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NEWS - PLANNING
Tax reporting: it's time to decide
10/2/2001
Small businesses now have just under a month in which to make a crucial decision that will affect the size of their tax bills.
October 28 is the last day on which small businesses can change the reporting method they use for their business activity statement or instalment activity statement.
And according to leading tax accountants, that decision will affect the amount of work required to fill out the BAS and IAS forms, as well as the size of quarterly GST and PAYG tax payments.
No matter which reporting and payment method was used for BAS or IAS in the last financial year, small businesses can make new choices for the September and remaining quarters of the financial year.
But they will need to be careful because the decision they make on October 28 - the lodgement date for the September quarter BAS and IAS - will lock them in for the rest of the financial year.
There are three options, all of which impose different compliance burdens.
All of them come with conditions and are available only to organisations that have an annual turnover of $2 million or less, and have not claimed a net refund from the Australian Taxation Office.
Organisations with annual turnover of more than $2 million are restricted to the first or second options, and all monthly GST payers must use option one.
Option One: The small business operator calculates and pays the actual net GST liability for the quarter and reports the actual amount of total sales, export sales, other GST-free sales, capital purchases and other purchases quarterly.
Mr Bembrick, who is manager of tax consulting with chartered accountants HLB Mann Judd, said this option required more detailed quarterly reporting but it had the advantage that no annual GST return was required.
"It may also be preferable in terms of cash flow," he said.
This was because the net GST liability for the quarter would more accurately follow any fluctuations in the levels of sales and purchases.
"It also gives an organisation a useful discipline as it provides an accurate progress report on trading activities," he said.
Option Two: The business calculates and pays the actual net GST liability for the quarter and reports only the actual amount of total sales quarterly. The other amounts - export sales, other GST-free sales, capital purchases and other purchases - are reported annually.
While this option involves less detailed quarterly reporting, a GST information statement must be lodged at the end of the year.
Option Three: The business pays a GST instalment each quarter and reconciles the actual net GST liability for the year on an annual GST return.
The actual amount of total sales, export sales, other GST-free sales, capital purchases and other purchases are also reported on the annual return.
If the GST instalments paid each quarter turn out to be less than the GST liability, the business will have to pay the ATO the difference. Businesses will have to manage their cash flow to meet this liability.
"This option has the advantage that it makes life simpler during the year, as it requires no quarterly calculations or reporting," Mr Bembrick said.
"The calculation of net GST liability for the year, together with the other amounts to be reported, may be done at the same time as the 2002 income tax return is prepared, provided it is lodged by February 28, 2003," he said.
But he warned the main disadvantage with the third option was that the GST instalments would not vary with fluctuations of sales and purchases.
"While organisations have the option to vary GST instalments by estimating the net GST liability for the 2002 year, penalties apply if the estimate is less than 85 per cent of the actual net GST liability," he said.
As the September quarter is the first quarter of the financial year, making a variation based on expected sales later in the year could be risky.
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