CHAPTER 8 Business activity
statements and instalment
activity statements
Learning outcome
To understand the preparation of activity
statements for GST, PAYG withholding tax,
PAYG income tax, fringe benefits tax and other
taxes
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
8-1
KEY TERMS
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Australian Business Number (ABN)
Australian Taxation Office (ATO)
Business Activity Statement (BAS)
Fringe benefits tax (FBT)
Fuel tax credits (FCT)
GST-free sales
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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KEY TERMS cont.
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GST input taxed sales
Instalment Activity Statement (IAS)
Luxury car tax (LCT)
Pay-as-you-go income tax
Pay-as-you-go withholding tax
Tax invoice
Wine equalisation tax (WET)
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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The difference between BAS and IAS
The Business Activity Statement (BAS) is used for:
• businesses registered for GST
• GST monthly or quarterly
• PAYG income tax
• PAYG withholding tax
• fringe benefits tax
• wine equalisation tax
• luxury car tax
The Instalment Activity Statement (IAS) is used for all of the
above items, except GST
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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GST checklist for a business
A business with a turnover of $75 000 or more that
wishes to engage in the GST provisions must:
• register for GST
• separate sales into taxable, GST-free or input-taxed
items
• include the price of GST in its sales
• use properly prepared tax invoices
• account for GST on a ‘cash’ or a ‘non-cash’ (accrual
basis)
• report and pay GST using a BAS form
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Accounting for GST on a ‘cash’ or a
‘non-cash’ basis
Cash
Cash sales are reported for GST in the same reporting
period in which the business receives the actual payment
for the sale. GST input tax credits are claimed in the
period in which the business pays for them. The
conditions are that the business’s annual turnover is less
than $2 million and the business income tax is also
accounted for on a cash basis.
Non-cash
Usually the full GST is collected and is payable in the
period in which the invoice is issued, irrespective of the
date of payment of the account. For GST input, this can
be claimed in the reporting period in which the supplier
issues the invoice.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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GST revisited—A summary of GST on business
purchases and sales
GST sales
GST purchases
Any business that is
registered for GST can
claim input tax credits.
Examples are:
Taxable sales
Collection of GST
input tax credits
available where taxable
purchases apply
Examples:
Inventory purchases
Asset purchases
Advertising
Telephone
Insurance
Motor vehicle expenses
Examples:
Inventory sales
Asset sales
Commission revenue
Rent revenue
Sales of services
GST-free sales
No collection of GST
Input tax credits available
where taxable purchases
apply
Examples:
Council rates
Water rates
Most foods
Education fees
Medical and health exports
Religious and charities
Input taxed sales
No collection of GST.
No input tax credits
available
Examples:
Financial supplies
Lending costs
Buying shares
Selling shares
Residential rents
Bank fees
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Mixture of GST-free and GST-collected sales
The ATO gives an example where there is a mixture
between two groups of sales:
PLANT NURSERY –sells seedlings
GST collected
MARKET GARDENER –sells vegetables
GST-free
WHOLESALER
GST-free
RETAILER
GST-free
RESTAURANT
GST-free
CONSUMER
GST-free
RESTAURANT PATRON
GST collected
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Mixture of GST-free and GST-collected sales
cont.
There is GST on the nursery plants, but when converted to
vegetables by the market gardener the products become a
basic food item and therefore GST-free. The goods are
sold to the wholesaler, then to the retailer and finally to the
end consumer and remain GST-free.
The sale to the restaurant is also GST-free but GST needs
to be collected in the price of the meal because the
vegetables have been converted into a cooked item.
Source: Adapted from ATO publication ‘GST food guide’ (Australian Government)
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Reporting GST to the Australian
Taxation Office
• If a business turnover is $20 million or more GST must be
reported and paid monthly and it must be paid
electronically.
• If a business turnover is less than $20 million, GST must be
reported and paid quarterly, and an annual GST information
report must be lodged.
• If a business turnover is less than $2 million GST can be
reported by activity statements quarterly supported by an
annual GST return. Businesses must pay the GST
instalment pre-printed by the Taxation Office, which can be
varied if the business believes that circumstances have
changed during the financial year.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Pay-as-you-go (PAYG) withholding
obligations
• Businesses need to withhold amounts of tax from payments made
to employees on their payroll sheets and to directors
• There may also be deductions from amounts paid to contractors
and for labour hire depending upon the circumstances
• These deductions are called ‘withholding tax’ and these amounts
must be passed on the ATO
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 2011 McGraw-Hill Australia Pty Ltd
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PAYG withholding tax cont.
The employer must:
• register for PAYG withholding
• ascertain the tax status of workers
• calculate the amounts to be withheld
• report and pay the withheld amounts to the ATO
• supply payment summaries and lodge an annual return
after 30 June each year
In addition, tax must be withheld from other businesses
that do not quote their Australian Business Number on
their invoices or other documents
The owner’s drawings from the business are not subject
to a withholding tax
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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PAYG withholding tax cont.
Employees must:
• complete a tax file number (TFN) declaration, with the
original being sent to the ATO
• complete a withholding declaration, to be held by the
business, if they:
─ wish to claim tax offsets
─ increase the amount withheld by the business
─ advise changes in the tax-free threshold
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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How to report PAYG amounts
withheld
These are reported to the ATO on an activity statement
The amounts are payable:
• for a small business that withholds $25 000 or less per
year—quarterly
• for a medium-sized business withholding up to $1
million—monthly; or
• for a large business withholding amounts over $1
million per year, the amounts owed must be paid
electronically
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 2011 McGraw-Hill Australia Pty Ltd
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Payment summaries
• Within 14 days of the end of the financial year the
employer must supply to employees ‘payment
summaries’. These contain the total amount earned for
the year and the amounts of total tax withheld. These
used to be called ‘group certificates’.
• The original payment summary for each employee is
sent to the ATO and is used when individuals complete
their annual tax returns.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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PAYG income tax obligations of a
business
• Australia’s income tax system is based on the
principle of self assessment.
• The information is provided by the business and
the ATO has the power to request the business
records to verify the information supplied to it.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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PAYG income tax obligations of a
business cont.
• The ATO will calculate the taxable income for a
business using this formula:
Assessable income
less assessable deductions
= Taxable income
• The ATO will supply the relevant activity statement to
the business with the pre-calculated tax payable, which
can be paid in quarterly instalments. This amount may
be varied if circumstances change, but reasons must
be given.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Other taxable areas
Fringe benefits tax (FBT)
An employer may provide their employees with fringe
benefits.
The employer must be registered for FBT. FBT needs to
be lodged quarterly for any business for which the FBT
liability exceeds $2000 calculated for a year from 1 April
to the following 31 March.
If the employer is not required to pay quarterly then the
whole amount of FBT must be paid annually using an
Annual FBT return.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Other taxable areas cont.
Common fringe benefits include:
• low interest loans
• private use of a work car
• payment of parking fees
• health insurance costs
• school fees
• holiday expenses
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Wine equalisation tax (WET)
• WET is based on a tax of 29% of the wholesale
price of wine
• Manufacturers, wholesalers and importers collect
the tax and forward it to the ATO
• The Customs Department collects WET on
imported wine but, generally, retailers do not have
to pay the wine equalisation tax
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Luxury car tax (LCT)
• Cars with a GST included value in excess of a
threshold of $57 466 (the rate for the years 2009/10)
are subject to LCT
• The threshold rate changes each year
• Retailers, wholesalers or importers may have a
liability for LCT
• The rate is 33% for the amount above the threshold
figure
• Businesses need to be registered for FBT, WET and
LCT and activity statements are used to report and
pay the taxes
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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Fuel tax credits (FTC)
• Credits for fuel tax excise or duty (included in the price
of fuel) may be claimed for machinery, plant and
equipment and heavy vehicles used by a business.
The firm needs to register to be eligible to claim a fuel
tax credit.
• Aviation fuels and fuel for light vehicles on the road
are excluded from claiming LCT.
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 2011 McGraw-Hill Australia Pty Ltd
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Tax agents legislation
• The Tax Agents Act 2009 provides for registration of
tax agents and BAS agents.
• The Tax Agents Services Regulations 2009 list the
qualifications and the relevant experience
requirements for registration.
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 2011 McGraw-Hill Australia Pty Ltd
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Registration of a BAS agent
• Only individuals, partnerships or a company providing
BAS services for a fee need to register as agents.
• Persons who provide BAS services for their employer do
not need to register. These persons are providing an
employment service for a salary or a wage and are not
supplying a BAS service.
• Registration can be made to the Tax Agents Board and
will cover a period of at least three years. A registered
person may provide a BAS service.
• There are detailed requirements for registration, including
those regulating the qualifications and the relevant
business experience required.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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BAS services
BAS services include:
• preparing and lodging approved activity statements
about a taxpayer’s obligations and entitlements under
a BAS provision
• advising a taxpayer about a BAS provision
• handling client queries relating to a tax provision with
the taxation commissioner on behalf of a taxpayer
BAS provisions
These are the taxes mentioned in this Chapter:
GST, PAYG withholding tax, PAYG income tax, fringe
benefits tax, etc.
PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis
 2011 McGraw-Hill Australia Pty Ltd
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