Demystifying Australian business activity statements (BAS)
If you're an Australian business generating revenue over $75,000, or a not-for-profit generating over $150,000, Business Activity Statements (BAS) should ring a bell.
The Australian Taxation Office requires these statements be filled out so businesses can report on and pay a number of tax liabilities on the one form at the same time.
Despite being a mandatory process for relevant businesses, Business Activity Statements aren't necessarily the most simple process. To help new and growing businesses unsure how to approach BAS, we've assembled all of the important information to get you back on track.
What's included in a BAS?
The BAS is made up of summaries of reportable earnings and spendings for your business.
This information will include all business earnings and spendings with:
- GST tax status
- GST free tax status
- Overseas incomes, spendings and wages
- Total PAYG withheld from wages
- PAYG instalments.
PAYG instalments on a BAS relate to the ATO looking for an annual tax estimate for a company and demanding a “prepayment” of this amount.
What specifically appears on a Business Activity Statement will depend entirely on your business. A BAS can include some or all of the following payments:
- Goods and services tax (GST)
- Pay as you go (PAYG) income tax instalment
- Pay as you go (PAYG) tax withheld
- Fringe benefits tax (FBT) instalment
- Luxury car tax (LCT)
- Wine equalisation tax (WET)
- Fuel tax credits
How these apply should be clear for your business.
For example: the wine equilisation tax would only apply to businesses making wine, importing wine, or selling wine wholesale in Australia.
How often do I need to lodge a BAS?
The tax office lists the following cycles for BAS reporting:
- Quarterly – if the GST turnover of your business is less than $20 million and it has not been specified that you must report monthly.
- Monthly – if your GST turnover is $20 million or more.
- Annually – if you are voluntarily registered for GST and your GST turnover is under $75,000 ($150,000 for not-for-profit bodies).
Most business will find they are required to lodge their BAS quarterly, but if you're unsure, the due date for lodging and paying is displayed on your BAS.
If you find the due date lands on a weekend or public holiday, don't stress - you have until the next business day to lodge and pay.
Businesses reporting once a quarter do so by the 28 October, 28 February, 28 April and 28 July. If you report quarterly, you have three options:
- Work out, report and pay GST quarterly
- Work out, report and pay GST quarterly and provide further information annually in an annual GST information report
- Pay a set GST instalment amount quarterly and report annually in an annual GST return.
Businesses turning over in excess of $20 million report by the 21st of each month.
Uh Oh - I'm late submitting my BAS
Every business owner is bound to mix up tax-related dates every now and then. If you have a good reason for being late with your BAS, you can ring the ATO and request an extension.
Keep in mind this should be done before the due date, and likely won't fly if you're requesting an extension every quarter.
If you find you need more time, your BAS agent can register you to have electronic returns done via an ATO portal to give you up to four weeks longer to submit your return. Alternatively, have your accountant submit it for you, as they're also afforded time extensions.
Not getting your BAS in by the due date is expensive - not only will you net a fine, but interest will be charged on overdue payments.
For this reason, making prior arrangements can be beneficial. Payment scheduling can be organised with the ATO, but if you find yourself struggling, it might be a good idea to discuss your short and long-term financial situation further with your accountant.
Business Activity Statements can be good for your business
Although they may be a chore to complete, Business Activity Statements are an excellent way of keeping an eye on your business finances.
Your BAS will require you to track your income and expenses in detail to be able to calculate your GST and other liabilities, so the insight it affords your business may mean that it's worth doing more than frequently than every quarter. That way, there won't be any surprises come BAS reporting time.
The difference between Cash and Accrual BAS Reporting
Generally, small businesses use cash BAS reporting. This method of reporting allows them to include reportable income that has already been paid to them as well as reportable expenses paid during the BAS reporting period.
This method allows for better visibility of your cashflow, as the money flowing through your business is reflected in your activity statement.
Businesses with a turnover of more than $2 million a year must move to Accrual BAS reporting. These businesses must include reportable income and spendings that have been recorded during the period, whether they have been paid or not.
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Common GST mistakes in BAS reports
The many fine details required in BAS reporting will inevitably mean mistakes are made. To prevent the ATO from breathing down your neck, we've listed a few common pitfalls so you can avoid them.
Accidentally ‘double dipping’ on GST
It's not uncommon for business owners to claim a full GST component in the first quarter that a purchase is made on things like vehicles or equipment.
An issue arises when business owners also record this expense in their regular monthly payments as a GST or as a Capital Expense. Because GST and CAP tax codes appear on their BAS Reporting sheet, this is effectively ‘double dipping’ on GST.
Incorrect tax codes in your chart of accounts
It's a good idea to ask your accountant to provide a chart of accounts or have your BAS agent to set up your tax codes before you begin using your online accounting software.
Claiming GST against all expenses
It's easy to forget that not all business-related expenses have a GST component. These expenses include:
- Google Adwords and Facebook ads
- Motor vehicle registrations
- Bank charges
- ASIC fees
- Paypal transaction fees
- Interest and director fees/drawings
Claiming GST against all sales
It's worth knowing the goods and services that don't have a GST component to avoid including them on your BAS.
Many food basics do not include a GST component, including:
Some services and products in the medical and health care areas also do not include GST. For these, it's worth researching those specific to your business to find out more.
Including wages and superannuation in G11 as a purchase
You must report wages in W1 on your BAS statement - they aren't expenses that qualify for G11, which is for non-capital purchases.
Note that superannuation is not required to be included as part of your gross wage in W1.
Forgetting to include all cash sales and purchases
Although it might seem like a good idea, discounting GST on cash payments can result in heavy penalties.
The ATO has sophisticated processes in place to cross-match data, so it's important to declare all cash payments on your annual Taxable Payments Report.
Claiming GST on personal purchases
Items related to private use, such as personal loans, director’s fees and items for personal consumption, are exempt from the GST credit collected on your BAS Statement.
Reporting capital item purchases with the incorrect tax code
This is a particularly easy mistake - 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.
If you're unsure, check with your accountant.
Not including capital sales in Total Sales (G1)
This includes the sale of motor vehicles, a trade-in or office equipment.
Claiming GST credits on purchases from suppliers not registered for GST
To avoid this pitfall, check your invoice to see if it has GST or if it is a tax invoice. If there is any potential for confusion, visit the ABN lookup page and search the supplier’s ABN number or look up their business name to double check.
Suppliers are required by law to provide you with an ABN when you purchase goods or services. In the event a supplier refuses to quote an ABN, it's a good idea to withhold 46.5 percent of the total payment owed. This is termed as being “No ABN withholding.”
It's important to note that suppliers are not required to give an ABN if the payment is less than $75.
Streamlining your Business Activity Statements
Having a streamlined set of processes is the key to avoid stressing around BAS lodgement time.
There are a few easy ways to save a whole lot of BAS-related time and stress. These include having:
- A well-developed BAS checklist
- Areliable accountant
- Accounting software
Although each of these on their own will help, having all of these will go a long way in helping you save time and money.
Make Business Activity Statements easy with accounting software
To avoid the pitfalls that an incorrectly formatted spreadsheet can result in, many business owners and startups look to accounting software for a no-fuss accounting solution.
Many find having correct numbers reliably is worth the small expense, and this small expense can go a long way to ensure you avoid larger surprise expenses from the ATO in the future.
When you consider the myriad of extra features that accounting software provides, it's easy to see why many business owners view it as a no-brainer solution.
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