gst intermediate presented by: australian taxation office segmentaudiencedate legal practitioners...
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GST INTERMEDIATE www.ato.gov.au
Presented by:Australian Taxation Office
SEGMENT AUDIENCE DATE
LEGAL PRACTITIONERS
MARCH 2005PROFESSIONAL
GST intermediate
Norman Kochannek
GST INTERMEDIATE www.ato.gov.au
Overview
Accounting rules
Tax invoices
Disbursements
Trust accounts
Hire purchase
Asset disposal
Insurance
Business deductions
Tax Office’s legal database
GST INTERMEDIATE www.ato.gov.au
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.
GST INTERMEDIATE www.ato.gov.au
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
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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
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Cash basis by law
Held to be most appropriate for sole practitioners
accounting for income tax purposes*
(* FCT v Firstenberg (1976) 6 ATR 297)
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invoice for less than $1,000
invoice for $1,000 or more
Sample 2
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Accounting - tax invoices
Other types of tax invoices:
contracts
written agreements
reimbursements.
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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
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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
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Trust accounts
Operation of trust account
Operation of general business account
Normal bank account
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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.
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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.
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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.
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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).
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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?
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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
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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
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Component of payout
Insurance fees
Settlement of clients costs
Loss of income stream
Pain & suffering
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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
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Insurer Insured
$
120 GST $120 ITC
Premium$1330
$
$8000
No DA$800 ITC
Builder
$8800
$800 GST
Cash settlement – taxable goods100% entitlement to ITC
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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
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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.
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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.
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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
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Expenses that you cannot claim
Admission fees
Club membership fees
Fines
Suspension from practice
Newspapers
Glasses and contact lenses
Driver's licence
Child care
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Summary
Accounting rules
Tax invoices
Disbursements
Trust accounts
Hire purchase
Asset disposal
Insurance
Business deductions
Tax Office’s legal database
GST INTERMEDIATE www.ato.gov.au
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
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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.