How to Book a Company Car in Xero

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How to book a company car in Xero? Here is how you do it.

Book a company car in Xero

To book a company car in Xero is complex – there are a lot of moving parts. You have the split between principal and interest. Then depreciation or the instant asset write off. GST. The car limit. FBT. And last but not least a potential Div 7A issue. That is a lot. But let’s go through it step by step.

Acquisition

Let’s use an example. On 14 April 2020 you bought a car for $80,000 – a so-called ‘luxury car’ – and the dealer invoice says the following:

NetGSTGross
Vehicle Price69,698.476,969.84776,668.32
Transfer Fee34.00034.00
LCT (Luxury Car Tax)342.680342.68
Stamp Duty2,955.0002,955.00
73,030.156,969.8580,000.00
Less Deposit(2,000.00)
Less Finance Liability(78,000.00)
Due0.00

You book this purchase in Xero in 9 simple steps.

Step 1 – Raise a Bill 

You start with raising a bill if the car is financed. If you pay for the car, you have a choice – bill or money spent.

DR Fixed Asset 1GST on Expenses69,698.47
DR Fixed Asset 1GST Free Expenses34.00
DR Fixed Asset 1GST Free Expenses342.68
DR Fixed Asset 1GST Free Expenses2,955.00
DR GSTSystem generated6,969.85
CR Car Finance LiabilitySystem generated – BAS Excluded(80,000)

So the car shows up in your balance sheet with $73,030.15.

Step 2 – Reconcile Loan Repayments 

Every time there is a loan repayment, you need to split the payment between principal and interest as listed in the finance documents.

DR Car Finance LiabilityBAS Excluded1,000
DR Interest ExpenseBAS Excluded1,00
CR BankSystem Generated(1,100)

If you paid for the car outright, then you can skip this step. There is no liability to repay.

Step 3 – Determine Car Limit Excess

If the purchase price of your car is below the car limit in the year of purchase, you can skip this step. If it isn’t, you claimed too much GST in Step 1. So now you adjust this.

The car limits for 2019/20 and 2020/21 are as follows (for all cars, whether fuel efficient or not):

YearNetGSTGross
2019/2052,346.365,234.6457,581.00
2020/2153,760.005,376.0059,136.oo

This is the maximum GST and depreciation you can claim. No need to pro rata for having bought the car sometime during the year. 

Step 4 – Adjust GST

So now you adjust the GST to these amounts. Here is the booking.

DR Fixed Asset 1BAS Excluded19,087.32
CR Fixed Asset 1GST on Expenses(17,352.11)
CR GSTSystem generated(1,735.21)

The GST of $1,735.21 you no longer claim increases the cost of the car from $73,030.15 to $74,765.36.

Step 5 – Instant Asset Write Off 

Thanks to the instant asset write off ($150,000 threshold until 30 June 2021), you can claim the car in one go. But you only get a tax deduction up to the car limit.

DR Instant Asset Write Off ExpenseBAS Excluded52,346.36
DR Non Deductible ExpensesBAS Excluded22,419.00
CR Accumulated Depreciation Asset 1BAS Excluded(74,765.36)

You can book the GST adjustment through a manual journal – as done above – or through the depreciation worksheet in Xero.

Step 6 – Determine FBT Days

In the year of purchase (or sale) you don’t hold the car for the full 365 days. Open the ATO day calculator here and calculate the days from the date of purchase to 31 March. The FBT year goes from 1 April to 31 March.

In this example you bought the car on 14 April 2020. So you calculate the FBT days from 14 April 2020 to 31 March 2021, which are 352 days.

Step 7 – Calculate FBT

Any company car takes you into FBT territory. FBT stands for Fringe Benefit Tax.

Providing you or any employee with a car constitutes a car benefit covered by Division 2 FBT Assessment Act, giving rise to FBT. 

To work out your FBT position, you choose between the statutory formula method and the operating cost method. The later requires a log book.

Which one is better depends on how much you REALLY use the car for business. If less than 80%, use the statutory formula method which works like this (base value excludes registration or stamp duty):

Taxable Value = Base Value (cost + delivery + GST) x 20% x Available Days/365 – Employee Contribution

Not relevant in the year of purchase or the subsequent 3 years, but once you owned the car for at least 4 years on 1 April, you can reduce the base value by 1/3 (33.33%).

NetGSTGross
Vehicle Price69,698.476,969.84776,668.32
Transfer Fee34.00034.00
TOTAL Base Value69,732.476,969.8576,702.32
x 20%15,340.46
x 352/365 days14,792.81

So you take 20% of the base value and then pro rata the amount. That is the employee contribution to reduce your FBT to nil.

Step 8 – Book Employee Contribution

You have a choice. You can lodge an FBT return and then pay the FBT. Or you recognise an employee contribution for the amount and voila: No FBT to pay and no FBT return to lodge. Most sole sharesholders do the later.

The employee contribution is subject to GST. In the example it would look like this.

DRShareholder LoanBAS Excluded14,792.81
CROther IncomeGST on Income(13,448.00)
CRGSTSystem Generated(1,344.81)

If you set amounts to ‘GST inclusive’ in Xero, you don’t need to calculate the GST. The software does it for you.

Step 9 – Div 7A

You just have one last potential problem to deal with if you booked the employee contribution in Step 8. And that is Div 7A. If the company has a receivable to the shareholder at year end, you have a Div 7A problem.

So create a Div 7A agreement or reduce the distributable suplus to nil.

Summary

And that’s it. This is how you book a company car in Xero. In future years, you still have to deal with loan repayments and FBT employee contributions, but the rest is done and dusted.

Does this make sense? Please give me a call if you get stuck.

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Car Tax Deduction

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Your business needs a car, so it got one. The big question is tax. How do you claim your car tax deduction?

Car Tax Deduction

Working out your car tax deduction can be confusing. Here are 10 steps to get the highest tax deduction possible.

1 – Put Travel Aside

Everything that follows here is about car expenses (motor vehicle expenses to be precise), but not travel. The distinction between car and travel is important, because different rules apply. 

Motor vehicle expenses are fuel, oil, repairs, servicing, car wash, insurance, registration, interest and depreciation (or lease payments) and so on.

Travel expenses are road tolls, parking, car ferry or paying somebody for getting a lift and so on. If you incur these for a business trip, you get the full tax deduction.

So put travel expenses aside for now and focus on car expenses.

2 – Ownership

Whoever owns the car, gets the car tax deduction. 

If your employee owns the car, you get no tax deduction for the car itself. But you get a tax deduction for any car allowance you pay. Treat the allowance like any other wage payment. After that you are done. 

If you own the car, you get the tax deduction.

3 – Methods

Now it gets confusing. You need to choose a method to work things out. The problem is that there are four methods. Four!

Cents-per-km Method: You claim 72 cents for each business km – up to 5,000 km. That is your tax deduction.

Logbook Method: You log every trip over 12 weeks and work out your business percentage, which you then apply to your actual cost. That is your tax deduction. Your logbook is valid for 5 years.

Statutory Formula Method: You apply 20% to your car’s base value, possibly pro rata. That is your FBT taxable value.

Operating Cost Method: You keep a log book for 12 weeks and work out your private percentage, which you then apply to your actual cost. That is your FBT taxable value.

But not all of these four methods apply to you at once. 

4 – Tax Deduction

Which tax deduction is available to you depends on your business structure and type of motor vehicle.

Business Structure

If you are a sole trader or partnership, you can choose between the cents-per-km and the logbook method to determine your tax deduction.

If you are a company or trust, you get a full deduction for all motor vehicle expenses. Whatever you pay, you get to tax deduct. But….then FBT picks up any private portion of those costs. 

And to calculate this FBT value, you either use the statutory formula method or the operating cost method.

Type of Motor Vehicle

Everything we talk about here only applies to cars. Cars is anything designed to carry a load of less than one tonne and less than nine passengers.

Anything larger than this usually gets a full tax deduction and no FBT.

5 – Best Method

How do you work out which one will give you the highest tax deduction? The answer depends on your actual costs and private use.

Actual Costs

The cents-per-km and statutory formula methods don’t take your actual running costs into account. But the logbook and operating cost methods do.

So if your running costs are particularly high – high kms, fuel inefficiencies, a lot of repairs, expensive maintenance etc – then go for the logbook /operating cost method. If they are low, go for the cents per km / statutory formula.

The purchase price only matters if your car is below the car limit.

Private Use

The statutory formula method is the only method that ignores your actual private use and just assumes a fixed percentage. So if your private use is high – rule-of-thumb over 20% – go for the statutory formula method in a company or trust. If your private use is low, go for the other methods.

6 – Receipts

For the cents-per-km method you don’t need receipts. Just a reasonable explanation how you calculated your number of business kms.

For the logbook method you don’t need receipts for fuel and oil if you can show how you estimated those costs, but you need receipts for all other costs.

As a company or trust you need receipts for all motor vehicle expenses.

7 – Instant Asset Write Off

The instant asset write off rules give you a full tax deduction in the year of purchase (adjusted to your business % if a sole trader or parternship), as long as the purchase price is below the threshold.

This threshold is currently $150k until 30 June 2021. 

8 – Car Limit

You can only claim a car tax deduction and GST up to the car limit. The car limit for 2020/21 is $59,136 including GST, so $53,760 plus GST of $5,376.

For the cents-per-km method the car limit doesn’t affect you.

In all other cases it does. You can only claim depreciation (or the instant asset write-off) and GST up to the car limit, reduced by any private % for sole traders and partners. 

9 – Employee Contributions

This one only applies to companies and trusts. If the employee reimburses the company or trust for the taxable value they received, then the FBT is nil. If they don’t, then the company or trust has to lodge an FBT return and pay the FBT.

So most sole directors and shareholders of family companies pay the company the taxable value to avoid having to lodge an FBT return. There is usually no cash payment, but just a debit against shareholder loan.

10 – Div 7A

Booking the employee contribution against shareholder loan in Step 9 (as a company or trust) might give you a Div 7A problem, if you owe the company or trust at the end of the financial year.

If you (or anybody associated with you) owes the company or trust at year end, Div 7A wants to treat that debt as an unfranked dividend unless you have a Div 7A agreement.

So get a Div 7A agreement or reduce the distributable surplus to nil and voila: Your Div 7A problem is sorted. But for this one ask an accountant to help you.

Summary

So these are 10 steps to claim a deduction for your car. Just go through these step by step. And give me a call if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

paying employee accommodation

Paying Employee Accommodation

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You want to expand into another state and so one of your managers moves to the new location. To sweeten the deal, you start paying employee accommodation. You pay their rent. Sounds straight forward, doesn’t it?

Paying Employee Accommodation

The problem is that the tax status of these rent payments might take a little time to sort out. Paying employee accommodation, you have five options.

Option 1

Your employee rents the house and you compensate them. Either by reimbursing them or increasing their salary or whatever you call this extra payment.

The bottom line is that your employee can’t tax deduct the rent since a private expense. But pays tax on the extra cash you pay them to cover the rent. You on the other hand get to tax deduct everything you pay.

Option 2

You rent the house and your employee pays nothing extra.

Now you are in FBT territory. FBT stands for Fringe Benefit Tax. The rent payment constitutes a housing benefit covered by Division 6 FBT Assessment Act. And so you pay FBT on it.

You get a tax deduction for the full rent as well as the FBT you pay on the rent. Your employee’s tax return is unaffected.

You calculate the FBT as: Taxable value (less employee contribution) x 1.8868 x 47%

So let’s say the annual rent is $10k – no GST since residential rent. In that case you would pay $8,867.96 FBT ($10k x 1.8868 x 0.47 = $8,867.96).

Option 3

You rent the house but your employee reimburses you for the rent. Your FBT is nil: ($10k less $10k) x 1.8868 x 0.47 = nil. Your employee’s tax return is unaffected apart from additional tax on any potential wage increase.

Option 4

This one often gives you the best outcome. You use the temporary accommodation exemption.

You rent the house without any employee contribution. But you keep the arrangement limited to 4 or 6 months while your employee actively looks for permanent accommodation. In that case no FBT to pay and you still get the full tax deduction.

This exemption is usually limited to 4 months but can be extended with an employee declaration to 6 months or even 12 months.

Option 5

This one only applies if your employee keeps their old place and starts living away from home. In that case some or all of the rent and food you cover while away is FBT free as a living-away-from-home allowance for up to 12 months.

Does this make sense? Just give me a call if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

IRS Streamlined Procedures

Late 1040 While in Australia

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So you you got a late 1040 while in Australia?

Late 1040 While in Australia

You are not alone. Happens to many. And often it is not just the 1040, but the FBAR as well. 

The bad news is that this can cost you a lot of money if you don’t act. Think US$10,000 per FBAR you didn’t file.

The good news is that there is an IRS amnesty to get you out of this penalty-free. It’s called the IRS ‘Streamlined Procedures’. You still need to pay the actual tax plus interest, but at least the huge IRS penalties are off the table.

To qualify you show that your failure to file was not willful, meaning you didn’t do it with intention. You explain your personal and financial background and how it happened. We can guide you through this process.

The IRS Streamlined Procedures are only for individual taxpayers. Companies and partnerships are excluded. 

Nobody knows how long this amnesty will last. So use it while you can. Just call us if your US tax is troubling you. We deal with late filing issues all the time.

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

IRS amnesty programs for us citizens in Australia

IRS Amnesty Programs For US Citizens in Australia

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IRS amnesty programs for US citizens in Australia because it is so easy to forget. You are having a great time in Australia – maybe you lived here most of your life or maybe you arrived a short while ago – either way it is easy to forget that your US tax obligations didn’t stop when you became an Australian resident.

IRS Amnesty Programs For US Citizens in Australia

And so it is easy to fall behind with your US filing. There are hefty fines when you do, but luckily all is not lost. The IRS has a number of amnesty programs that should get you out of trouble relatively scot-free. Here are five of these. The first three are general amnesties. The last two are form specific amnesties.

1 – IRS Streamlined Procedures

With this one you can come clean and avoid penalties if you file tax returns for the past 3 years and FBARs for the past 6 years. To qualify, you must file Form 14653 showing that your previous non-compliance was non-willful. That is the key word: Non-Willful.

You still pay interest on the outstanding tax but at least you avoid most of the penalties.

2 – Voluntary Disclosure Program

This one will help you if you are nervous about something. You didn’t think it was important and so you didn’t include it in your tax return, but now you are awake at night, worrying that maybe it is bigger than you thought. So this one will make sure that the IRS doesn’t slam you as ‘willful’ – there is the word again – and aren’t hit with criminal penalties.

3 – Relief Procedures for Former Citizens

This one is for accidental Americans. Let’s say you were born in Australia and one of your parents had a US passport at the time and so you ended up with US citizenship ‘by accident’. And now you want to renounce your US citizenship but first want to close all your IRS filing obligations. If this is you, then this relief will get you there.

There is just one catch. This one only applies if your total tax liablity was US$25,000 or less for the past 5 years.

4 – Delinquent FBAR Submission Procedures (“DFSP”)

If you have submitted your tax returns on time but forgot your FBARs, then this one is for you. You file the missing FBARs with a brief statement explaining why you are late.

As long as the IRS has not yet contacted you regarding the missing FBARs and as long as you are not under a civil or criminal investigation by the IRS, this amnesty will allow you to file the FBARs for up to 6 years without any penalties.

5 – Delinquent International Information Return Submission Procedures (“DIIRSP”)

This one is for you if you just forgot to file certain information about your international affairs. For example Form 5471 about your Pty Ltd in Australia (‘interest in foreign corporations’) or Form 3520 about your Australian family trust (‘transactions with foreign trusts’) or Form 8938 when your your Australian shares, units and options (‘foreign financial assets’) exceed certain thresholds.

If you have a ‘reasonable cause’ for not filing these on time and the IRS hasn’t contacted you yet asking where they are and if you are not under civil or criminal investigation by the IRS , then you can use this amnesty to file these forms without any penalties, explaining your reasonable cause.

So if you are late, don’t despair. There is almost always a solution. Just contact us. We take care of your Australian and US taxes together with our sister company in the US.

Imagine no longer having your US tax weighing on your shoulders.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

IRS Streamlined Procedures

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The IRS streamlined procedures allow you to come clean penalty-free.

IRS Streamlined Procedures

If you forgot to file FBARs and US tax returns for quite a while, the IRS Streamlined Procedures are for you. All you need to show is that your failure to file was not willful, meaning you didn’t do it with intention.

The IRS Streamlined Procedures are the most popular and generous of IRS amnesties. And here is why.

Penalties

If you live in Australia and anywhere else in the world outside the US, this amnesty wipes out all your penalties. And there are quite a few of those.

There are – among others – penalties for failure to file (5%) or pay (0.5%) and most significant the $10,000 penalty for each FBAR you didn’t file. 

And these are just the three most common ones.

Then there is also an additional 20% penalty if your income is substantially understated. A civil penalty of $10,000 per year per entity when you fail to file Form 5471, Form 8865 and/or Form 8858. Not to mention criminal penalties when the IRS finds you to have willfully neglected your filing obligations.

But all this is off the table when you apply for the IRS Streamlined Procedures.

What You Still Pay

This amnesty wipes out all penalties, but you still have to pay the actual taxes you owe plus any interest on these. 

Eligibility

To qualify you need to file tax and information returns for the past three years, FBARs for the past six years plus your Non-Willful Certification (Form 14653).

The IRS Streamlined Procedures are only for individual taxpayers. Companies and partnerships are excluded. 

There are different more stringent rules for taxpayers living in the US, but since you live in Australia, these won’t apply to you. 

Non-Willful Certification

In your non-willful certification in Form 14653 you explain how you unintentially got into this mess and that your conduct was non-willful. So you explain your personal and financial background and explain how it happened.

You also need to explain the source of all foreign funds and assets – inheritance, bank account while living in Australia etc – and what you did with them – investment decisions, withdrawals to cover cost of living etc. List the name and address of your tax agent and anybody else who helped you with your financial affairs.

Nobody knows how long this amnesty will last. So use it while you can. Just call us if your US tax is troubling you. We deal with late filing issues all the time together with our sister agent in the US.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Jobkeeper Payment Cycles

Jobkeeper Payment Cycles

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Jobkeeper runs over 26 fortnights from 30 March 2020 to 28 March 2021. That is 26 Jobkeeper payment cycles. Here are the relevant dates.

Jobkeeper Payment Cycles

The first round of Jobkeeper covers two quarters: June and September 2020. Its modified extension covers two more quarters: December 2020 and March 2021.

Jobkeeper 1.0

Jobkeeper 1.0 started on 30 March 2020 and ran over 13 fortnightly payment cycles to 27 September 2020, paying $1,500 per fortnight per eligible employee.

1 – 30 March to 12 April 2020

2 – 13 April to 26 April 2020

3 – 27 April to 10 May 2020

4 – 11 May to 24 May 2020

5 – 25 May to 7 June 2020

6 – 8 June to 21 June 2020

7 – 22 June to 5 July 2020

8 – 6 July to 19 July 2020

9 – 20 July to 2 August 2020

10 – 3 August to 16 August 2020

11 – 17 August to 30 August 2020

12 – 31 August to 13 September 2020

13 – 14 September to 27 September 2020

So all up you should have received 13 payments of $1,500 per employee, so all up $19,500 per eligible employee.

Jobkeeper 2.0

Jobkeeper 2.0 started on 28 September 2020 and runs until 28 March 2021, but rates change. To be eligible as an employer from 28 September onwards you must have had an actual turnover drop of at least 30% in the relevant quarter. So no more projected turnovers. It is all based on actual turnovers now.

December Quarter

From 28 September 2020 to 3 January 2021 Jobkeeper has dropped to $1,200 per fortnight per eligible full-time employee and $750 per part-time employee.

14 – 28 September 2020 to 11 October 2020

15 – 12 October 2020 to 25 October 2020

16 – 26 October 2020 to 8 November 2020

17 – 9 November 2020 to 22 November 2020

18 – 23 November 2020 to 6 December 2020

19 – 7 December 2020 to 20 December 2020

20 – 21 December 2020 to 3 January 2021

March Quarter

From 4 January to 28 March 2021 Jobkeeper drops down to $1,000 and $650 per full-time and part-time employee respectively.

21 – 4 January to 17 January 2021

22 – 18 January to 31 January 2021

23 – 1 February to 14 February 2021

24 – 15 February to 28 February 2021

25 – 1 March to 14 March 2021

26 – 15 March to 28 March 2021

So these are the 26 Jobkeeper payment cycles.

 

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Take Cash Out Of Company

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

How To Take Cash Out of Your Company

Take Cash Out Of Your Company

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How to take cash out of your company without getting hit with a massive tax bill?

How To Take Cash Out of Your Company

Being a sole trader or partnership, one thing is really simple: taking cash out. No strings attached. Your business bank account is all yours. As a company, it it isn’t. 

Sole Trader and Partnership

As a sole trader or partnership, your business and you are one. Your business is not a separate legal entity, but part of you. So your business cash is your cash. 

How much you take doesn’t affect your tax position. You already paid tax on the business profits at your marginal tax rate.

Company

But all this changes in a company. Now you and your business are no longer one, but two. You are a legal entity. And your company is another. The company’s cash is no longer your cash.

So how do you take money out of your company? There are 5 ways and just those 5 – there is no other way.

1 – Wages

The company pays you a wage. Any PAYG withholding you receive back as a tax offset when you do your individual tax return.

Wages are included in your assessable income. So you pay tax on any wages you receive.

2 – Dividends

The company declares and pays you a dividend, hopefully with franking credits attached. Franking credits give you a refundable tax offset and hence are like cash. They are a refund of the tax the company already paid.

Dividends are included in your assessable income. So you pay tax on any dividends you receive, but with a tax offset for any franking credits.

3 – Shareholder Loan

You just take money out of the company and book it against shareholder or director loan. Or you pay private expenses from your company’s bank account. Nobody says that you can’t do that. You can.

But the crux is that unless you pay this back by the time your tax return is due, this loan will be treated as a dividend. So it gets included in your taxable income and you pay tax on it. Unless….you make it a Div 7A loan.

4 – Div 7A Loan

This is a common way to take money out of a company – for up to 7 or 15 years – without it hitting your individual tax return as income. You need a formal loan agreement and minimum yearly repayments of interest and principal.

But a Div 7A loan is only a temporary solution. In the end you have to pay it all back. And then your money is back in the company – looking for a new way out.

5 – Capital Distribution

Amounts sitting in your capital profits reserve, for example pre-CGT capital gains, are distributed as capital upon liquidation of your company.

Capital distributions receive generous tax concessions (50% CGT discount, small business CGT concessions), so you pay a lot less tax than if you had received this money as wages or dividends.

So that’s all you have. Those 5 ways. Does all this make sense? Just give me a call, if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Instalment Activity Statement

Instalment Activity Statement

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IAS stands for Instalment Activity Statement. Think of it as a gap filler when you don’t have to lodge a BAS for a certain period.

Instalment Activity Statement

The Instalment Activity Statement (IAS) covers PAYG instalments, PAYG withholding and ABN withholding. These three – nothing else. So no GST.

Your IAS comes in, when a particular period is not covered by your BAS. For example, when you report PAYG W on a monthly basis but your GST on a quarterly basis.

PAYG Instalments

The ATO will tell you whether, when and how much you need to pay in PAYG instalments on your so-called instalment income.

Your instalment income includes dividends, interest, profits you made as a sole trader or through a partnership and other income that is not subject to any other withholding, but excluding capital gains. 

PAYG Withholding

For PAYG withholding you are either a small, medium or large withholder depending on your PAYG withholding. 

As a small withholder (less than $25,000 of PAYG W) you report and pay quarterly – through your BAS if you report GST quarterly, otherwise your IAS.

As a medium withholder ($25k to $1m of PAYG W) you report and pay monthly – whether through your BAS or IAS depends on what you do for GST.

Large withholders (more tha $1m) are complicated, so let’s put those aside.

ABN Withholding

If a supplier does not provide an ABN to you for goods and services of more than $75 (excluding GST), you need to withhold the top rate of tax from the payment and report this through your IAS or BAS.

IAS v BAS

If you are not registered for GST, you don’t have any Business Activity Statements (BAS) to worry about. All your reporting is done through an IAS – either monthly, quarterly or annually.

But if you are registered for GST, then it gets more complicated, especially if your GST and PAYG instalments or withholding are on different reporting cycles.

You might do your BAS quarterly but might be a medium withholder for PAYG Withholding and hence need to report PAYG W on a monthly basis. In that case you do both. You lodge your BAS quarterly, but then lodge an IAS for the months in between.

Does this make sense so far? Just call me if you get stuck. My number is 0407 909 779. I am Heide.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Common Tax and Accounting Muck Ups

Accounting Tips for Your Business

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Avoid some common mistakes with these 15 accounting tips for your business. 

15 Accounting Tips For Your Business

When you start a new business, the last thing on your mind is accounting and tax. And you are right. Your focus needs to be on the road ahead.

But your numbers are still important. You lose control without them. The good news is that this is not as hard as it sounds.

Here are 15 tips to help you get and keep what is yours. And avoid a few potholes along the way.

1 – Put a Value on Your Time

You only got 24 hours. And what you don’t do is as important as what you do. So delegate the parts that are not worth your time. 

2 – Get Xero

There are various accounting softwares around, but just go with the flow and get Xero. You will be glad you did.

3 – Collect Receipts

Missing receipts can cost you a lot of money later on. So best to stay on top. Just download Hubdoc – a receipt app that comes free with Xero.

4 – Get a Bank Feed

A bank feed will save you time and give you up-to-date numbers. Allowing you to focus on more important things.

5 – Get a Business Bank Account

Using just one bank account for both business and private turns messy very quickly. So get a free business bank account – for example with NAB.

6 – Register for GST on time

Register for GST when your forecasted turnover exceeds $75,000. The good news is that you get to claim the GST you pay.

7 – Treat Employees as Employees

Treat your employees as employees. It is tempting to treat them as contractors, but not worth the penalties and headaches.

8 – Pay SG and Wages On Time

The ATO is really tough around your employees’ super. So pay their super and wages first when cash flow is tight.

9 – Get Workers Insurance

Easy to miss but make sure your employees are ensured while working for you. So get the right policy from icare – might save you tons later.

10 – Lodge And Defer

Lodge your tax returns on time, even if your cash flow is tight. And then let’s talk to the ATO about a payment plan and remission of interest.

11 – Safeguard Your Losses

Your business’ tax losses might safe you tax later on, but are also easily lost. Please call me before you change your business structure.

12 – Weigh Up ATO v Bank

The ATO charges higher interest rates than banks. But is also more likely to forgive this interest for the right reasons. So let’s talk this through.

13 – Mind the PSI Rules

If your business depends on your personal skills and efforts, let’s discuss the personal services income (PSI) rules to avoid any potholes.

14 – Claim Car and Travel Expenses

When you use a car or travel for business or work, make sure you claim what is yours. Easy to leave money on the table with this one.

15 – Get and Keep What is Yours

There are many ways to save tax and make you better off. From discounts and conscessions over deductions and write offs to grants and structures. Make sure you get and keep what is yours.

This is just a short overview. Please call me to talk this through.

 

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.