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Business Tax Tips – GST and Hire Purchase

Business Tax Tips – GST and Hire Purchase

GST and Hire Purchase

Many businesses acquire assets such as equipment by entering into hire purchase or leasing agreements to pay for and use the equipment over a period of time rather than paying the full cost up front. Then also they need to know how GST applies. Here is some information from the ATO website to explain –

How does hire purchase work?

Under a hire purchase agreement, you:

  • Purchase goods through instalment payments;
  • Use the goods while paying for them;
  • Do not own the goods until you have paid the final instalment.

Where the supply of goods to you under a hire purchase agreement is a taxable supply, the price you pay for the goods includes GST. If you use the goods in your business, you can generally claim a GST credit.

You treat a hire purchase agreement as a stand-alone sale or purchase in a tax period – that is, the same rules apply as they would for any sale and purchase of goods under an ordinary sale agreement. A hire purchase agreement is not treated as a sale or purchase made on a progressive or periodic basis.

Paying GST on hire purchases

If you enter into a hire purchase agreement on or after 1 July 2012, all components of the supply made under the agreement are taxable, whether or not the credit component is separately disclosed. Any associated fees and charges, such as late payment fees incurred under the terms of the hire purchase arrangement, are also subject to GST.

If you enter a hire purchase agreement before 1 July 2012, and the supplier:

  • Separately identifies and discloses the interest charge to you, you don’t have to pay GST on the interest as it is a financial supply;
  • Doesn’t separately identify and disclose the interest charge to you, you must pay GST on the total amount payable under the contract.

The interest charge is ‘disclosed‘ to you if the supplier tells you any of the following in the hire purchase agreement:

  • The dollar amount of the credit charge;
  • The interest rate;
  • The formula or formulas used to work out the credit charge amount;
  • Any other information sufficient to work out the credit charge amount.

A hire purchase agreement entered into before 1 July 2012 continues to be treated in this way even if there’s a subsequent change to the agreement, provided the change doesn’t result in a new agreement. That is, the supply of a separately disclosed credit component will continue to be an input taxed financial supply.

Claiming GST credits on hire purchases

If you account for GST on a NON-CASH (accruals) basis

You can claim the full GST credit on your hire purchase agreement in the tax period when either:

  • You make your first payment;
  • A tax invoice is issued to you, provided you haven’t already made your first payment.

For agreements entered into before 1 July 2012, you claim a GST credit only for the principal component of the agreement, not the credit component.

If you account for GST on a CASH basis

For hire purchase agreements entered into on or after 1 July 2012, you can claim input tax credits up front instead of waiting until each instalment is paid, in the same way as you would if you accounted for GST on a non-cash basis. As all components of a hire purchase agreement entered into on or after 1 July 2012 are subject to GST, you can claim one-eleventh of all components, including the credit component and any associated fees and charges that have been subject to GST under the agreement.

For hire purchase agreements entered into before 1 July 2012 you can claim one-eleventh of the principal component of each instalment in the period you pay it. If the supplier provides regular accounts or statements that show the principal and interest components for each instalment, you must use that information to work out GST credits in the relevant tax period. If you don’t know the principal component for each instalment, you need to take reasonable steps to find out from the supplier.

See some working examples further down the page at the ATO site HERE

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support

No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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


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Business Tax Tips – Keeping Records and Receipts for Business Expenses

Business Tax Tips – Keeping Records and Receipts for Business Expenses

Keeping Records and Receipts for Business Expenses

The ATO (Australian Tax Office) gives good instructions on keeping records and receipts for Business Expenses.

At Record Keeping for Small Business it says –

By law your records must:

  • explain all transactions;
  • be in writing (electronic or paper);
  • be in English or in a form that can be easily converted;
  • be kept for five years (some records may need to be kept longer).

If you don’t keep the right tax records, you can incur penalties.

How to keep records –

You can keep invoicing, payment and other business transaction records electronically or on paper. The principles are the same for each, but keeping electronic records will make some tasks easier.

With the right electronic record-keeping software you can:

  • automatically tally amounts and provide ready-made reports;
  • produce invoices, summaries and reports for GST and income tax purposes;
  • keep up with the latest tax rates, tax laws and rulings;
  • report certain information to us online;
  • save on physical storage space;
  • back up records in case of flood, fire or theft.

If you intend to use a bookkeeper or accountant, get their advice about the best system for you – choose a system you can understand and operate easily.

Record keeping

Generally, for tax purposes, you must keep your records in an accessible form (either printed or electronic) for five years.

Basic records tells us

Some of the basic records you may need to keep are:

  • governing documents (for example, constitution, rules, trust deed);
  • financial reports (for example, financial statements, annual budgets, reconciliations, audit reports, accounts payable and accounts receivable);
  • cash book records of daily receipts and payments;
  • tax invoices and income tax records, such as debtors and creditors lists, stocktake records and motor vehicle expenses;
  • records relating to employees (for example, TFN declarations, pay as you go (PAYG) withholding, superannuation and fringe benefits provided);
  • records of payments withheld from suppliers who do not quote an Australian business number (ABN);
  • banking records (for example, bank statements, deposit books, cheque books, bank reconciliation);
  • grant documentation (for example, when funding will be received, when acquittals need to be made, application deadlines);
  • registration, certificates and accompanying documents to regulators (for example, ATO, Australian Charities and Not-for-profits Commission, and state regulators);
  • contracts and agreements (for example, cleaning, maintenance and insurance contracts, finance or lease agreements);
  • copies of reviews of entitlement to tax concessions;
  • records to help prepare tax statements and returns.

And also further down that page –

Invoices you receive

A tax invoice of more than $75 (excluding GST) must contain enough information to allow key information to be clearly determined, for example, your supplier’s ABN. Otherwise, you generally need to withhold 46.5% from your payment to the supplier.

If you receive a document from a supplier that is missing key information, you may still be able to treat the document as a tax invoice if the document makes clear that it is intended as a tax invoice and the missing information can be obtained from other documents issued by the supplier.

You cannot claim a GST credit in an activity statement unless you have a tax invoice. If you obtain a tax invoice later, you can claim the GST credit in the activity statement for the tax period in which you obtain the tax invoice.

Tax invoices are not required if the GST-exclusive value of the sale is $75 or less. However, you should have some documentary evidence to support all GST credit claims.

(NOTE – The only thing is this is under the Non-Profit section!)

In the Business Section we read –

Allowable deductions

Most expenses you incur in running your business are tax deductible. You claim these deductions in the annual tax return for your business or, if you’re a sole trader, in your personal tax return.

What you can claim

You can only claim expenses that are directly related to earning your assessable income.

If you make a purchase or use an asset for both business and private purposes, you can only claim a deduction for the business portion of the expense. If you use an item in your business for only part of a year, you may need to restrict your claim to the period it was used for the business.

What you cannot claim

You can’t claim a deduction for the goods and services tax (GST) component of a purchase if you can claim it as a GST credit on your business activity statement. You also can’t claim:

  • private or domestic expenses, such as childcare fees or clothes for your family;
  • expenses relating to income that is not taxable, such as money you earn from a hobby;
  • expenses that are specifically non-deductible, such as entertainment and parking fines.

Expenses you can claim in the year you incur them

Working or operating expenses you incur in the everyday running of your business – such as office stationery, renting office premises, and salaries or wages – are called revenue expenses.

You can generally claim a deduction for most revenue expenses in the same income year you incur them, including:

  • advertising and sponsorship costs;
  • bad debts;
  • bank fees and charges;
  • business motor vehicle expenses (see Motor vehicle expenses);
  • business travel expenses (see Business travel expenses);
  • clothing expenses (corporate wardrobes and uniforms, and occupation-specific and protective clothing);
  • depreciating assets that cost less than $1,000 if you are a small business (between 1 July 2012 and 31 December 2013, the threshold was $6,500) (see Depreciating assets);
  • education, technical or professional qualification expenses;
  • electricity expenses;
  • fringe benefits – the cost of any fringe benefit provided and the fringe benefits tax on the benefit;
  • home office expenses when your home is used as a business premises (see Running your business from home);
  • insurance premiums, including accident or disability, fire, burglary, professional indemnity, public risk, motor vehicle loss of profits insurance, or workers’ compensation;
  • interest on money borrowed for income tax obligations, employer super contributions, or late payment or lodgment of tax – or to produce assessable income or purchase income-producing assets;
  • land tax on business premises;
  • legal expenses, such as those incurred defending future earnings, borrowing money, discharging a mortgage or obtaining tax advice;
  • losses from a previous year (see Claiming tax losses);
  • luxury car lease expenses;
  • stationery expenses;
  • costs for running a commercial website, such as site maintenance, content updates and internet service provider fees;
  • parking fees;
  • public relations expenses;
  • phone expenses;
  • rates on business premises;
  • registered tax agent and accountant fees;
  • renting or leasing a business premises;
  • repairing and maintaining income-producing property (see Repairs, maintenance and replacement expenses);
  • salaries, wages, bonuses or allowances (see Salary, wages and super);
  • small-value items costing $100 or less;
  • subscription costs for business or professional journals, information services, newspapers and magazines;
  • costs for sunglasses, sunhats and sunscreen when your business activities require outdoor work;
  • super contributions for employees, and some contractors paid primarily for their labour (see Salary, wages and super);
  • tax-related expenses, such as –

– having a bookkeeper prepare your business records

– preparing and lodging tax returns and business activity statements

– objecting to or appealing against your assessment

– attending an ATO audit

– obtaining tax advice about your business

  • tender costs, even if the tender is unsuccessful
  • trading stock, including delivery charges
  • transport and freight expenses
  • travel expenses for relocating employees
  • union dues and periodical subscription fees to trade, business or professional associations
  • water expenses on business premises.

Are Receipts Under $75 required to KEPT??

According to the ACCC (Australian Competition and Consumer Commission)

Businesses must always give you a receipt or proof of purchase for anything over $75. If they don’t, ask for one. You also have the right to request a receipt for anything under $75 and the receipt must be given within seven days of asking.

A receipt or proof of purchase must include the:

  • supplier’s name and ABN or ACN;
  • date of supply;
  • product or service;
  • price.

In Summary –

So the ATO doesn’t mention under $75 receipts for business, only for Non-Profits,

and the ACCC says over $75 a receipt is Required!

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

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!


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Business Tax Tips – GST Error Correction – How to put it right

Business Tax Tips – GST Error Correction – How to put it right

Business Tax Tips – GST Error Correction – How to put it right

The Australian Tax Office (ATO) site has information on what to do when you find you have a GST error correction to make – and how to put it right in a way that is easier than revising a prior statement, as well as you can save penalties (see how the ATO is really NOT your business enemy!) –

“If you made a GST error on an earlier activity statement, you can choose to correct that error on a later activity statement if you meet the conditions set out in this guide.

The benefits of correcting GST errors on a later activity statement are:

  • you are not liable to any penalties or general interest charge (GIC) for any GST error you correct on a later activity statement provided you meet the conditions to correct a GST error on a later activity statement
  • generally, it is easier to correct a GST error on a later activity statement rather than revising the earlier activity statement.

Alternatively, you can correct any GST error by revising the earlier activity statement that contains the error. You can revise an earlier activity statement online or obtain an activity statement revision form by phoning us on 13 28 66.”

Here are a series of links about correcting GST errors –

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

Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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


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Business Tax Tips – What Video Tips does the ATO have to help Start-up Businesses

Business Tax Tips – What Video Tips does  the ATO have to help Start-up Businesses

What Video Tips does the ATO have to help Start-up Businesses

Want to see what tips the ATO (Australian Tax Office) have to support you with the running (and start-up) of your business? There are some short videos that cover the following, and have links to transcripts as well –

Here is what is available with some explanation –

From ATO site – https://www.ato.gov.au/Business/Starting-and-running-your-small-business/In-detail/Videos-and-webinars/Small-business-tips—videos/  

Do business with us online

This video discusses our online products and systems to help reduce red tape and simplify administrative and regulatory burdens faced by businesses. Duration 03:18. A transcript of Do business with us online is also available.

How we are assisting small business

This video presents a variety of online support services, available at any time from a range of devices. Duration 05:03. A transcript of How we are assisting small business is also available.

Start-ups and the ATO

This video explains how we are helping small businesses to interact and transact in an easy and convenient way. Duration 03:01. A transcript of Start-ups and the ATO is also available.

Employee or contractor – How to get it right

This video explains factors you need to consider to work out whether a worker is an employee or a contractor. Duration 02:55. A transcript of Employee or contractor – How to get it right is also available.

Home-based business

This video discusses how you know if you’re running a home-based business, and the deductions you can claim. Duration 03:17. A transcript of Home-based business is also available.

These short videos introduce small business to a range of online resources and some helpful tips on misunderstood topics, to help get your business off to the right start.

(ATO site currently says – Last modified: 16 Jan 2015QC 43638)

Need help? Not sure? Call for FREE 30min advice / strategy session today! 0407 361 596 Aust

***BEFORE you BUY – Ask us for a competitive software price BELOW retail – no obligation!

You also get FREE 30 min to assist in setting up your company in the software, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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


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Business Tax Tips – “I didn’t know” is not an excuse with ATO – Know your tax liability and the risk of error or face fines!

Business Tax Tips – “I didn’t know” is not an excuse with ATO – Know your tax liability and the risk of error or face fines!

“I didn’t know” is not an excuse with ATO – Know your tax liability and the risk of error or face fines!

Don’t underestimate your liability as a small business owner for tax credits claimed, or not knowing what your bookkeeper/wife is reporting in your BAS and tax returns – ignorance is not an excuse with the ATO! As Terry Hayes relates in Smart Company about a carpenter in a recent Dispute with the ATO –

While it’s often said that lawyers and accountants are their own worst clients, or doctors are their own worst patients, taxpayers too can be their own worst clients when they represent themselves in disputes with the Tax Office.

This happened recently with a carpenter who represented himself before the Administrative Appeals Tribunal in a GST dispute with the Tax Commissioner.

In that case, the AAT upheld the Tax Commissioner’s decision to impose on the taxpayer a 50% administrative penalty on the basis of “recklessness” because he had over-claimed GST credits.

The taxpayer is a carpenter by trade, a sub-contractor in the building industry. He is a sole trader and has no employees. The Commissioner audited his Business Activity Statements for the period 1 January 2007 to 30 June 2010 and found he had over-claimed input tax credits. The BASs showed that claims for ITCs exceeded his GST payable in all but six out of the 42 BASs lodged in the relevant period. The tax shortfall amount was around $130,000 and the penalty imposed was some $65,000 based on 50% of the shortfall amount.

The taxpayer said that his wife prepared and lodged his BASs and that he never reviewed them or any of the supporting documents, including the invoices that he kept in a box in the linen closet which, as it transpired, did not substantiate his ITC claims. He also did not keep vehicle log books. Nor did he ever check any of his bank statements and so he was unaware that he was receiving GST refunds from the Commissioner over a lengthy period of time in the joint bank account that he had with his wife.

The taxpayer did not dispute the tax shortfall but argued he was not responsible for the penalty maintaining that it was the Commissioner who was mostly responsible for it. He alleged that Tax Officers had represented to his wife that he was entitled to claim ITCs for the purchase of his family home because he maintained a home office (although the AAT noted the settlement statement for the purchase of the home did not show any GST having been charged by the vendor to the taxpayer and his wife as the purchasers). Additionally, the taxpayer claimed it was the Commissioner that allowed the situation to go on for so long without him being audited.

The taxpayer also alleged that a car salesman had represented to him that he could claim back the GST on the purchase of two vehicles, but he accepted before the AAT that he was given wrong information by the salesman.

The taxpayer also stated that he had lost a lot of information about his purchases when his old computer died and that many other receipts that he had stored had faded and were illegible. The taxpayer contended that the mistakes in his BASs “were not made intentionally by his wife and that he had always been honest with the Commissioner”.

The taxpayer was self-represented. The AAT did not accept what the taxpayer said his wife was told by the Tax Officers or what the taxpayer said he was told by the car salesman. It agreed with the Commissioner’s contention that the taxpayer had over-claimed ITCs “for a lengthy period of time in circumstances where he knew or should have known that he was not entitled to claim the ITCs”. The AAT said the taxpayer had conceded he was “indifferent as to whether the BASs were accurate”. It also noted the taxpayer “never checked any of the BASs or whether he had the supporting documentation for the ITC claims because he thought everything was fine”. The AAT was of the view that the taxpayer “chose to leave the preparation of his BASs in the hands of his wife who had no taxation expertise”.

In the Tribunal’s view, the taxpayer’s conduct amounted to recklessness because there were foreseeable risks as to a tax shortfall where his BASs included claims for ITCs to which he was not entitled. The AAT said a reasonable person in the taxpayer’s position should have known about those risks. The Tribunal said the taxpayer “displayed complete indifference to the high risk of non-compliance in his GST affairs”. Game, set and match to the Tax Office on this occasion.

The AAT held the taxpayer had failed to discharge the onus of proving that the penalty was excessive. It held the decision to impose an administrative penalty of 50% was correct and that it should not be remitted in the circumstances.

Taxpayers must exercise care in their taxation affairs. They have that responsibility, and while they may claim they have no intention of making mistakes, that does not unfortunately stack up. Leaving the preparation of BASs to a family member (even if they are well versed in this), be it a wife or someone else, does not absolve the taxpayer from his or her responsibilities.

One part of solving your record problems is good accounting software!

Need help? Not sure? Call for FREE 30min advice / strategy session today! 0407 361 596 Aust

***BEFORE you BUY – Ask us for a competitive software price BELOW retail – No obligation!

You also get FREE 30 min to assist in setting up your company in the software, and FREE ongoing email or phone support – no-one offers as much! Call and you also get Free “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right! Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Tax Tips – How to manage tax, small business obligations and bookkeeping

Business Tax Tips – How to manage tax, small business obligations and bookkeeping

Business Tax Tips – How to manage tax, small business obligations and bookkeeping

1. Get help from ATO to reduce your tax debt

The top tax tip the ATO gives, is if you’re in a tight spot and/or worried about a tax debt, let them know. They will work with you to figure out a solution together, and I have many relieved clients who I have encouraged to call The ATO and found them to be very helpful indeed!. Call them on 13 28 66 between 8am and 6pm weekdays, and you can download the new ATO app about ways they can help. Here is some info on Managing your Cashflow, a 1 minute video for tips on Managing your tax debt, and watch the recent webcast with David Koch, talking to the ATO and successful small businesses about ways that can help you manage your cash flow and reduce debt.

2. Have a business health check

Regularly check that your systems and records are in order to avoid mistakes on your BAS. If you still keep paper records, the ATO suggests that you consider leaving paper behind and shift to electronic records. There is also the ATO’s business viability assessment tool to help assess the financial performance of your business. We also provide a health-check analysis for clients, or one-off with actions points based on WHERE changes are required – call us for a FREE discussion.

3. Get the GST right

Remember to think ahead – when your business’s current or projected GST turnover is $75,000 or more for any 12-month period, you must register for GST within 21 days. The ATO also recommends that you put aside the GST you collect separate from your business account, and remember you have to keep your receipts for five years. Here is a 1 minute video for tips on Getting your GST right.

4. Keep up to date with changes in Super

At times there are some changes to super, including the recent introduction of a new data and e-commerce standard that will let you send super contributions to all funds in one electronic format. The ATO advises that businesses with 20 or more employees have until 1 July 2014 to adopt the standard and businesses with 19 or fewer employees have until 1 July 2015. Keep up to date with all things super via the Small business assist tool (at http://www.sba.ato.gov.au)

5. Try Small business assist tool

During 2013, the ATO released the Small business assist, an online service which provides easy access to information for both new and established businesses. You simply type in a question and it provides tailored information from a range of websites. If you’re looking for tax information, give it a go (at www.sba.ato.gov.au )

And one more reminder, don’t be afraid of the ATO! They are very helpful!

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right! Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Tax Tips – Payment Summaries Magnetic Media Form and Pays that are included in this Financial Year of the Bookkeeping Process?

Business Tax Tips – Payment Summaries Magnetic Media Form and Pays that are included in this Financial Year of the Bookkeeping Process?

Payment Summaries Magnetic Media Form and Pays that are included in this Financial Year of the Bookkeeping Process?

Client emailed I am hoping that you can “Jog my memory” with my bookkeeping process, as to how/where I print the “Magnetic Media Information Payment Summary Annual Report” form that I send to the ATO. I have all my notes out & my MYOB manual but cannot find this anywhere. Also as we pay on Wednesday which is 2nd July but pay week is for 23rd – 27th is this included in last financial year?? I am in information overload ATM….Thank You J Natasha

Answer – The Magnetic Media form is created as one of the steps in the Payment Summary process in the bookkeeping software, in MYOB and Reckon/Quickbooks.

It is created to be completed and mailed with a CD back-up of the EMPDUPE file that is also created in the same process – save the EMPDUPE to desktop to burn to CD – then keep a copy in a Year End 2014 folder in your accounts documents on computer in case you need it again. I also copy all the Payment Summaries as PDF there so all are together.

If you have an AUSKEY from the ATO you will be able to upload the EMPDUPE via the Business Portal.

Since you pay in July for work in June, usually we don’t worry – just follow the usual routine of pay dates for earlier periods – it will mean the pays are taken as the DATE on the PAY – the date on the pay transaction in MYOB will be the month the pays are recognised and reported.

If you want to include the 23rd – 27th June work as part of  year 2014 you need to date the pays in June – do the “pay date” in the pay run as 30 Jun 14. Then they will be in the June period for reports and tax deduction, etc.

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

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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