Every month or every quarter, depending on the business turnover, a business must file a business activity statement (BAS) and send this to the Australian Taxation Office (ATO). The business activity statements are given out by the Tax Office and the purpose is to help businesses to enumerate and pay all their tax liabilities on a single form. The main advantage is that it streamlines the tax lodgment process for many businesses.
Because the BASs are generally more complicated as they cover a lot of tax detail, there is room to commit a lot of accounting errors in the reporting form when filing the returns. A typical business activity statement (BAS) will cover various tax details such as the goods and services tax (GST), fuel tax credits, fringe benefit tax (FBT) installments, the PAYG tax withheld and the PAYG income tax installments among others. It is therefore a matter of simple prudence to know some of the common pitfalls that you are likely to face when preparing your BAS during tax time. Let’s look at some of these potentially problematic areas:-
Are you accounting on a cash or accrual basis?
If you are registering your GST with the ATO and your business turnover is less than $2 million, there is the option to select whether you are planning to account for your GST using cash or an accrual method. The accrual option is ideal for cash-only or cash-heavy businesses with no debtors and that pay creditors on terms. The accrual method enables you to make immediate claims on GST for purchases made and this can help boost your business cash flow. The method you select, whether cash or accrual, must be updated accordingly on your accounting software so as to ensure that it is outputting the correct BAS reports.
Filing GST Claims on all expenses
Not all expenses are subject to a GST. Some of the business expenses without a GST component include the following:-
- Government fees like ASIC fees, council rates and penalties.
- Bank charges
- Motor vehicle registrations
- Google Adwords expenditures
- Facebook advertising charges
- Insurance premiums
- Transaction fees on PayPal
Claiming GST on all Sales
Likewise, not all business sales are subject to a goods and services tax. There are certain services and products in some business sectors that may not be subject to the tax. Talk to your tax agent to advise you accordingly.
Failing to Lodge by the Deadline
The business activity statements are issued by the Australian Taxation Office either on a monthly or quarterly basis depending on the business turnover. There are also strict deadlines that need to be observed when lodging and paying for your BASs. These are as follows:-
Monthly Lodgment for BASs: Should be on the 21st day of the following month.
Quarterly Lodgment: The quarterly lodgment should be performed as follows:-
- The July to September BAS statements must be lodged by 28 October
- The October to December statements must be lodged by 28 February
- January to March BAS statements must be lodged by 28 April
- April to June BAS statements must be lodged by 28 July.
If you are lodging your business activity statements via a BAS agent or a tax agent, you get an extra month to lodge your returns on top of your deadline. However, watch out on the late lodgments as the ATO is imposing very stiff penalties for this. Currently, the commissioner is imposing a failure to lodge (FTL) penalty of $180 for every month that your BAS forms are lodged late for a maximum of 5 months so the maximum penalty that you can foot for perennially late FTL lodgments is $900.
The BAS must be lodged even if you haven’t traded at all. That is, even if you haven’t received any income or made sales in your business. Failing to lodge will subject your business to the FTL penalty.
Varying your PAYG Income Tax Installment on your own
Businesses are highly dynamic and the business terrain is also quite competitive. Over time, the circumstance of your business might have changed and you may see it fit to vary the ATO requested income tax amount to reflect the current state of your business. However, this is not always a good idea unless you have been expressly advised by an accountant Melbourne professional. In case you vary your returns downwards and happen to make a mistake, you may have to face the stiff penalties from the ATO.
Failing to include all purchases and cash sales
If you are receiving cash payments, make sure that you include the GST on these purchases. Discounting this on all your sales and purchases is likely to land you in hot water with potentially nasty penalties by the taxman. It is wise to declare all the cash sales when lodging your BAS. If there are genuine tax credits and tax deductions that you feel are due, talk to your accountant and have them advise you accordingly.
Setting up incorrect tax codes in your chart of accounts
Before you begin filing a BAS in the online accounting software, ask a qualified Tax Agent or a BAS Agent to review the chart of accounts in order to establish its accuracy. If the chart of accounts is set up incorrectly, then you will not only make but also repeat the GST filing errors over and over again. While automation is great for efficiency and productivity, the setup must be correct in order for it to fulfill the desired result.
Adding Your Wages and Superannuation at G11 in the BAS Form
The wages must be included in the W1 in your business activity statement while the pay-as-you-go (PAYG) tax withheld should be reported under the W2.It is possible that these boxes might be missing in your BAS form in which case you will need to register for the PAYGW system.
The G11 section in your BAS form is reserved for non-capital purchases. Because the superannuation is not a taxable supply, it shouldn’t be reported in your business activity statements. As a business, it may be more convenient to use a superannuation clearinghouse for all your super reporting.
Claiming GST on Private Expenses or Private Portions of Your Expenses
The GST should only be claimed on business-related expenses. Claiming it on private expenses might put you on a collision course with ATO. Certain business expenses such as internet charges and motor vehicle usage might overlap into the private arena and it is important to clearly work out the business percentage of these expenses or usage and only claim GST for these.
Failing to Know the Correct Payment Methods
The ATO provides multiple payment options for BAS lodgment. These include EFT, credit card payments and even payment via Australian Post outlets. If you are having a problem submitting payment to the ATO, get in touch with them and work out a convenient payment arrangement.
There is no doubt that preparing your BAS can be a complicated task for any business. That is why many Australian businesses enlist the services of a BAS agent or a Tax Agent that will ensure their business activity statements have been prepared and lodged correctly.