Thank you.
Good day.
My name's Mike.
And I've been asked by the ATO to say a few words to you about the Australian Business Number.
Or the ABN to people like you and me.
It's going to be an important part of the new tax system.
In fact, you could say it's integral to the whole business.
Now, I wonder if the average joblower has a clue how many regulatory government bodies a typical business has to deal with.
As an accountant, I'm here to tell you, it seems like a truckload.
Now, what that means under the present tax system is when your business has to pay tax,
you have to use a whole raft of different identification numbers.
So everyone's been crying out for a single interaction point with government, a single identification number.
And what they've come up with is the ABN, or the Australian Business Number.
And it's a beauty, because it'll eventually become the only number you'll need in dealing with the government at all levels.
It's a new way of thinking, but once you wrap your mind around the concept, you'll find it's really easy.
But listen, rather than me rabbiting on, I've arranged an appointment with our friends at the Australian Tax Office to get the real lowdown.
I've also asked some clients along as well, you know, to ask some pertinent questions.
We're going to have a bit of a look at quite a few aspects of the ABN.
For example, what it is, who's entitled to one, how to register, when to register, and so on.
Now, I suppose the first thing to remember is the ABN is going to be part of the Australian Business Register.
Now, that's where all details of the entity are registered.
Now, what's an entity, you're probably asking yourself?
Well, an entity is you as a sole trader, or you as a company, or you as a partnership.
Each of those is a separate entity.
Hi, guys. I'm here to see Mick.
Yeah, there's a passer.
How are you, mate?
Hello. Mick, how are you?
Good, good.
Are all the others here?
Yeah, we've got them up there.
Is there anyone in here?
Rowan, I'll just leave you here. I'll go and get Karen off.
Thanks, Mick.
Now, listen, everyone, I've been taking the viewers through the reasons for the ABN.
But before we wrap that up, any questions?
Yeah, I have one.
I understand that the ABN details will become part of the Australian Business Register.
Can we access that register ourselves?
Oh, yeah, of course you can.
Now, you gain access through the business entry point, which is www.business.gov.au.
Now, what this will enable you to do is to find out if you're dealing with a registered entity.
It will also allow you to check whether that entity is registered for the GST
and whether any gifts you make to it might be tax deductible.
Very handy facility.
Are you telling me that if I have a gift, I can actually take it off my taxation?
Even a gift to my mother for an anniversary present?
No, no.
No, we're talking about gifts that are tax deductible,
like gifts to charities that have been endorsed by the tax office.
If I can find out information about others, can they find out information about me?
Oh, yeah, yeah.
So what sort of information? My private tax information?
Oh, no, no.
Confidential tax information which you supply in your tax return will not appear on the register.
That will be protected by the same stringent privacy safeguards that exist currently.
And is there any information that I have to supply to the taxation
on that new taxation registration form that will not appear on the register?
Oh, yeah, yeah.
Things like authorised contact persons, business activity details,
taxation information such as your turnover and details of associated people and other entities.
And is this information free?
Well, if you request the info about you and your entity, that's free.
But if you want to find out about another entity,
you pay $20 for the first page and 10 cents a page after that.
Now, there is some information about other entities that will be free
and you can access that information by ringing the Business Tax Reform Info Line on 13 24 78
or you can look it up online at the Business Entry Point website, www.business.gov.au.
So we know what information is in the register, but what exactly is an ABN?
Well, Vince, on that note, I think it's time for the experts from the tax department.
Bye. Bye. Bye.
Now, Vince, do you want to kick things off with the first question?
Sure. So what exactly is an ABN?
Well, the ABN is going to be the single identifier for business entities.
It's going to be an 11-digit number.
I've got a software supply company. What will I be using my ABN for?
Okay. The ABN will be used for a lot of business dealings with the Taxation Office.
You'll need it for the goods and services tax. Now, that's the GST.
And in fact, if you register for the GST, the ABN will be your GST registration number.
You'll also need it for the pay as you go system.
And for those businesses that are involved in the diesel and alternative fuels grant scheme,
they'll need the ABN as well.
Now, for businesses that are involved with the luxury car tax and the wine equalisation tax,
they'll also use the ABN.
And for those entities that need to get endorsement as a deductible gift recipient
or an income tax-exempt charity, they're going to need their ABN also.
What are the wine equalisation tax and luxury car tax?
Well, the wine equalisation tax is a 29 per cent tax,
which is being brought in on the 1 July 2000 to replace wholesale sales tax on wine,
which is being abolished from that date.
It's intended to make sure that the price of wine remains stable.
The luxury car tax is 25 per cent and that's similar.
I own a consultancy firm. Will my ABN be the only number that I need to deal with with the ATO?
For most of your dealings with the Taxation Office, you'll be able to use your ABN.
But when you're lodging your business or personal income tax returns,
you'll still need your tax file number.
Now, I guess one of the big questions is who exactly is entitled to an ABN?
Well, basically there's three categories.
There are companies that are registered under the Corporations Law within Australia.
There's government agencies and government departments,
such as, say, the Department of Housing.
And there's entities who carry on an enterprise within Australia.
I work in partnership with one other person. Does that mean that I'm an entity?
Yes, partnerships are included as an entity.
An entity includes many things.
It includes a sole trader, a body corporate, a partnership, an unincorporated association, a trust,
and it also includes a superannuation fund.
Can we backtrack a second?
You were talking about an entity trading as an enterprise.
Now, what exactly is an enterprise then?
Right. Well, the definition of an enterprise is quite broad,
but basically it covers activities which are in the form of a business,
in the form of an adventure or concern in the nature of trade,
activities by government organisations,
organisations to which tax-deductible gifts are made,
religious organisations, and also charities or charitable funds.
But on the other hand, employees or people who are conducting activities as a hobby
or recreational pursuits won't be entitled to an ABN.
Nor will individuals or partnerships carrying on activities
without reasonable expectation of profit or gain,
or members of local governing bodies.
So who actually gets the ABN, the entity or the enterprise?
Well, it's the entity itself that gets the ABN.
I've got two different operations happening.
One is a scuba diving shop, which is a proprietary limited company,
and the other a scuba diving school, which is a partnership.
Do I need separate ABNs for each set-up?
Yes, you will need two ABNs in that instance.
You've got the diving shop, which is your enterprise,
conducted under a company structure, which is the entity.
So in that situation, the company would get the ABN.
Now, your other enterprise, the diving school,
is run under the partnership entity.
So the partnership in that instance would get the ABN.
But if you ran those two enterprises, the diving school and the diving shop,
say under a company set-up, then you'd only need one ABN for the company.
Mick, what would happen if I didn't get the ABN?
Would it matter that much?
Well, look at it this way, Peter.
If your business makes a sale to another business in excess of $50,
and you don't quote the ABN to that other business,
then that other business will be required to withhold tax
at the top marginal rate plus the Medicare levy.
Now, based on current rates, that's 48.5%.
So let's say you make a sale to the other business for $100.
They'll be required to withhold $48.50 if you don't quote your ABN,
which means that they'll only be required to pay you $51.50 instead of $100.
And you'll also need the ABN to claim back a credit of the GST you pay
for the things you buy in your business.
Now, of course, in order to be able to claim back a credit,
you'll also need to be registered for the GST.
Also charities, such as religious institutions,
should obtain an ABN so that they can get endorsement
as an income tax exempt charity or as a deductible gift recipient,
so that anybody who's making a donation to that charity
can claim an income tax deduction for that gift.
In addition, eligible businesses will need their ABN
to be able to claim back a grant under the new on-road diesel scheme.
And you can account for all of your tax obligations
or offset those obligations by using this one form,
the business activity statement.
Now, this is just an example for you to look at at the moment,
but the tax office will send you out a form for each tax period
that you're lodging a business activity statement for,
and it will actually have your details on it.
Earlier on you said that the ABN is your GST registration number.
Is that the only number that I need for GST?
That's right.
When you pay for goods or services from suppliers who have an ABN
and are registered for GST,
you'll be able to claim an input tax credit.
You'll need to have an ABN and be registered for GST
in order to claim those credits.
You've mentioned before, without an ABN,
other businesses would have to withhold top marginal tax rate
and Medicare levy on their payments to me.
That's correct.
It's very important that you include the ABN
on all the invoices that you give to other businesses,
because the ABN identifies you as a participant in the system.
How do I go about registering?
All you need to do is fill in an application form,
and they're really easy to get a hold of.
Actually, if you haven't got an application form now,
you should ring 13 24 78, and you can get one sent to you,
or else you can pick one up from newsagents, post offices
or most major banks.
This is an example of the application form that you'll receive.
You can also lodge your application by going to the internet
and using the Business Entry Point site,
or else you can get your tax agent to lodge your application for you
via the electronic lodgement system,
or else you can simply post your form to the tax office
using the envelope provided in the registration package.
So what kind of information do you need to fill out the form?
The instructions in your application kit will give you an idea
of what you do need to include,
but it will be things like your business tax file number,
if you're a company, your Australian company number,
also contact person and details.
We'll also need financial institution details,
so the tax office can send you your refunds,
and we'll also need details of your public officer
and associated individuals.
It's important that you include all of the information
requested in the application form,
because if you leave any information out,
that's going to slow down the registration process,
and the ATO will have to contact you later
to get a hold of that information.
And these application forms you can also use to register for the GST.
Now remember, if your turnover is $50,000 or more,
you're required to register for the GST.
But if your turnover is less than $50,000,
you can choose to register for the GST.
Now if you are registering for the GST,
some of the extra information that you may need will be
your annual turnover,
whether you will report on a monthly or a quarterly basis,
and whether you will be accounting on a cash or accruals basis.
But remember to make sure that you include all of the details
in the application form.
What decides if you report quarterly or whenever?
Okay, in that situation,
if you have a turnover of under $20 million,
and I assume most businesses will be in that position,
then you have the choice as to whether you lodge
on a quarterly or a monthly basis.
But if your turnover is $20 million or more,
then you're required to report electronically and each month.
So when do we need to register for an ABN?
Well, you really should look at registering right now,
because you may need to change some of your paperwork
before the 1st of July.
For instance, you may need to ensure that your ABN
is included in your invoices as at 1 July.
The Tax Office basically needs your application
by 31 May 2000 at the latest,
so they have time to issue you with an ABN by 1 July 2000.
Well, I think that just about wraps it up.
Carolyn and Mick, thanks for your help.
I think we have much better knowledge of the ABN now
than when we walked in here.
Thanks for coming in. Thanks for your time.
Thank you.
Well, there you have it, the ABN.
If you need more information
or just want to go back over some of the stuff we've discussed,
here are the contact phone numbers.
Business tax reform info line on 13 24 78.
A fax from tax on 13 28 60.
Translating and interpreting service, TIS, on 13 14 50.
Or download information from the ATO website
www.taxreform.ato.gov.au.
The Australian business number.
It's a beauty.
Good day there.
Well, I suppose all of you who need one have got an ABN by now.
And if you haven't,
I really suggest you do something about it.
All of my clients have done the right thing and got their ABN.
And I'll be visiting a few of them today
to let them in on a little secret.
You know what it is?
I'll tell you.
It's the key to making the new tax system really work for you.
And it's so simple.
It's called good record-keeping.
You see, the thing about good record-keeping
is it just doesn't help you with the new tax system.
It makes good business sense.
Well-kept business records help you manage your business,
make sound business decisions,
sell your business,
deal with your financial institution,
detect theft,
increase the likelihood of business success,
plan how much tax you will have to pay
and claim back tax offsets and tax credits when you're entitled to them.
Now, here's the thing.
We'll be looking at four key changes to our record-keeping procedures
once the new tax system arrives on 1 July 2000.
We'll be looking at new terms
like supplies and acquisitions,
tax invoices,
extra columns in your account books
and a little number called an activity statement.
I know, I know.
I've got a swag of clients busting to ask me the same questions.
As a matter of fact,
you might remember the one I'm about to drop in on.
I've been thinking about this new tax system
and I can see it's good points,
but what concerns me is the changes we're going to have to make in accounting.
Jean-Claude, it's all there.
Well, I've had a read of this
and it's got all these things called supplies and taxable supplies,
GST-free supplies,
input tax supplies,
creditable acquisitions,
GST-free acquisitions,
acquisitions on input tax supplies.
What does it all mean?
Let me walk you through it
and I'll show you how simple it really is.
Now, first up,
you're going to have to get used to a couple of new terms.
Supplies and acquisitions.
Supplies are what you sell to your clients.
Like in your case,
a web design or a computer service,
and there are three types of supplies.
Taxable supplies, which have GST included in the price,
GST-free supplies,
like fresh food and health and education services,
and input tax supplies,
which also don't have GST included in the price.
You know, things like residential rents and mortgages.
So there's no GST included in the price of GST-free
or input tax supplies.
Right.
Now, next we have acquisitions.
This is a new name for goods or services
you purchase for your business.
You know, like a computer
or coffee beans to make coffee.
And there are three types of acquisitions.
Creditable acquisitions are items you buy for your business
on which you pay GST.
You can claim an input tax credit
for the GST included in the price.
Then there are GST-free acquisitions
where you don't pay GST.
And finally, you have acquisitions
for making input tax supplies
for which you don't claim any GST that you pay,
for example, expenses that you might have
as a landlord of a residential property.
The whole business with supplies and acquisitions
is pretty straightforward.
You won't have any trouble.
The thing we're going to look at next
is the tax invoice.
This is what you're going to need
if you want to claim input tax credits.
We're dropping in on Betty
because she's a typical example of someone
who will be using them quite a bit.
I promise I'd bring her down some samples.
Hello, Betty. Good to see you.
You too, Mike.
So, who can issue a tax invoice
Well, they can only be issued by suppliers
of goods and services who are registered for GST.
You see, to claim an input tax credit,
or in other words, if you want a credit from the ATO
for the GST you paid on something,
then you'll need a tax invoice from a registered supplier.
Here's the important thing.
If the supplier you buy from isn't registered,
then they can't issue you a tax invoice.
Which means you can't issue a tax invoice
which means you can't claim an input tax credit
for anything you buy from them.
Spot on.
Because if they aren't registered,
they're not allowed to charge GST.
What happens if I'm the one supplying the taxable supplies,
say, cooktops or ranch woods?
Then your registered customers
need to obtain tax invoices from you
to claim back the GST they have to pay.
Are there any exceptions to issuing a tax invoice?
Well, if the price of what you are selling, including GST,
is less than $55,
then you don't need to worry about a tax invoice.
Oh. What if the customer still requests one?
Well, if you're asked to provide someone with a tax invoice,
you have to do so within 28 days.
And I reckon for that reason alone
it'll be a good idea to make all your invoices tax invoices.
What if a customer can't claim an input tax credit?
In that case, you'll find a docket from the cash register
will do the trick.
But if someone asks you for a tax invoice,
then you could write them a docket, but make it a tax invoice.
How do I claim the input tax credits?
You lodge a business activity statement
to claim your relevant input tax credits.
But you need your tax invoices first
because you can't claim the input tax credits without them.
A good point to remember here
is that even though tax invoices may not be required
because the price, including GST, is below $55,
you should keep some evidence
to support all input tax credit claims,
things like purchase orders, check butts and bank statements.
What's the main difference between a tax invoice
and a normal sort of business invoice?
Well, certain information has to be put on a tax invoice.
Well, let's take a look.
For example, this first one is for sales of less than $1,000.
It has to include the ABN of the supplier,
the GST inclusive price of the taxable supply,
the words tax invoice stated prominently,
the date of issue of the tax invoice,
the name of the supplier,
a brief description of each thing supplied.
When GST payable is exactly one-eleventh of the total price,
either a statement along the lines of
the total price includes GST or the actual GST amount.
What about sales of $1,000 or more?
Well, that's when you'll need something like this.
It is everything the first one did,
plus the name of the recipient,
the address or the ABN of the recipient,
and the quantity of goods or extent of services supplied.
Can I issue tax invoices with a computer?
Oh, yeah, electronic forms will be acceptable
provided they contain all the information required.
Now, here's a tax invoice for mixed supplies.
Is that where you have taxable and non-taxable goods or services?
Right.
Now, this is a tax invoice for a taxable supply
and also either a GST-free or input tax supply.
It has to show, in addition to the previous tax invoices,
each taxable supply, the amount of GST payable,
and the total amount payable for the supply.
What if I buy something like building insurance
before the 1st of July 2000?
The contract would still be running
after the 1st of July 2000.
How do I get a tax invoice for that
when they don't even exist yet?
Good point.
Now, if you get caught up in that situation,
the ATO will accept documentation issued
before the 1st of July 2000
that contains the following information,
the name of the supplier, the address of the supplier,
the issued date of the document
and the price of the taxable supply
and a statement indicating that the price includes GST
or the amount of GST payable.
So, if I'm registered, I can claim my import tax credit?
That's right.
You can claim the relevant tax credit
in your business activity statement.
What happens if you cancel all or part of an order?
Ah, well, then you're going to need an adjustment note.
Now, you get it from your supplier,
or if you're the supplier, you'll have to issue it.
Now, this happens if all or part of a supply
or purchase is cancelled,
the price for a supply or purchase is altered,
a supply becomes taxable or stops being taxable,
a purchase becomes creditable or stops being creditable,
the purpose of your purchase changes
or you have bad debts or you fail to pay a debt.
When do I report changes?
Um, when do I submit an adjustment note?
Well, you want to make the changes to your business records
when they happen
and then report them on your next business activity statement.
Here's what it has to include.
The words adjustment note in a prominent place,
the name and ABN of the supplier,
the name of the recipient,
the address or ABN of the recipient,
the issue date of the adjustment note,
the issue date of the original tax invoice
or, if there are any other adjustment notes,
the issue date of the last one,
the price of the taxable supply and the tax invoice
or previous adjustment note,
the corrected price and the difference between these amounts
and a brief explanation of the reason for the adjustment note,
for example, discount or return of goods.
The next change we're going to talk about,
the columns in your account books.
That's a piece of cake, Vince.
That's easy for you to say,
but how much extra work is involved?
And will I have to put on extra staff?
No, no.
All you'll need is a few extra columns.
Now, come along and give us a look at your cash receipts book.
Now, let's see.
Now, this lists your business income.
Yeah, from the supplies I make to my customers.
Precisely.
Now, remember, taxable supplies are those where GST is included.
So what you need to do is record the amounts you make
from taxable supplies in one column, excluding the GST.
Then you create another column listing the GST.
What about supplies where I don't collect GST?
Well, then because you're making GST-free supplies,
you need to add one more column
to keep the amounts you receive for them separate.
Now, this is your cash payments book.
Now, that is the money you pay out for expenses,
or in the new terminology, what you pay out for acquisitions.
So you need to keep separate columns for different acquisitions,
like insurance, electricity, and so on.
You'll need to create an additional column
to list the amount of GST included in your acquisitions,
which will be taken from the tax invoices of your suppliers.
What about acquisitions that don't include GST?
Well, you just leave a blank in the GST column beside them.
If you run a petty cash book,
you should have a separate column for GST as well.
I've got six employees working here.
How does your pay-as-you-go system fit into all this?
That'll deal with deductions you make
from your employees' salaries and wages.
You still have to keep employment records,
keep track of the payments, just like you have to do now.
You know, like timesh... payment records
and any deductions you make from contractors' payments.
Those amounts will have to appear in your activity statement.
What about my own income tax?
Well, just keep the same records you currently have
calculating your taxable income.
You'll be fine, Vince.
As you can see, there isn't a great deal of difference
between the records you need to keep now
and what you'll need to keep under the new tax system.
Just remember the four key changes.
New terms, meaning supplies instead of sales,
and acquisitions instead of purchases.
Tax invoices, which you'll need to obtain and maybe issue,
a few extra columns in your account books,
and the activity statement, which you'll need to fill out
and send to the ATO each three months or monthly.
If that didn't completely clear the air for you,
you can obtain one of these free of charge
by calling the Business Tax Reform Info Line on 13 24 78
or by downloading information from the ATO tax reform website
at www.taxreform.gov.au
or by writing to the ATO at PO Box 9935 in your capital city.
I've got one last bit of info that might be useful.
You can get a free and generic GST compliant
electronic record keeping package known as eRecord,
designed for organisations using cash basis accounting.
You get it when you register for the GST
or by ringing the ATO on 13 24 78.
Like I said, this new tax system is better than it was before.
Good record keeping helps you comply with the new tax system.
Good record keeping. It makes good sense.
Hello there.
I've just got the goods on the PAYG.
That's the pay as you go, which is part of the new tax system.
You know, this PAYG brings with it a whole range of tax reforms.
What's more, it's going to streamline reporting for business
and reduce business costs in the long term,
and that's not a bad thing.
What I have here outlines the major elements of the new tax system.
You've got $12 billion of income tax cuts every year,
a single PAYG system replacing 11 existing reporting and collection systems,
a GST of 10% on goods and services,
endorsement of charities as deductible gift recipients and or income tax exempt organisations,
an Australian business number for your business dealings with the ATO
and other government agencies,
the ability to report fringe benefits on employees' group certificates.
The government's also legislated for the first stage of business tax reforms,
and that's going to lower the company tax rate from 36% to 30%,
reduce the compliance burden for business by introducing a simplified tax system,
introduce a new capital gains tax,
including a 50% general capital gains tax exemption for certain business assets.
I've got a couple of samples here.
You'll report most of your tax entitlements and obligations on a new single form,
the business activity statement, where you are registered for GST,
or an instalment activity statement if you're not registered for GST.
You see, PAYG will bring your income tax instalments
and withholding obligations together in one system.
For most small businesses, this will mean one set of rules, one set of payment dates,
only one form to fill in and just four due dates for all business tax obligations,
unless you remit your withholding obligations or GST monthly.
But how's this going to affect me, you might ask?
Well, if you're in business or a non-profit organisation,
the new PAYG system is going to affect your tax arrangements.
It's also going to affect anyone with an investment income who is not in business,
such as self-funded retirees.
For most of us, PAYG is going to commence on the 1st of July, 2000.
But if you're in business, you should start preparing now
by getting an Australian business number.
Look, I've invited a few of my clients in for a briefing on the new tax system,
so why don't you join me in the meeting room and we'll work through it.
Hello, everyone. Good to see you again.
Well, what I'd like to do today is give you the rundown on PAYG.
And I thought what we'd do today is just look at it in broad strokes,
dabble in the big picture, so to speak.
If you'll just have a look at page 2 of the brochure,
now you'll see there are two parts to PAYG.
There's an instalment arm and a withholding arm.
As a rule of thumb, if you're in the provisional tax system,
you'll be in the PAYG instalment system.
And the PAYG withholding system deals with amounts withheld
from wages and other specified categories of payments.
Well, I guess the main question everyone wants to ask is how PAYG will affect me.
Well, it will affect a whole range of persons,
including sole traders and companies,
individuals with investment or business income, such as self-funded retirees,
rental property owners, partners in a partnership,
beneficiaries of a trust and some trustees.
Mike, because I work for myself running a house cleaning business,
I pay provisional tax. Where do I stand with that?
Well, you'll pay PAYG instalments.
But because you're in business, you'll also be affected by PAYG withholding.
But the first step is for you to be registered for an Australian business number.
I have suppliers who aren't registered for an ABN.
What should I tell them to do?
Well, they can get one of these registration packages
by calling the Business Tax Reform Info Line on 13 24 78.
But why don't you tell them to use the business entry point site
at www.business.gov.au. It's a lot faster.
Mike, one of my clients in my consultancy business is a registered charity.
How will this affect them?
A registered charity will need to apply for endorsement
because after 1 July 2000, if that charity is not endorsed,
it will lose any current gift deductibility and income tax exempt status.
So what information will I need to apply for endorsement?
Well, if they mark the box on the application form,
which asks about seeking endorsement, that's questions 10 and 11,
a kit will be sent to them.
So a charity is going to be treated differently under the new tax system?
No. No. Endorsed charities, just like other income tax exempt non-profit organisations,
will continue to be exempt from income tax.
Therefore, PAYG instalments and some PAYG withholding requirements won't apply.
You mentioned PAYG instalments earlier. What are they?
Well, these are the payments that you'll be required to make to the ATO
to provide for your end of the year income tax liability.
However, your final liability won't be calculated
until you lodge your income tax return for that year.
You'll get a credit on your income tax assessment
for the instalments paid through the year.
Sir, how is that going to affect the cash flow of my web design business?
If you're a business or an individual with business or investment income,
then you can make your PAYG instalments
based on a percentage of your business and investment income.
The percentage is called your instalment rate
and the ATO will tell you on your BAS what your exact instalment rate is.
So how do I work out the amount of the instalment payment that I have to make?
You multiply your business and investment income for that quarter by your instalment rate.
And how is the instalment rate calculated?
The rate is determined by looking at the amount of tax assessed in your tax return
lodged for the previous income year
as a percentage of the business and investment income shown in that return.
For the 2000-2001 income year and later,
this rate will be based on the new lower personal income tax and company tax rates
and if the ATO doesn't give you an instalment rate,
then that means you don't have to pay PAYG instalments.
What if you're a non-business individual
and have to pay PAYG instalments on your investment income,
say, like my parents who are self-funded retirees?
Well, they'd have the option of paying an annual instalment
if their previous annual income tax liability for their investment income
was less than $8,000.
Will they have to apply for an ABN for their investment income?
No, no, they can quote their tax file number for investments
rather than having to apply for an ABN.
They probably already quoted their tax file number to their bank under the existing system.
It sounds like many of us will be paying quarterly.
How much will we be paying?
Well, that's a bit like how long is a piece of string.
Your tax instalments will be based on your current business and investment income level,
but you don't have to pay until after the income is earned.
Basically, if you earn more, your instalment will be higher for that quarter.
If you earn less, your instalment will be lower for that quarter.
So what about PAYG withholding? What does that mean?
Well, withholding means the amount you withhold from payments you make to others
and send to the ATO.
The wages you pay to employees, PAYG withholding,
will be just like the amounts you deduct under the current PAYE scheme.
However, the PAYG system does outline three new situations
where withholding will apply.
Payments to an individual worker from a labour hire firm,
payments covered by a voluntary agreement,
payments for supplies between two businesses
where the recipient of the payment does not quote an ABN.
Are there any exceptions to withholding from a payment for failure to quote an ABN?
Yeah, there are a couple.
Where you are an individual and the payment is wholly of a private or domestic nature for you,
the payment does not exceed $50,
the whole of the payment is exempt from income tax in the hands of the supplier.
For example, the supplier is an endorsed charity.
You're already required to withhold from the payment
because you're an investment body
for which no tax file number has been quoted.
The PAYE has made a written signed statement
that the supply is private or domestic in nature or relates to a hobby.
What if I think the ABN quoted to me is false?
Then you have to withhold.
Even if the supplier doesn't quote an ABN
but makes a written signed statement
that the supply is private or domestic in nature or relates to a hobby,
but you have reason to think the statement is false,
you must withhold.
How much do you need to withhold?
The top marginal rate of tax plus the Medicare levy,
currently 48.5% in total.
You remit the amount withheld to the ATO
when you're required to lodge your activity statement.
If you're already registered with the ATO for withholding,
say, as an employer,
just add the amount withheld to what you would otherwise be sending to the ATO.
How will PAYG affect the prescribed payment system?
Well, pretty radically, actually,
because from 1 July, PAYG will replace the prescribed payment system,
meaning that contractors can voluntarily be subject to withholding
and have tax deducted from their payments,
or they can provide for their own income tax liability
by paying instalments.
What if you're a contractor like me and not subject to PAYG withholding?
Then you'd have to pay your own tax under PAYG instalments.
But remember that if you don't provide another business with your ABN,
they'll withhold tax at the rate of 48.5%,
and that's in addition to the instalment that you'll have to pay each quarter.
Now, the other thing is that any payment subject to PAYG withholding,
because they were made under a labour hire arrangement
or made under a voluntary agreement,
will not be subject to GST.
So will I have to pay PAYG instalments?
Yes.
Basically, if you're receiving business or investment income
which hasn't been subject to PAYG withholding,
you'll pay PAYG instalments.
When do we make the payments?
Well, usually quarterly.
Your payments will be due 21 days after the end of each quarter.
So if your income year starts on 1 July,
your instalments will be due on 21 October, 21 January, 21 April
and the 21st of July.
Does everyone have to pay quarterly?
Well, some of us will be able to pay in an annual instalment.
You can do that if your previous year's tax on business and investment income
was less than $8,000
and you or a partnership you're involved in
are not required to be registered for GST.
If you are eligible to make an annual payment,
the ATO will send you a form to enable you to make the choice.
What happens if my business circumstances change?
If that's the case
and you think you're paying too much or too little in a quarter,
you can vary the instalment rate
and pay an instalment based on your estimated instalment rate.
The other option available to some quarterly players
is to pay an amount notified to you by the ATO.
This option is available if you're an individual
and you are not registered or required to be registered for GST
and on your last income tax return,
you paid $8,000 or more in tax on your business and investment income.
If you choose this option,
the ATO will let you know of an amount
equivalent to your last year's tax on business and investment income.
It'll be adjusted in line with growth in gross domestic product.
That's GDP.
Now, if you think the amount notified to you by the ATO
doesn't reflect your present situation,
you can vary the amount by paying your own estimate of your tax liability.
What if you're an annual payer?
Well, in that case, you can pay an amount advised to you by the ATO
which will be based on your previous year's tax
on business and investment income but without an uplift factor,
your estimate of your tax liability for the current year
or an amount equal to your instalment rate
multiplied by your instalment income for the year.
But for individuals, this is only available from 2003.
Can I vary my annual instalment if I am an annual payer?
Yes. If you're an annual payer,
you can vary your annual instalment amount
by paying an estimate of your tax for the year.
But remember, there are penalties for underestimation.
Do I still make deductions from payments to my employers?
Oh, yes. You'll still have to withhold from employees' payments.
And the types of PAYE withholding that are covered by PAYG
include payments to employees and company directors,
payments to office holders such as Members of Parliament
or the Defence Forces, payments for unused leave,
return to work payments, retirement and eligible termination payments,
sickness and accident payments and certain compensation payments.
Do I withhold from payments to my contractors?
If it's a payment to a worker under a Labor hire arrangement
or made under a voluntary agreement,
you'll have to withhold from the payment.
You'll also have to withhold if the contractor doesn't quote their ABN.
When do we send in the withheld amounts?
Well, your due dates will be aligned
so that all your withholding amounts can be sent to the ATO at the same time.
For example, if you withhold from your employees' wages
and also withhold from other workers
under voluntary agreements in the same period,
the amounts you withhold can be sent together.
What defines your due date for paying withheld amounts?
That will be dictated by your annual amount of withholding.
For small withholders,
that is, withheld amounts of $25,000 or less per year,
the payment dates are the 21st of October,
the 21st of January, the 21st of April and the 21st of July.
For medium withholders,
that is, withheld amounts of over $25,000 to $1 million per year,
your payment date is the 21st day of the month following withholding.
For large withholders,
that is, withheld amounts exceeding $1 million per year,
an amount deducted in any period commencing Saturday and ending Tuesday
is payable on the following Monday.
An amount deducted in any period commencing Wednesday and ending Friday
is payable on the following Thursday.
Well, that just about wraps it up, folks.
But look, if there's anything we haven't dealt with today,
the information is always available.
Between now and the 1st of July 2000,
the ATO and the new Tax System Advisory Board
will be conducting a major education program about the new tax system,
including providing detailed information on PAYG.
That will explain what you need to do and when you need to do it.
In the meantime, you can obtain a range of tax reform information,
including these brochures about PAYG,
by filling the Business Tax Reform Info Line on 13 24 78,
downloading information from our website at www.taxreform.ato.gov.au,
or by obtaining a fax from tax on 13 28 60,
or by writing to us at PO Box 9935 in your capital city.
If you know people who don't speak English or don't understand it too clearly,
then they can phone the Translating and Interpreting Service on 13 14 50.
People with a hearing or speech impairment
can phone the Telephone Typewriter Service on 1300 130 478.
Well, I hope this has been of some help.
And remember, if in doubt, call the ATO.
They're in the business of making it easier.
I hope to see you again.
Thank you very much.
Good day there.
I have two things here of interest.
One is my trusty desk calendar,
and the other is a business activity statement, or a BAS, as we call it.
Now, they both go together because my calendar tells me that the 21st is next week,
and that's the date you have to lodge your BAS with the Australian Taxation Office.
She's a little beaut, the BAS, and I'll tell you why.
With this one form, you can report your GST, your pay-as-you-go withholding,
pay-as-you-go instalments, fringe benefits tax, wine equalisation tax, luxury car tax,
annual deferred company superannuation fund instalments,
and claim your wholesale sales tax credits all on two pages.
Incredible. Let's take a close look at it.
On the back, you've got your calculation sections.
We'll get into those in a moment.
On the front is where you transfer your calculations from the back,
so you can then work out your total amount of tax payable or refundable.
I have a couple of clients, Bob and Betty McGrath.
Their company operates a household electrical appliance store called BBM Electrical.
As well as selling electrical appliances,
they also have service contracts for those appliances.
A couple of years back, they had a bit of extra cash,
so I got them into the property market up in Cairns.
They've got a few apartments up there that they rent out.
Betty does the books,
and she's about to prepare the company's first quarterly business activity statement,
which is ask me to drop by and give her a hand.
I'm sure she won't mind if you tag along.
Betty uses a computerised bookkeeping package,
and all the info she needs to complete her bass is in here.
If you're into manual bookkeeping,
you'll get all the info from your account books
like your cash payments and cash receipt books,
your sales and purchases journals,
and your wages book.
What do you say, Betty? We give it a whirl?
Might as well. Where do you want to begin?
Well, has the ATO sent you your copy of the bass yet?
Yes, they sent that to me at the beginning of the month,
and it's got my details on it already.
And they also previously sent me a copy
of these business activity statement instructions.
Your company's bass will have your company's name and address,
a document identification number,
your ABN,
the period that the bass is to cover,
the date that the statement is due to be lodged with the ATO,
the date that any amount payable is due,
and it will also have a pre-printed payment advice
to which you will add the amount payable if that's necessary.
We'll kick it off by doing the calculations on the back.
On the left side,
that's where we work out GST payable
on the supplies you've made.
On the right side,
we calculate your GST credits on your acquisitions.
We'll start with our GST payable.
Head over to the first label on the left.
That's G1.
We're accounting on a non-cash basis,
so I'll need to include the total sales we've made.
That's sales made where we have issued an invoice
or sales we have made for cash.
That's right.
Remember that you're not just recording the cash that you've collected.
You're accounting for all your sales,
maybe including sales where you've issued an invoice,
but you haven't received any money yet.
What Betty's entering at G1 will include
the GST inclusive amount of all goods sold and services provided,
the market value of any goods and services received
in exchange for goods and services provided,
for example, rental of premises.
So she's entering domestic sales of $176,000,
export sales of $55,000, service contracts of $11,000
and rental property income of $3,600.
This gives us a total of $245,600.
This amount is filled in at G1.
Only ever put whole dollars.
If you have a figure with cents, just leave the cents off.
G1 may be the total of our income,
but not all of it would have had GST included in the price.
Okay, G2 and G3 is where your GST-free amounts go.
Now let's have a look here, right?
Exports, they're GST-free if you exported them
before or within 60 days of part payment or invoicing.
We exported $55,000 worth of fridges.
In that case, your export sales belong in G2.
Now if you had made more GST-free supplies like basic food,
health and education, that would go at G3,
but that's left blank for you.
G4, is that where I put the $3,600 rent
from the rental properties in Cairns?
Right, because residential rent is an input tax supply.
That means there's no GST on residential rent that you charge.
Now the total of G2 plus G3 plus G4 equals $58,600.
We show that amount at G5.
So G5 is the total of the GST-free or input tax supplies we made.
Now I need to deduct G5 from G1 to exclude the GST-free
and input tax supplies from the total supplies.
Yep, and then put the balance at G6.
Right.
Now what about adjustments?
We had two.
A $1,650 refund for a washing machine and clothes dryer package.
So on that sale, we've paid too much GST to the ATO.
Also, we received a discount of $770 from our supplier of fridges.
So on our acquisitions, we've claimed too much credit.
Well, you've done the right thing here.
You've got an adjustment note to show the change to the credits
you've already recorded.
Now remember, you only have adjustments where you are changing
the amount of credit or the liability that you recorded in your records.
So calculate the difference between the refund and the discount.
Now if the result is that you paid too little GST,
the figure goes at G7 as an increasing adjustment.
If overall you've paid too much GST,
the figure goes at G18 as a decreasing amount.
It's a net adjustment of $880,
so I put that amount at G18 and leave G7 blank.
Right.
The thing is you can't have a figure at both G7 and G18 in the same VAS.
So because I don't have anything at G7,
the total of my taxable supplies from G6 will be the same figure at G8.
Spot on.
And to get the total amount of GST payable,
you divide the $187,000 at G8 by 11 and record the amount at G9.
Now transfer the GST payable, that's the $17,000 at G9,
to 1A on the front of the VAS.
However, generally speaking,
this will not be the amount of GST you send in.
See, if you bought other supplies for your business and paid GST on them,
you can claim that GST as a credit.
And that's what we call our input tax credit.
Ah, so now I need to work out our input tax credits.
That's right.
Now to work that figure out, we'll work through labels G10 to G20.
Remember, in claiming an input tax credit for the GST
included in your acquisitions,
you cannot claim any credit for GST that you have paid
unless you have a tax invoice for that item by the end of the tax period.
You've got all those tax invoices, haven't you?
Sure have.
Well, let's start off at G10 then.
I include all our capital acquisitions, including GST.
That's it.
Goods, services or anything else of a capital nature
that you bought or traded to use in the business.
We're talking about things like plant and equipment, motor vehicles,
land and buildings and any other capital expenditure such as computers.
Now, don't forget you've got transitional rules
that apply to buying motor vehicles in the first two years of GST.
You can't claim a GST credit on a motor vehicle you bought
between 1 July 2000 and 30 June 2001.
If you bought one between 1 July 2001 and 30 June 2002,
you could only claim 50% of any input tax credit.
So the transitional rules will apply to the delivery truck
we bought for $82,500 during this month,
meaning we can't claim any input tax credits on the $82,500.
Right, but you can claim an input tax credit for the GST
included in the cost of the computer you purchased for $2,200.
Enter that in G10, which brings us to G11.
This is where I enter any other acquisitions.
Right.
Stock purchases, $198,000.
Payment to contractors, $12,100.
Payment to Jim's Plumbing, $5,000.
Payment to LHF personnel, $660.
Premises rental, $9,900.
Fuel for delivery truck, $2,200.
Water and sewerage, $2,000.
Electricity, $3,300.
Stationery, $880.
Agents fee, $275.
Council rates, $1,300.
Repairs, $880.
Water and sewerage, $249.
Total, $236,744.
You'll notice that Betty hasn't included wages.
That's because wages are always exempt from GST,
and you'll show them at W1 anyway.
I transfer the $236,744 to G11.
Right.
Then add the $2,200 in G10 to the $236,744 in G11
for the total of all your acquisitions.
Move the $238,944 to G12.
Betty now has to reduce her total acquisitions
by amounts on which she cannot claim input tax credits
and by amounts with no GST included.
So, firstly, that means all the acquisitions
I made with regard to the supplies I listed in G4.
Yes.
See, we're talking about amounts
which may have included GST,
but were incurred for making an input tax supply.
That's the expenses for the residential rent.
So we've got estate agents fee...
$275.
Council rates...
$1,300.
Repairs...
$880.
Water and sewerage...
$249.
That's a total of...
$2,704.
Move that to G13.
What about other acquisitions with no GST in the price?
Good point.
They get listed in G14.
Now, that would be things like basic food,
medical aids or items purchased from businesses
who aren't registered for GST.
I've got two acquisitions like that.
A payment for water and sewerage for the shop of $2,000
and a payment of $5,000 to Jim's Plumbing.
Jim's not registered for GST,
so he didn't include GST in the $5,000.
So $2,000 and $5,000.
That's $7,000 to go in G14.
Next up, we have to work out an amount
that reflects your use of any items for private purposes.
For example, it's a computer.
Now, how much do you use them for work versus private use?
And once you work out the percentage of the acquisition
you use for private purposes,
you'll calculate that portion of the cost
and you'll enter that at G15.
I'm in a company, so we don't have any private use of items.
That's right. So leave G15 blank.
So to get the total of the acquisitions
that I can't claim GST credits for,
I add $2,704 in G13
and $7,000 in G14.
That gives me $9,704,
which I enter at G16.
And the total is $238,944 in G12
less $9,704 in G16.
That's $229,240 to go in G17.
Now, remember, we looked at adjustments before,
so we have $880 at G18 already.
Now add the $229,240 at G17
to the $880 in G18
and put the total of $230,120 in G19.
Now I divide the $230,120 by 11
and move the $20,920 to G20.
Yep. The $20,920 in G20
is the amount of credit you can claim
for the GST on your acquisitions.
Transfer that over to the front page at 1B.
Now you have a few other taxes
that are accounted for on the front of the bass,
but they won't affect all of you.
We're talking about the wine equalisation tax,
which generally applies to wine wholesalers and producers,
and the luxury car tax,
which only applies to suppliers of luxury cars.
However, there is one label in the front section of the bass
that might affect a fair number of you.
This is 1G,
where you claim credit for wholesale sales tax
embedded in the price of stock you held for sale
at the start of business on 1 July 2000.
Now you obviously had stock in hand on 1 July 2000.
That's right.
We had $6,600 worth of sales tax attached to it.
Ah. Well, straight into 1G then.
Remember, folks, those of you who have this credit to claim
need to do this in your first or second quarterly bass.
Now, as you don't have any charges payable
for the wine equalisation tax in 1C
or the luxury car tax in 1E,
put the $17,000 in 1A to 2A.
The $17,000 at 2A now represents the total
of all your goods and services tax that is payable.
OK. Now, let's look at the credits you can claim.
The total of $20,920 in 1B and $6,601 in 1G
is $27,520, which goes to 2B.
2B is now the total credits I can claim?
Exactly.
Now, your GST net amount will be the difference
between the GST you charged and the GST you paid.
To find that, we deduct 2B from 2A.
If it's positive, then that's a debit.
The amount of GST you owe the ATO.
On the other hand, if it's negative, then that's a credit,
the amount of GST you are owed by the ATO.
If it is a credit amount,
can I offset that against any other taxes I might owe?
Oh, yes, you can.
So I have a credit of $10,520.
Correct.
Now, just remember, you don't put a minus sign
before the result if it's a negative.
The ATO will work that out.
Now we've got the GST section out of the way,
let's move on to the pay-as-you-go section of the BAS.
We'll be looking at W1, W2, W3 and W4
and label four on page one.
The payments you include under this system
are ordinary salary and wages,
associated payments to employees including commissions, bonuses,
directors' fees, termination payments
and payments made to individuals
under a voluntary agreement for amounts to be withheld.
We've paid wages of $26,000 during the last three-month period.
Enter that in W1.
Now, did you deduct any tax?
Yes, $4,200 as per new tax schedules
applying from the 1st of July, 2000.
Good. That goes in W2.
What about W3?
That applies to amounts where a resident investor
has not provided a tax file number to an investment body.
The investment body must withhold tax
at the top marginal rate plus Medicare.
But you're not an investment body, so leave W3 blank.
W4 is similar,
but it's where no ABN was quoted by another business
that you were paying.
Like Jim the plumber.
I withheld $2,425 of his $5,000 before paying him
because he didn't give me an ABN.
Drop the $2,425 into W4.
Now, let's pick up all the taxes you've withheld.
That's the $4,200 in W2, the $2,425 in W4.
Add them together
and put the total of $6,625 at 4 on the front of the BAS.
The next section, 5A and 5B,
relate to pay-as-you-go instalments.
The ATO has pre-printed the instalment rate
that you should apply to your instalment income.
Your company's instalment rate is 1.2%
and it's pre-printed at T2.
Now, the next step is to work out your instalment income.
Your instalment income is your total business
and investment income for the tax period.
So in this tax period,
the company's instalment income was $211,917.
OK.
So you take that figure and you put it at T1.
Now you take your instalment income
and multiply that by your instalment rate.
So I've got 1.2% of 211,917.
That's $2,543.
OK.
So that's the figure you put at 5A on page 1.
Now, next we'll look at the fringe benefit tax.
We've got two labels for that.
6A is where you list any FBT instalments.
6B is where you list any credits arising
from reduced FBT instalments.
If your liability from the last FBT return you lodged
was less than $3,000
and you estimate this year's FBT liability
will be less than $3,000 as well,
you'll just pay that when you lodge your annual FBT return.
But if you had a liability on your last FBT return
greater than $3,000,
your liability for the tax period
will be pre-printed on your BAS at F1.
We don't provide fringe benefits to any of our employees,
so I guess I leave 6A and 6B blank.
Right.
Now, in your case, the BAS already tells you
that there is no FBT liability.
Next up is 7.
Because of the overlap of the old company
and superannuation fund instalment system
and the new PAYG instalment system,
arrangements have been made for companies to defer some
or all of their tax for the 1999-2000 tax year.
The ATO will let you know what your deferments are
after you lodged your income tax return
for the 1999-2000 year.
So there's nothing to put at Label 7 yet.
That's right.
We'll just leave that one blank.
OK. Now, this brings us up to 8A.
Excluding 6A and 7, because they are blank,
I add the $17,000 in 2A,
the $6,625 in 4
and the $2,543 in 5A,
which gives me a total of $26,168.
I place the $26,168 in 8A.
That is now the total amount payable.
To find the total of my credits,
I add 2B, 5B and 6B.
But because 5B and 6B are blank,
I just transfer the $27,520 in 2B
down to 8B.
Then to work out the total amount payable or refundable,
I take the credits in 8B
away from the amount payable in 8A
and transfer the result,
which is a negative $1,352, to 9.
Which is the amount the ATO will refund to Betty
within 14 days,
unless she has other debts with the ATO,
such as an outstanding income tax debt.
If she does have any other debts,
this amount will be offset against those debts.
If, on the other hand, the figures had gone the other way
and Betty owed the ATO,
she would have been required to forward
the outstanding amount to the ATO within 21 days
after the end of the tax period.
So regardless of whether you owe the ATO
or the ATO owes you,
you must get your completed BAS
into the ATO 21 days after the end of the tax period.
The ATO is giving some extensions
to the first three BAS forms you'll be required to lodge.
So there you go, your first BAS.
Now what do you think?
It was fine, but I'll tell you one thing.
Having a good record-keeping system
makes all the difference.
Too right.
Establishing and maintaining a good system
makes it much easier.
We all know how hard it is
to take everything in at first, but don't worry.
There are several ways of getting assistance
with filling out your BAS if you need it.
You should first refer
to the comprehensive BAS instructions.
You can call or write to the ATO
or arrange for a field officer to drop by.
Now I know what you're thinking, but don't worry.
These visits are not audits.
They're part of the ATO's education program,
which is designed to help us all understand the GST.
And the best part? They're free.
We'll get out of your way now.
Hope this helped clear away some of the concerns.
Just remember, it's not as difficult as it looks,
and help is just a phone call away.
Thank you.