Nowadays, keeping your books in order has never been easier when you use an online accounting software. Small business owners get to enjoy the flexibility of having their accounts online, and benefit from the time and money saved. With online accounting, preparing your own *BAS (business activity statement) is also easier.
However, the ATO has identified a number of common mistakes found in the BAS reporting form. I personally would like to highlight the top 10 mistakes that I see regularly.
1. Double Dipping on GST
Hire Purchase/Lease of Vehicle of Plant or Equipment is an area that I see many business owners making a mistake when doing the books. Initially, the client (or their accountant) will claim the full GST component in the first quarter that they purchase their vehicle.
The confusion sets in when they record their regular monthly payments. The client will either continue to code it as a GST or as a Capital expense. Both the tax codes GST and CAP will appear on their BAS Reporting sheet, effectively causing them to “double dip” on the GST.
Always check your purchase invoice and BAS Records to ensure you code your monthly repayments accurately.
2. Incorrect tax codes in your chart of accounts
I would advise you to ask your accountant to provide a default chart of accounts or ask a BAS agent to set up your tax codes BEFORE you begin using your online accounting software.
3. Claiming GST against all expenses
There are expenses that do not have a GST component. They include:
- Motor vehicle registrations
- Bank charges
- ASIC fees
- Paypal transaction fees
- Google Adwords
- Interest and director fees / drawings
4. Claiming GST against all sales
Some services and products in the medical and health care areas also do not include GST. Basic food for human consumption do not include GST.
5. Including wages and superannuation in G11 as a purchase
You are to report wages in W1 on your BAS statement. They are not an expense to be included in G11, which is for non-capital purchases. Superannuation is not required to be included as part of your gross wage in W1.
6. Forgetting to include all cash sales and purchases
You can get into a lot of trouble when using the great Aussie practice of discounting the GST if paid by cash. The ATO has a sophisticated process of cross matching data. So make sure you declare all cash payments. On the flipside, do not throw away genuine tax deductions and GST credits into the bin.
7. Claiming on GST for private purchases
Items like personal loans, director’s fees and any other purchase for private consumption cannot have the GST credit collected on your BAS Statement.
8. Reporting purchases of capital items with the wrong tax code
If you purchase a business asset costing more than $1000, you need to report these in G10 under capital purchases in the BAS and not G11. Check with your accountant when in doubt.
9. Not including capital sales in G1 (Total Sales)
This includes the sale of motor vehicles, a trade in or office equipment.
10. Claiming GST credits on purchases where the supplier is not registered for GST
Check the source invoice to see if it has GST or if it is a tax invoice. When in doubt, go to the ABN lookup page and type in their ABN number or look up their business name to check.
Suppliers are required by law to provide you with an ABN when you purchase goods or services. If a supplier refuses to quote an ABN, you may need to withhold an amount of payment for that supply called “No ABN withholding”.
This amount is 46.5% of the total payment owed unless the following is provided:
1. An invoice or some other document is supplied with an ABN quoted
2. The ABN of the supplier’s agent is quoted
3. The supplier is not entitled to an ABN or required to as the payment is less than $75
For more details, check the ATO’s website on this.
As a small business owner (you might also want to read basic tax explained for start up small businesses), it’s important to develop good record keeping habits and avoid unnecessary mistakes. Ensure you take time to stay up to date by reading the bulletin from the ATO when it comes with your quarterly BAS, instead of throwing it straight into the bin. The ATO also hosts free webinars from time to time.
If you find all this too time consuming or too difficult, the best way to ensure that you prepare your BAS correctly would be to engage the services of a qualified BAS or Tax Agent.
*According to the ATO, the BAS is used to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult your tax agent, BAS agent or accountant as each small business’ circumstance will vary.