GST CLINIC: Cause I'm the Taxman'
- 21 June, 2000 12:24
The ATO's new Business Activity Statement has been available in draft form since November 1999, but the final version has recently been posted onto the ATO's tax reform Internet site (you can download samples from taxreform.ato.gov.au. Here are the ways you can fill in the form to make sure that you are not inadvertently calling attention to yourself with the ATO:1) Declare all your sales income. How often have you wondered why you've been offered a significant customer discount if you pay cash? Is it really because "cash is king" or because it's easier to make cash transactions just "disappear"?Thankfully, the days of pocketing cash sales are over with GST, and we can all enjoy a level playing field. Why? Because if you under-declare your cash sales, the total amount that you declare as GST collected is lower. When compared to the amount of GST claimed on purchases this reveals to the ATO that your gross margins are significantly lower than the rest of businesses in your industry.
No one can stay in business over time without achieving certain minimum GP (as any vigilant financial controller will confirm). Your apparently low GP is what could typically trigger an ATO audit, and all those stock items that came into the premises (including the ones which never seem to have left) come under the forensic accounting spotlight.
2) Ensure that you track all exports and GST-free sales. While there is no GST payable on these sales, it is essential that you track and declare them, since they are included in the total income figure that is recorded by the ATO. If you simply ignore these figures, you don't get prosecuted (after all, you have paid the right amount of GST), but you could get audited as a result. Audits are time-consuming and unproductive and so no one wants to invite one.
Retailers who have to deal with GST-free products must ensure that their point-of-sale system/cash register is able to accurately dissect taxable versus GST-free sales.
Also remember that, in an audit situation, you have to prove that the export goods left the country (for example, by producing the airway bill or international postage receipt for each individual sale). If you are unable to do so the ATO may deem that the sale included GST and insist that you pay over 1/11th of the selling price. In addition you may pay penalties for non-disclosure of GST and late payment of the amount due.
3) Ensure that you claim GST on capital purchases separately. The BAS requires that you show GST claimed on capital acquisitions separately from GST on other purchases. Again, the ATO wants to check your total stock purchases plus expenses against total sales to determine your gross margin. If you neglect to separate out capital purchases, your "other purchases" seem inflated and you once again risk being audited as a company achieving less than the industry norm for gross margin.
Make certain that your accounting system is able to code every General Ledger asset account with a separate default GST tax type, so that capital purchases are instantly identifiable. QuickBooks, Pastel, Sybiz and ACCPAC are examples of entry-level, mid-range and high-end accounting systems which have incorporated this feature many years ago, no doubt because of continual European demand for this feature. Ironically, it is often systems originally developed outside Australia which are able to ensure that GST on capital items is always tracked correctly.
4) Ensure that all adjustments are reported correctly. The GST BAS has separate boxes for adjustments, and these require the production of Adjustment Notes (previously credit notes) to substantiate these figures. Once again, if you include significantly large adjustments (like large rebates, or confidentials) in your sales or purchase figures, you could declare the wrong margin to the ATO. Since UK accounting systems are often designed to simply net off all the credits/adjustments from sales (which is the UK Customs VAT method), they may be unable to comply with Australian ATO requirements for adjustments.
However, Adjustment Notes which are issued just to correct errors (let's say you mistakenly add an extra zero onto that consulting invoice for your favourite client!) increase the overall Adjustments figure and could be viewed with suspicion by the ATO. The Adjustments boxes on the GST BAS deserve careful scrutiny when you decide what actually constitutes an adjustment. The ATO has given you carte blanche in this area since they state that you should only include amounts as Adjustments, if they have not already been accounted for as sales or purchases. Viewed the other way around, this means that you could net adjustments off against sales or purchases, if appropriate.
A recent ruling has clarified the treatment of early payment discounts, which previously would have required an Adjustment Note if over $55. The ATO has ruled that a document can act as both a Tax Invoice and an Adjustment Note if the required information for both forms is included on the single document.
This means that as long as the original Tax Invoice shows all the terms of the early payment discount being offered, it doubles as an Adjustment Note if the discount is in fact taken. Again, you could either net the discount off from sales, or show it as an Adjustment.
The ATO has yet to announce the frequency of GST audits (they simply state that you'll be audited "from time to time"). In the UK every company is audited once every five years. In Australia, you need to keep all GST-related records for five years. In other words, the ATO could ask you, in September 2005, to explain what makes up all the figures on your first quarterly BAS, due 21st October this year.
The recent article published in ARN containing a 20-Step Checklist suitable for checking any accounting system is available from Pastel Accounting Software - e-mail firstname.lastname@example.org or visit www.pastel.net.au.
"Kevin Lief is managing director of Pastel Accounting Software in Australia. He has seen GST/VAT implemented in South Africa, New Zealand, Canada and United Kingdom Reach him at email@example.com"