The Commonwealth Government implemented a value-added tax (known universally as the GST) in 2000 and terms such as ABN (Australian Business Number) and BAS (business activity statement) have become synonymous with small business accounting and tax. One interesting issue surrounding the GST system in Australia is that many small businesses are generally unaware of the depth of GST as a distinct area of taxation law. While most small business owners are capable of arranging their BAS filings (whether through a tax agent or on their own) a number of very complicated issues can arise when your business changes and takes a new direction.
Changes in business activity
One easily overlooked issue is that an entity that holds an ABN must update its details with the Australian Business Register (ABR) if it changes its current registered business activity or industry. Certain industries also attract particular forms of tax and credits (such as the wine equalisation tax (WET)) and you will need to check if you fall within the scope of these special industries. If so, you will need to seek registration for those schemes in a similar way to when you registered for your ABN and GST.
Taking the WET as an example, you can update your business records online if you already have an ABN and apply for a WET business account. However, this does not remove the need for you to consider if whether or not you fall within the scheme in the first place. Consider the example of a restaurant that fortifies its own wine. Depending on the alcoholic concentration and base product used in the wine, WET or excise may be payable on the final product. If this product then becomes a profitable side business, it can create a weekly obligation to pay excise to the tax office. The point of this example is to illustrate that individual business circumstances can produce interesting taxation obligations.
Assets and GST
In addition to this, should a business plan to dispose or (or acquire new) capital equipment, then there can be specific GST issues affecting particular forms of assets. In addition, leasing or obtaining capital equipment through a hire purchase agreement changes the rules when that asset is used to make GST supplies. Obviously these are not matters covered in a box on your BAS and it is important for small businesses to understand where the obligation to pay GST lies. There are also important distinctions between new and second-hand assets (especially in the case of property) and when an asset is used for mixed purposes (private and business) and later sold.
Accounting and data for your BAS
Most small businesses rely on some form of automated system to collate their GST information when completing their BAS. Naturally, this is only as reliable as the methods used to collect the information and you should ensure that you periodically review what you are filling on your BAS and how it checks out against your business records for accuracy. While this might seem rather elementary, the whole point of tuning your business systems depends on you having an understanding of your GST obligations in the first place.
The key message here is that you should not assume that your business is fully complying with GST simply because you have been doing things in a particular way for many years. Getting educated and seeking advice when you’re not sure will save you a lot of trouble down the line if your business is audited by the tax office. It is not uncommon for businesses to seek GST advice on a single transaction too, particularly if this represents a large investment or signals a new direction for your business.