gst intermediate

GST INTERMEDIATE www.ato.gov.au

Presented by:Australian Taxation Office

SEGMENT AUDIENCE DATE

LEGAL PRACTITIONERS

MARCH 2005PROFESSIONAL

GST intermediate

Norman Kochannek


Overview

Accounting rules

Tax invoices

Disbursements

Trust accounts

Hire purchase

Asset disposal

Insurance

Business deductions

Tax Office’s legal database


Accounting rules


Accounting rules

You can account for GST on a cash basis in three situations:

current or projected annual turnover is $1 million or less

currently accounting for income tax on a cash basis, or

Commissioner’s determination.


Accounting rules

If you account on a cash basis, you account for GST when:

you receive a payment for a supply (GST collected), and

you make a payment for an acquisition (GST paid).

Accounting for GST - cash basis

July Aug Sept Oct Nov Dec Jan Feb Mar

1 July - 1 October - Issued Invoice Received Payment

First Quarter Second Quarter Third Quarter

Monthly and cash basis - GSTcharged to be sent in by 21 November

Quarterly and cash basis - GSTcharged to be sent in by 28 February


Accounting rules for non-cash basis

If you account for GST on a non-cash basis, you account for

GST when:

you issue an invoice or receive any payment for a supply

(GST collected), whichever is the earlier, and

you receive an invoice or make any payment for your

acquisitions (GST paid), whichever is the earlier.

Accounting for GST –non-cash basis

July Aug Sept Oct Nov Dec Jan Feb Mar

1 July - 1 October - Issued Invoice Received Payment

First Quarter Second Quarter Third Quarter

Monthly and non-cash basis - GSTcharged to be sent in by 21 August

Quarterly and non-cash cash basis - GSTcharged to be sent in by 28 October


Cash basis by law

Held to be most appropriate for sole practitioners

accounting for income tax purposes*

(* FCT v Firstenberg (1976) 6 ATR 297)


Tax invoices


invoice for less than $1,000

invoice for $1,000 or more

Sample 2

3

4

8

9

105

6

7

7

1


Accounting - tax invoices

Other types of tax invoices:

contracts

written agreements

reimbursements.


Commissions

An agent prepares a contract on the sale of a house for

$400,000

An agent charges commission ($22,000)

Agent needs to remit 1/11 of commission

Agent keeps $20,000, GST remitted is $2,000


Disbursements


Disbursements

Payment of money to lawyer ‘up front’

Incur costs on behalf of client

No win/no fee

ABN 123 456 789 112221 Logan Road Upper Mt Gravatt Q 4122Telephone: (07) 3213 3111

October 16, 2002

Mrs Karen Morris2 Banfield StreetChermside Q 4152

TAX INVOICEMemorandum of Fees and Disbursements

Re: Morris purchase from Faulkner

FeesTo my professional costs inrelation to receiving instructions toact on your behalf in relation tothis matter

$ 1,250.00 *

DisbursementsOct 1 Redland Shire Council – search

fees$ 130.00 *

Office of State Revenue – searchfees

$ 30.00 *

AlCoe Building Services – buildinginspection

$ 280.00 *

Office of State Revenue – stampduty

$ 1,920.00

Sundries $ 15.00 * $ 2,375.00 Total including GST $ 3,625.00Less amount held in Trust to beapplied towards payment of theabove costs and outlays

$ 3,625.00

Balance payable $ nil

GST amount included in Total $ 155.00

* denotes taxable itemE&OE


Trust accounts


Trust accounts

Operation of trust account

Operation of general business account

Normal bank account


Hire purchase


Hire purchase versus lease

With hire purchase:

cash basis - claim credit for each payment

non-cash - claim all credit on receipt of invoice.

With a lease:

cash basis - claim credit each payment

non-cash - claim credit each instalment.


Asset disposal


Trade-ins

If you are registered for GST, and you trade-in a business

asset, your supply of the trade-in is a taxable supply

Example:

photocopier trade-in value $2,300

1/11th, or $209, is GST to be reported on your activity

statement and sent in to the Tax Office.


Selling a motor vehicle

If you are registered for GST and:

you sell a motor vehicle that was used in your business,

then

1/11th of the selling price is GST which must be reported

on your activity statement and sent to the Tax Office.


Part private use

If the vehicle was used partly for private purposes, you may

be able to claim a decreasing adjustment (also applies to

trade-ins).


Sale of motor vehicle example

Ian purchased a utility for $1,100

He used the vehicle 80% for business and 20% for

private purposes

He has claimed a GST credit of $80 (80% x $100)

He sells the utility for $550 including GST

What are the GST implications of the sale?


Motor vehicle example

Ian will report and pay $50 GST to the Tax Office

Decreasing adjustment claim on sale

1/11 x $550 x (1-80/100) = 50 x 20% = $10


Insurance


Insurance

If you claim a GST credit, and advise the insurance

company of the business usage on the insurance you will

not be liable for GST on any insurance pay out


Component of payout

Insurance fees

Settlement of clients costs

Loss of income stream

Pain & suffering


Cash settlement

The insured purchased business contents insurance from

a general insurer for $1,330

The policy premium consisted of:

- base premium $1,200

- GST on policy $ 120

- stamp duty on policy $ 10


Insurer Insured

$

120 GST $120 ITC

Premium$1330

$

$8000

No DA$800 ITC

Builder

$8800

$800 GST

Cash settlement – taxable goods100% entitlement to ITC


Business deductions


Business deductions

Deductions reduce the amount of tax you pay

To claim a general deduction, you must:

have paid or incurred the expense

show a relationship to your business, and

ensure the expense is not of a private, domestic or capital

nature.

You must have kept records


Business deductions

Claim deductions for expenses that are necessarily

incurred in carrying on your business. The expense:

- is not of a private or domestic nature

- is not a capital expense.


Income tax expenses and GST

Income tax legislation denies a deduction for the GST

amount if it can be claimed as a GST credit

The amount of GST is not included in the calculation of a

deduction if an entity:

- is registered for GST, and

- Is entitled to the GST credit equal to the amount.


Common deductions

Interest on business loans

Wages to employees

Supreme Court library fees

Occupation-specific clothing

Annual Practising Certificate

Professional indemnity insurance

Advertising

Business premises


Expenses that you cannot claim

Admission fees

Club membership fees

Fines

Suspension from practice

Newspapers

Glasses and contact lenses

Driver's licence

Child care


Summary

Accounting rules

Tax invoices

Disbursements

Trust accounts

Hire purchase

Asset disposal

Insurance

Business deductions



Need more information?

Phone 13 28 66

Order a fax 13 28 60

Translating and interpreting service 13 14 50

Hearing or speech impairment 13 36 77

Obtaining copies of publications 1300 720 092

Reporting information about tax evasion 1800 060 062


Questions


Our commitment to you

The information in this presentation is current at March 2005.

In the taxpayers' charter we commit to giving you information and advice you can rely on.

If you try to follow the information contained in our written general advice and publications, and in doing so you make an

honest mistake, you won't be subject to a penalty. However, as well as the underpaid tax, we may ask you to pay a

general interest charge.

We make every effort to ensure that this information and advice is accurate. If you follow our advice, which subsequently

turns out to be incorrect, or our advice is misleading and you make a mistake as a result, you won't be subject to a

penalty or a general interest charge although you'll be required to pay any underpaid tax.

You are protected under GST law if you have acted on any GST information in this presentation. If you have relied on

GST advice in this Tax Office presentation and that advice has later changed, you will not have to pay any extra GST for

the period up to the date of the change. Similarly, you will not have to pay any penalties or interest.

If this information does not cover your circumstances, you can seek further information from our website at

www.ato.gov.au, or help from the Tax Office or a professional adviser. Since we regularly revise our presentations to take

account of any changes to the law, you should make sure this edition is the latest.

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