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Contents: ABN | Cashflow | BAS | Alienation | Losses Legislation | Simplified Tax System

Australian Business Number (ABN)

Australia introduced a new tax system on July 1st 2000. This consists of a Goods and Service Tax (GST) and a Pay As You Go tax (PAYG) which includes:

  1. A withholding tax which replaces the old Pay As You Earn (PAYE) system
  2. An instalment tax which is based on the turnover of the business rather than on the taxable income

Who has to have an ABN?

Businesses that turnover in excess of $50,000 annually ($100,000 if the business is a ‘not for profit’) must register for GST and ABN.

Businesses earning less than the threshold can apply for an ABN without registering for GST. This ensures that 48.5% withholding tax is not deducted from the businesses invoice, when they are dealing with another business.

Statement of supplier

If a business has not registered for an ABN, but still carries on some ‘business to business’ (B2B) transactions, there is a ‘Statement by Supplier’ form available. The completion of this form ensures that the 48.5% withholding tax does not occur.

The supplier ticks a box on the form to say that:

  • The supplier is carrying on a hobby
  • The supply is of a private or domestic nature
  • The supplier is not a resident of Australia and not carrying on a business
  • The payment is exempt from income tax
  • The supplier does not expect to make a profit or gain

The business receiving the statement must keep them on file for 5 years.

Cash Flow

Business now pays Income Tax (the instalments) within 3 months of earning the income, rather than the following year. This necessitates that business operators pay close attention to their cashflow, as it may mean that tax needs to be paid on sales that have not yet been paid.

Business Activity Statement (BAS)

A business (that is registered for GST) elects to complete the BAS either monthly or quarterly. Either the business operator or a registered tax agent can complete the BAS.

Moneys owed to the Australian Tax Office (ATO) for GST must be paid for at the same deadline as the BAS return. Late payments may incur a fine and interest. In the event that the ATO owes a business a GST refund, they are to pay within 14 days or pay the business interest on amounts outstanding.

However, any refunds on GST owing will first be applied to any other taxes the business may owe to the ATO eg. PAYG payments due or outstanding.

Alienation of Personal Service Income

The Alienation of Personal Service Income also became law on July 1st 2000. If you provide a service, even if you are a registered company, partnership or trust, you will be taxed as an employee and cannot make business claims. This applies if you do 80% of your work for one client and work from a home base. It does not apply if you employ others to do the work for you or if you work from a commercial property.

You can seek a determination from the Commissioner, but he/she will normally consider the employment and business premise tests before making a decision.

Non-commerical Losses Legislation

The new Non-commercial Losses legislation (July 1st 2000) states that if you earn less than $20,000 a year from the business, but you and/or a partner earns more than $40,000 annually, you cannot offset business losses against the income earnt.

Proposed Simplified Tax System Legislation

To make it easier for the Micro business sector, as of July 1st 2001, Government proposes to bring forward the Simplified Tax System legislation.

1. Cash versus Accrual

This will give businesses the choice of using a cash method of accounts rather than accrual, making income only recognised when it is received. Like wise, deductions are only recognised when paid.

2. Depreciation

Depreciable assets of less than $20,000 will be immediately deductible and it will no longer be necessary to calculate depreciation separately for each asset.

3. Stocktake

Also a stocktake will not be necessary if the business can estimate that the difference between the stock on hand at the end and start of the year does not exceed $5000.

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