carol issues Harvey with a tax invoice, showing the price of the computer in BBs and the GST payable in Australian currency converted at the rate of one BB equalling one Australian dollar.

If Carol did not quote an ABN, Harvey would be required to withhold 46.5% of the payment and remit that amount to us.

Record keeping

Members of trade exchanges must keep records that record and explain all business transactions and other acts they engage in that are relevant to a particular sale, importation, purchase, dealing or entitlement. The records must be kept for five years after the completion of the relevant transactions or acts.

In addition to ordinary accounting documents, this may include:

  • Invoices and receipts
  • Purchase orders, delivery dockets, contracts and barter scheme statements
  • Other relevant documents, such as the application for membership of the bartering scheme, the rules of the scheme, and any other documents governing the relationships between members, and between members and the trade exchange.

 See also:

  • GSTR 2003/14 Goods and services tax: the GST implications of transactions between members of a barter scheme conducted by a trade exchange (As at 29 May 2013)

From ATO website as current today.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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Business Finance 101 – How does the Cashflow Statement Work – Overview for Business Owners

Business Finance 101 – How does the Cashflow Statement Work - Overview for Business Owners

How does the Cashflow Statement Work – Overview for Business Owners

There are 2 popular financial statements that are commonly given for a business – a profit & loss or income statement, a balance sheet or statement of position, but rarely used is the cashflow statement (or statement of cash flows). The purpose of the cashflow statement is to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash for the business.

Business owners usually know by “feel” what their cash flow is like, and they should monitor cash for a very good reason – without a sufficient cash balance at the right time, a company can miss golden opportunities or may even fall into bankruptcy. 

The cash flow statement answers questions that cannot be answered by the income statement and a balance sheet. For example a statement of cash flows can be used to answer questions like where did the company get the cash to pay dividend of nearly $14,000 in a year in which, according to profit & loss / income statement, it lost more than $10,000?

The cashflow statement is a valuable analytical tool for business managers as well as for investors and creditors, although managers tend to be more concerned with forecasted statements of cash flows that are prepared as a part of the budgeting process. The statement of cash flows can be used to answer crucial questions such as the following:

  1. Is the company generating sufficient positive cash flows from its ongoing operations to remain viable?
  2. Will the company be able to repay its debts?
  3. Will the company be able to pay its usual dividends?
  4. Why is there a difference between net profit/income and net cash flow for the year?
  5. To what extent will the company have to borrow money in order to make needed investments?

For the statement of cash flows to be useful, it is important to use a common definition of cash. It is also important that a statement be constructed using consistent guidelines for identifying activities that are sources of cash and uses of cash. The proper definition of cash is broadly defined to include both cash and cash equivalents.

Cash equivalents (applicable more for large companies) include short term, highly liquid investments such as treasury bills, commercial paper and money market funds that are made solely for the purpose of generating a return on temporary idle funds. Instead of simply holding cash, most large companies invest their excess cash reserves in these types of interest bearing assets that can be easily converted into cash. These short term liquid investments are usually included in marketable securities on the balance sheet. Since such assets are equivalent to cash, they are included with cash in preparing a statement of cash flows

The 3 sections of cash flow statement (each has an inflow and outflow section):

Business Finance 101 – How does the Cashflow Statement Work – Overview for Business Owners

How does the Cashflow Statement Work – Overview for Business Owners

Operating Activities: (mostly income statement / profit & loss)

Operating activities shows the cash effects of transactions such as –

  • cash receipts from sales of goods and services and
  • cash payments to suppliers and employees for acquisition of inventory, taxes, interest on loans

Investing Activities: (mostly long term assets)

Investing activities generally show long term assets (and sometimes debt/equity securities) which include –

  • sale/disposing of plant, equipment
  • sale of debt or equity securities
  • acquiring plant and equipment
  • acquiring debt or equity securities

Financing Activities: (mostly long term liabilities and equity)

Financing activities involve liability and stock holder’s equity items and include obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners and providing them with a return on, and a return of, their investment.

  • Increase in debt / loans taken on
  • Payment/redemption of debt facilities / loans
  • Dividends paid

Next month we will work through an example

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MYOB – Taxable Payments – When is it due and how to set up and report Taxable Payments Annual Report (TPAR)

MYOB – Taxable Payments – When is it due and how to set up and report Taxable Payments Annual Report (TPAR)

MYOB – Taxable Payments – When is it due and how to set up and report Taxable Payments Annual Report (TPAR)

If you are a business in the building and construction industries, you may be wondering how to generate in MYOB a Taxable Payments Annual Report (TPAR) – and when is the due date?

Here we look at what the 1 Australian Tax Office (ATO) requires and 2 Steps to set up and generate a Taxable Payments Annual Report from MYOB software.

1   ATO Requirements

The ATO website tells us – (From Here)

You may need to lodge a Taxable Payments Annual Report by 28 August each year if you are a:

The Taxable Payments Annual Report tells us about payments you have made to contractors for providing services. Some government entities also need to report the grants they have paid and payments they make to certain other entities.

Contractors can include subcontractors, consultants and independent contractors. They can be operating as sole traders (individuals), companies, partnerships or trusts.

The details you need to report about each contractor are generally found on the invoice you should have received from them. This includes:

  • Their Australian Business Number (ABN), where known;
  • Their name and address;
  • Gross amount you paid to them for the financial year (including any GST).

We use this information to identify contractors who haven’t met their tax obligations.

2  MYOB – The steps to set up and generate the report are –

How to track reportable payments in AccountRight

Once you set up MYOB, you can start marking transactions as reportable including:

  • Spend Money payments made to suppliers as reportable. You can also set up a supplier so that any payments for them are automatically included in reporting;
  • Bills and Orders recorded for suppliers. Payments received against these transactions will be included in the report.

You can then generate a report that will help you complete the ATO forms, or create a report file you can lodge electronically.

Lodging your report electronically

You can lodge your report electronically, using the ATO’s Business Portal. If you haven’t already set up access to the Business Portal, you should do this so you’ll be able to lodge the report when it’s due. See the ATO website for more information.

Set the reporting preference

1. Go to the Setup menu > Preferences. The Preferences window appears.

2.  Click the Reports & Forms tab and select the preference, I Report Taxable Payments Made to Contractors.

3.  Click OK.
When you record a Spend Money or Purchase transaction, the Reportable Payment option will appear in the transaction window. Select this option to mark the transaction as being a reportable payment.

4. Set up suppliers to report

1. Go to the Card File command centre and click Cards List. The Cards List window appears.

2. Click the Supplier tab.

3. Click the zoom arrow of the card you want to set up. The Card Information window appears.

4. Click the Buying Details tab.

5. Select Report Taxable Payments. In the message that appears, choose whether to report any existing transactions for the supplier for the current financial year. Note that you can later remove payments from reporting.

6. Click OK. The Cards List window reappears. Whenever the card is selected in a Spend Money or purchase transaction, the transaction is marked as reportable by default. 

To create the taxable payments report

1. Go to the Purchases command centre and click Report Taxable Payments. The Taxable Payments Assistant opens.

2. Click Next. The Company Information window appears.

3. Enter any company information that doesn’t appear by default.

4. Click Next. The Review window appears.
In this window, you can click Review Your Transactions to:

i.    Review all transactions marked as reportable;

ii.    Change the reporting status of transactions.

5. Click Next. The Create window appears.

6. Click View Taxable Payments Report. The Taxable Payments Annual Report (Detail) report appears. You can use the report to help you complete your ATO forms, or to keep for your records.

7. If you’re lodging the Taxable Payments Annual Report file:

i.    Click Create Taxable Payments File. The Save As window appears;

ii.    Select the location to store the file and click Save.

8. Click Finish to close the assistant.

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much!

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MYOB Quickbooks – Tax Tables for 2018-2019 – Which versions MYOB – Update

MYOB Quickbooks – Tax Tables for 2018-2019

MYOB Quickbooks – Tax Tables for 2018-2019

Update on versions the tax tables are compatible with – updated tax tables for 2018/19 are now ready – in that we advised that tax tables were available for all MYOB® versions up to v19.14. It may be concluded that those with versions such as v19.5 or v19.7 were no longer provided tax tables for those versions, after all 19.5 is higher than 19.14 – right? Just to clarify – tax tables are available for all v19 versions, including:

v19.0, 19.5, 19.6, 19.7, 19.8, 19.9, 19.10, 19.11, 19.12 and 19.13 – these are available HERE.

And for versions v19.14, and AR2014-2018, go find the special pages under “Products” in the top menu –  GO HERE.

FGHT MYOB v19.4 and 2014-2018

 

 

 

Parliament agreed to the Budget tax cuts last week, meaning new tax rates will apply from 1 July 2018 and will now affect most employees – not just those with student loans as previously expected. As a result, HELP/SSL/TSL and SFSS rates and thresholds has caused every tax table to change – see the ATO website for more details.
Does your MYOB/Quickbooks software have out of date tax tables, or you know you need them from experience every year?

(To find what you have, in MYOB, click Set Up then General Payroll Information. In about the middle is the table date at the start of that tax year it applies to.

To find the tables in Quickbooks (AUST version), open your company file. On the menu bar choose Employees, then Tax Table Information. The next screen will have an entry showing “Calculations are updated for:“. For the 2012-13 financial year, the date needs to be 1/7/2012.).

Tax tables become out of date nearly each year if tax rates and/or Medicare and HECS thresholds are changed by the Tax Office (ATO). MYOB & Quickbooks/Reckon only supply new tax tables via full software annual subscription. You can no-longer buy the  latest tax tables separately as many years ago. Users must upgrade to a new version or take out Cover under their support program to receive the latest tables or ‘pay2myob.bin’ file for earlier versions (MYOB), or in QuickBooks, a file called taxtbl.oz  to keep payroll compliant. (If you want assistance to upgrade to the latest MYOB call Paul – 0407 361 596 or email us – info@accountkeepingplus.com.au).

The special tax file (eg ‘pay2myob.bin’) has been specially formatted so that it disallows any manual edit. Additionally, each version is formatted specially, so you can’t use a tax file formatted for MYOB Version 19 with say Version 16. For the Mac version (AccountEdge®) the tax table file is called “MYOB Tax Tables” or in v9 to v9.6 has a “.tax” extension. Everything else though is the same and all the comments here apply equally to the Mac version, and Quickbooks.

Note third-party tax tables cannot be used in MYOB 2011 onwards – you MUST have subscription or upgrade. Contact the software supplier.

If you have older desktop versions, there is a Solution up to MYOB v19.13 and Account Edge 15.5 Third party updated tax tables available for $82 provide a substitute, have been tested by ourselves and work with many prior versions. They are for those who want to continue to use their current versions of MYOB® without the need to upgrade. Note that there is nothing in your license agreement that prevents you using 3rd party tax tables.

Installation is simple. The tables are supplied with easy to follow video and instructions and instantly downloaded after secure credit card  payment in most instances, or will be emailed to you. You also receive a PDF copy of the applicable Aust Tax Office Weekly Tax Table for you to check the accuracy of the calculations. After-sales email support is available for any installation or setup issues you may encounter. If you would like Account Keeping Plus to install for you, we can do so by remote desktop – Teamviewer (free software) – or $50+GST. Call or email for instructions.

Note NO changes are made to the software. The only changes made are to the tax rates in your company data file that the software calls upon to calculate PAYG Withholding in a pay, when processing payroll. The changes made are not permanent and can be reversed by reloading the tax tables from your current tax table file – simply moving a file in the software folder

These third-party tables are available, which Account Keeping Plus have tested in the software and tested against the ATO tables and work perfectly for us and our clients. To get more details and purchase for your MYOB – click the grey box to the right – “Tax Tables” or CLICK HERE

For the latest tax tables, to download the PDF and keep a copy, or use the Tax Withheld Calculator online all from here ATO Tax Tables – PDF’s

DOWNLOAD a FREE “Bookkeeping Quarter Checklist” to get organised! CLICK HERE

Need help? Not sure? Call for FREE 30min advice /strategy session today!

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Business Tax Tips – Taxable Payments Annual Report – Building Industry (and others to be added?)

Business Tax Tips – Taxable Payments Annual Report – Building Industry and others to be added

Taxable Payments Annual Report – Building Industry and others to be added

Are you a business in the building and construction industry? You will probably need to report the total payments you make to each contractor for building and construction services each year.

If you’re a business that is primarily in the building and construction industry, you need to report payments you make to contractors if both of the following apply:

  • You make payments to contractors for building and construction services
  • You have an Australian business number (ABN)

Contractors can be sole traders (individuals), companies, partnerships or trusts.

You need to report these payments to us on the Taxable payments annual report by 28 August each year.

Activities and services that are considered to be building and construction are broad. Some examples include architectural work (including drafting and design), certification, decorating (including painting), engineering, landscaping and construction, project management and surveying.

Payments you need to report

Report only payments you make to contractors for building and constructions services.

Contractors can be sole traders (individuals), companies, partnerships or trusts.

If invoices you receive include both labour and materials, whether itemised or combined, you report the whole amount of the payment, unless the labour component is only incidental.

The definition of building and construction services is broad – it includes any of the activities listed below if they are performed on, or in relation to, any part of a building, structure, works, surface or sub-surface:

  • Alteration
  • Assembly
  • Construction
  • Demolition
  • Design
  • Destruction
  • Dismantling
  • Erection
  • Excavation
  • Finishing
  • Improvement
  • Installation
  • Maintenance (excluding the maintenance, service or repairs of equipment and tools)
  • Management of building and construction services
  • Modification
  • Organisation of building and construction services
  • Removal
  • Repair (excluding the service or repairs of equipment and tools)
  • Site preparation

The ATO website tells us – (From Here)

You may need to lodge a Taxable payments annual report by 28 August each year if you are a:

  • Business in the building and construction industry
  • Government entity
  • May extend to Couriers and Cleaners

The Taxable payments annual report tells us about payments you have made to contractors for providing services. Some government entities also need to report the grants they have paid and payments they make to certain other entities.

Contractors can include subcontractors, consultants and independent contractors. They can be operating as sole traders (individuals), companies, partnerships or trusts.

The details you need to report about each contractor are generally found on the invoice you should have received from them. This includes:

  • Their Australian business number (ABN), where known
  • Their name and address
  • Gross amount you paid to them for the financial year (including any GST)

We use this information to identify contractors who haven’t met their tax obligations.

Find out about:

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia