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gst
17/07/2023

Dumb ways to get a tax audit !

A tax audit is often a result of business owners not doing something that’s the norm. Doing dumb things that alert the ATO that some things are not quite right.

It is becoming imperative that you prepare your GST records appropriately to avoid unnecessary scrutiny by the Taxation Office which may lead to a tax audit for your Bas. These include:

 Failure to allow for car expenses for vehicles that are used partly for business purposes.
 Claiming all the GST paid on the following expenses: (similar to last year )
o car operating expenses, a log book must be kept
o home electricity, – diary evidence floor area
o home rates,
o internet access and
o home telephone bills,

Partial Business Usage

When these items were only used partly for business purposes claim only part of GST. If you use computerised accounting software be careful with this one, as special procedures are required.
 Claiming GST on non-business items.
 Claiming all GST or not claiming GST when not applicable
o Most bank charges. Merchant fees charged by banks, for retailers to have credit card facilities, do have GST in them. Refer to the monthly merchant statement for the GST amount.

GST amounts are often not shown on normal bank statements.
o Motor Vehicle Registration fees.
o Stamp duty and most government fees.
o Rates on business premises.

Sales and GST

 Not charging GST on all sales – NOT RECORDING ALL GST ON SALES
 Not charging GST on the Sale of equipment

Partial GST

Assuming the GST is exactly one-eleventh of every amount paid. This assumption is not correct in the case of :
o Workers Compensation premiums, (which include GST-free stamp duty)
o Yellow Pages Advertisements paid by instalments, which often require all the GST to be paid “up-front”.
 Failure to put the correct “tax codes” on receipts or payments when using a computerised accounting system

Take some time to understand what the codes are and the types of income/expense which each tax code should be used for. As a small business tax accountant, we can help you get it right.

 Using “Cash accounting” when should be “accrual accounting”.
 Not including “Instalment Income” for PAYG or using the correct rate.

Spending the time to get some of these rights may help you to avoid a tax audit and the ATO snooping around into your affairs

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12/06/2023

Gst at property settlement is a cashflow trap for those mum and dad developers.

GST at property settlement is a tax that needs to be deducted at settlement. It continues to catch out Mum and Dad developers walking the cashflow-type rope. Many are not aware that they will only have effectively 90% of the sale at settlement to play with. This can cause pain as interest rates bite and property prices decline in some areas.

Since July 2018, you may need to pay GST at settlement if you are selling or buying new residential premises or potential residential land. How GST is paid for certain property transactions affects purchasers, suppliers, and their financiers. For those non-residents, there is a further hit of non-resident withholding tax.

What is remitted at gst at property settlement

In essence, the purchaser must remit 10% (being GST) or 7% withholding GST margin scheme to MR ATO at settlement. This is regardless of if there is a first mortgage on the property.

A reconciliation of the final GST is done in the vendor’s next BAS and any amount payable or refundable is collected then. This puts the ATO squarely in the front of the cash handouts and leaves the balance scrambling. Those who rely on making a deal with the ATO for a repayment plan are unable to do so, and potentially if things a tight, a vendor could come out short.

Some penalties will apply if the Vendor fails to provide the required Notice or fails to notify the Purchaser of the required details.  If either occurs, a penalty of $21,000 would be payable. This assumes the Vendor is an individual and maybe five times that if a corporate entity is involved.  The ATO can catch up with people using its data-matching systems.

There is no requirement for Purchasers to be registered for GST.

GST withholding notification.

Before the settlement of GST property settlement, a GST property settlement withholding notification needs to be completed. This needs to be lodged online to the ATO; a conveyancer or legal representative can do this on the Purchaser’s behalf. This Form needs to be completed as soon as possible, and the ATO will provide a unique payment reference number (PRN) and lodgement reference number (LRN).

Once settlement has occurred, the GST property settlement date confirmation. The form must be completed with the unique PRN and LRN provided by the ATO.

Don’t panic a purchaser does not have to pay a GST withholding amount at the time when they deliver a genuine deposit on the property paid or the deposit is forfeited.

GST complications

Should it be found that the deposit is not a genuine deposit, it will be treated as part of the consideration for the supply. This means the purchaser may be required to pay a GST withholding amount on or before paying the vendor’s deposit.

Some developers think we can avoid the 10% withholding regime. They try this using an instalment contract. Under this arrangement, when the purchaser pays the purchase price balance. Instalment contracts mean that the first payment under an instalment contract is the first day the purchaser pays any of the consideration for the supply. Therefore, the purchaser must pay the GST withholding amount on, or before, the day they provide this first instalment payment. GST withholding amount to be paid.

Again, if instalments extend over 12 months, the ATO gets their money well before full settlement.

Under these rules, the ATO gets paid first. If liquidation occurs, the Bank may be short of its loan as the ATO has snaffled the first 10%. Effectively, the Bank will argue that the ATO has received a preferred payment. Then the Bank will chase the 10% from the Vendor who, in most cases, guaranteed the loan. This is important to note if the development goes into liquidation. It also may delay settlement as the Bank will not release a clear title.

Be ready to remit gst at property settlement.

As a seller, get your ducks lined up early. This will ensure you can proceed smoothly toward settlement. Make sure you have enough money to clear the title. If not, consider delaying the settlement and finding the potential shortfall or consulting a professional insolvency expert for advice on your actions.

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