Most businesses have underestimated the complexity of the BAS. To illustrate this complexity, the Australian Tax Office (ATO) instructions, which accompanied the draft BAS, covered nearly 200 pages. There has also been a failure, in general, of businesses developing the appropriate means of producing this return. This reaction is not surprising as the final format has yet to be finalised and significant changes to the draft format were announced as late as the 30th of March.
Pay-as-you-go (PAYG) forms a major part of the Federal Govern-ment's tax reform package. The purpose of the new PAYG system is to align the payment dates for the various taxes that business taxpayers pay; allow business taxpayers to pay one tax payment per quarter; and combine the existing withholding tax systems into one single system.
The BAS is the key by which the PAYG is achieved. The BAS is the form that will be used ultimately to combine all payments to the ATO. The BAS relates not just to the details of GST transactions but a range of tax payments.
For GST-related transactions, not only must a business state the amount of GST imposed on services rendered but also categorise its sales into GST-taxable, GST-free, and input-taxed services.
In regard to GST paid on supplies (or acquisitions, as referred to by the legislation), there are issues if the business has a mixture of these three sales categories. In these cases, the GST paid must be apportioned to the ATO's satisfaction. Adjustments made to previous periods' transactions must be shown separately.
Running Balance Accounts are designed to bring to account any miscellaneous debts, such as interest for late payments, to the ATO.
When considering PAYG Withho-lding Systems, there are 24 different withholding events. The major ones include individuals currently covered by the PAYE system; payments of dividends, interest or royalties to non-residents; the collection of mining withholding tax; payments under labour hire arrangements; and where no ABN (Australian Business No.) was shown.
A PAYG instalment system will apply to individuals, companies and other entities that are required to pay income tax. It will ensure that taxpayers pay either income tax instalments that reflect their current trading or investment conditions, or quarterly instalments based on the prior year's income tax, together with an adjustment to reflect price rises.
Where an employer is liable for fringe benefit tax (FBT) of $3000 or more in a year, FBT begins to be paid in instalments. Instead of the present three instalments, they will be incorporated into the BAS and paid quarterly.
There are a number of major issues that businesses face in producing the BAS. The first major issue relates to the numbers of sources, where the information must be extracted, in order to produce the BAS. The data does not solely come from the General Ledger. Most financial package systems produce reports solely relating to GST. GST can by extracted from the General Ledger if the chart of accounts is constructed correctly. However, where apportionment or Reduced Input Tax Credits (RITC) applies, predetermined formulae must be used.
Some information comes from the ATO and is downloaded each month. PAYG Instalments Systems obtain data from the Payroll system, General Ledger and ATO. PAYG Withholding Systems should be able to come straight from the General Ledger. The FBT payments are the combination of Payroll, General Ledger and ATO data.
The significance of BASs on e-business is that the ATO is encouraging organisations required to submit them to do so in electronic form. Those entities with an annual turnover in excess of $20 million are required to lodge a BAS electronically. Entities with turnovers of less than $20 million have a choice of lodging paper or electronic returns. Although the ATO will provide software for electronic lodgement and lodgement through the Internet, businesses must populate these files. Because of the issues outlined above, this will involve additional software requirements and extra staff training. However, it does provide them with enormous opportunities to save time and costs.
Bryan Payne is project manager Tax reform at Unisys Australia. Reach him at email@example.com