Being a business owner you get to do everything. Lucky you. You like to speak to customers, you like to speak to suppliers, you like to see how much money you are making, and amongst other things, you really like to get rid of all those transactions coming through in your bank feeds.
I recently had three business owners who were audited by the Australian Taxation Office in our local area of Bunbury. The audit took place over a few weeks. These business owners are confident in their products and services and why shouldn't they be, they have been operating for over four years and they were making a profit. Their concerns came about when they were requested to produce a valid tax invoice for GST they had claimed in their first year of business on their Business Activity Statements (BAS).
Each business had paid suppliers and claimed a GST credit on their BAS without any valid tax invoices. So, how did this happen you ask? Well, each had been setup on their chosen accounting software which happen to be MYOB and Xero. One was setup by an accounting firm in Queensland, and two by non-registered bookkeepers.
Each business looked at the bank feeds daily and coded them to the relevant codes. This all sounds great, but they did not have any valid tax invoices so even though they were registered for GST, they could not claim the GST. The person lodging the BAS for them simply used what information was in their MYOB and Xero software. Unfortunately, the person lodging the BAS never requested to see any valid tax invoices, nor did they explain what a valid tax invoice is or why it is so important.
So, STOP coding straight from your bank feeds and follow up on the valid tax invoices now. Below is from the ATO website:
When you need a tax invoice
You must have a tax invoice to claim a GST credit for purchases that cost more than A$82.50 (including GST).
Your supplier has 28 days to provide you with a tax invoice after you request one. Wait until you receive it before you claim the GST credit, even if this is in a later reporting period.
Tax invoice is incomplete
An invoice containing incorrect or incomplete information is not a valid tax invoice. You may be able to treat it as a tax invoice if it is missing information that can be obtained from other documents the supplier has given you. Alternatively, you can ask your supplier to replace it with a complete and correct tax invoice. The Commissioner also has the power to treat an incomplete document as a tax invoice.
When you don't receive a tax invoice
If your supplier does not respond to your request for a valid tax invoice within the 28 day period and you haven't been able to find the missing information from other documents, you can seek our permission to treat a document as a valid tax invoice. To request our permission, either:email us at GSTmail@ato.gov.auwrite to us atAustralian Taxation OfficePO Box 3524ALBURY NSW 2640
To claim a GST credit for purchases that cost A$82.50 or less (including GST), you should have one of the following:
a tax invoice
a cash register docket
If you can't get one of these, keep a record of the purchase, such as a diary entry with:
the name and ABN of the supplier
the date of purchase
a description of the items purchased
the amount paid.
See also:Issuing tax invoices
When you should not be charged GST
Under new law, GST generally applies to:
imported services and digital products
low value imported goods (from 1 July 2018).
You should not be charged GST on these sales if you are registered for GST. You must give the supplier your ABN and state that you are registered for GST.
The supplier is not required to provide tax invoices for these sales.
If the supplier has wrongly charged you GST on an imported service, digital product or a low value imported good you should seek a refund from the supplier.
Reverse charges rules
If you have not been charged GST on a purchase because you have provided the supplier with your ABN and a statement that you are registered for GST, then, in some circumstances, ‘reverse charge’ rules require you to pay GST on the relevant purchase through your BAS.
Broadly, under these reverse charge rules, you will need to pay GST on a purchase if you would not have been entitled to claim a full GST credit.
For more information, see Tax on retail sales of goods and services into Australia
How to work out a GST credit
If your tax invoice does not specify the amount of GST included in the price of your purchase by only stating that the price includes GST, you can work out the GST amount yourself by dividing the price by 11. The answer is the amount of GST credit you can claim (provided you use the item wholly for business purposes).
For purchases that you use both for business and private purposes, you can claim a GST credit for the portion you use for business purposes. For example, if 50% of your use of the purchased item is for business purposes, you can claim a credit of 50% of the GST you paid.
If you account on a cash basis and have not fully paid for a purchase, you can claim a GST credit only for the GST included in the amount you have paid. (For more information, refer to Choosing an accounting method).
When you have worked out your total GST credits, you can offset them against the amount of GST you are liable to pay to us. If your GST credits are greater than the amount you are liable to pay, you're entitled to a refund.
See also:Time limits on GST credits and refundsGST – completing your activity statementCorrecting GST errors
I hope this blog has been helpful.
BOOKKEEPERS BUNBURY TEAM