Taxes 101
There are several types of taxes in Australia that can be required of a Self-Employed or Small Business entity which include:
- Income Tax
- GST (Goods and Services Tax)
- Payroll Taxes
- Other Taxes- Fringe Benefit, WET (Wine Equalisation Tax), Luxury Car tax, Fuel Tax (and credits)
For QuickBooks Self-Employed, there are 2 taxes that will be important for our customers: Income Tax and GST.
Income Tax
Income Tax is the tax one pays on the net money earned by a business. This is a DIRECT Tax.
QuickBooks Self-Employed does not calculate Income tax directly but is used to calculate the income, expenses, and allowable deductions a Sole trader uses to file on the Business Income statement included in their personal tax return.
Income Tax is reported on an annual basis through a tax return. A small business or self-employed can elect to either report their income as part of their personal income tax return or if a business entity has been established, the business entity can file a tax return.
Paying Income Tax
If a small business owner is required to pay Income Tax before they lodge their annual return, they will know in advance.
Income tax can be paid annually, quarterly, or monthly- and the frequency is largely determined by the ATO after an individual or business entity has filed their annual tax return in a previous year.
Income tax paid to the ATO during the tax year is commonly referred to as PAYG or Pay As You Go installments, and only applies if an individual or business earns over a certain amount.
Small business owners can pay their income tax directly with the ATO, filing an IAS or BAS form notifies the ATO of their payment depending on other tax liabilities they may be reporting and/or paying at the same time.
For more information about Income Tax requirements, the best resource is the ATO website- https://www.ato.gov.au/
Goods and Services Tax (GST)
Goods and Services Tax (GST) is a tax on goods and services provided or sold by an individual or small business entity.
Taxes are collected by the individual when goods are sold, and taxes are paid when they purchase goods and services from other individuals and businesses. This is an INDIRECT tax.
GST in Australia is generally 10% and applies to almost all goods and services sold or traded in Australia.
Refer to the ATO website for more information on GST.
QuickBooks Self-Employed provides the functionality to charge GST on Invoices.
Sole Traders or small businesses can report and pay GST to the ATO annually, bi-annually, quarterly and monthly- and again this is largely determined by the ATO in addition to their overall turnover.
GST reporting for small business entities consists of 3 key value as of July 1, 2017:
- Total Sales (including GST collected)
- GST Collected
- GST Paid
The total GST owed and paid to the ATO will be GST Collected minus GST Paid.
This reduced reporting requirement is known as Simple BAS - and here is a link to the ATO explaining what this means - https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/Goods-and-services-tax-(GST)/Simpler-BAS/
Individuals or small businesses report pay these figures to the ATO at the frequency determined by the ATO. Generally, the more money one makes, the more frequently you lodge and pay (monthly filers have the highest incomes), but most small business entities file quarterly and annually.
GST figures are reported to the ATO using IAS (Installment Activity Statement) or BAS (Business Activity Statement) forms, the form type which is determined by the tax liabilities being paid and the frequency.
BAS is the most frequently used term referencing the reporting and the paying of GST in Australia.
For more information about GST, the best resource is the ATO website- https://www.ato.gov.au/business/gst/
Business Activity Statement (BAS)
The Business Activity Statement (BAS) is used for reporting and paying goods and services tax (GST), Pay As You Go (PAYG) Installments, PAYG withholding tax and other tax obligations to the ATO.
It is usually filed monthly or quarterly, and for most QuickBooks users, it will be quarterly.
If you are registered for GST, ATO will automatically send you a BAS when it is time to lodge, and all businesses registered for GST are required to lodge BAS by the due date, even if they have nothing to claim.
Lodging BAS with the ATO for QBSE Customers
Sole Traders who are required to lodge BAS can do so in 4 ways:
- After receiving a paper form in the mail, they fill in and mail it to the ATO.
- Log into the ATO portal and fill in an electronic form to lodge manually.
- Electronically lodge through their accounting solution.
- Have a BAS agent lodge on their behalf.
For QBSE, our customers will be able to include and charge GST through invoices, but for tracking and reporting purposes, they will have to do so outside of QBSE for the time being.
Key Dates for GST Filings
There are 4 main filing deadlines determined by the ATO for lodging BAS - which are on a quarterly basis. The Australia tax year operates on a financial year basis running July 1 to June 30 of the next tax year. The BAS are typically due the month AFTER the previous period has ended.
Below is a table showing the key filing dates for Sole Traders for the next tax year: https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/Due-dates-for-lodging-and-paying-your-BAS/
Inclusive vs Exclusive in GST
Inclusive pricing means that the GST of the 10% is INCLUDED in the price of a line item when the user inputs the price at the line item level.
For example, if a line item is listed as $10.00, that $10.00 includes the GST of 10% - so the sole trader will be billing their customers $10.00 total receiving $9.09 of income + $1.01 GST.
The Sole trader is actually only receiving $9.09 and they will be paying $1.01 to the ATO.
Exclusive pricing means that the GST is calculated ON TOP of what is listed at the line item level.
For example, if a line item islisted as $10.00, that $10.00 excludes the GST of 10% - so the sole trader will be billing their customers $11.00 total, receiving $10.00 income + $1.00 GST.
Inclusive or Exclusive can be set individually for each Invoice, but we recommend users to pick one method and stick with it to keep it consistent. Most SMBs in Australia price their services with GST included, which is why we set this as the recommended default.
users can change their Inclusive or Exclusive setting at any time by going to My Work Info from within an Invoice (the same place to update their ABN, business work address, contact details, etc.)
Adding GST to a Line Item
Once the GST Inclusive or Exclusive settings is enabled at the Invoice level, users then input the line items like normal, however they will now be asked whether tor not GST is applicable.
If tehre are no line items that are marked for GST, the Invoice preview will not show the GST % and the Invoice display as GST not included as a result.
When should GST be charged?
The good news that generally EVERYTHING should have GST charged on it - but there are certain goods like certain foods and financial charges that are considered GST-free.
Here is a link to the ATO website that details examples of what should and shouldn't be charged GST - https://www.ato.gov.au/Business/GST/When-to-charge-GST-(and-when-not-to)/
Ultimately, we cannot advise users whether to or not they SHOULD charge GST or NOT on a line item for their business as this is considered Tax Advice. We can definitely provide access to the link above for their reference, but we should always recommend they seek the advice of the ATO or a Tax Professional as every business is different.
Other Quick Reminders about GST:
- When a business charges GST, there are certain reporting requirements that should be obeyed to make their Invoice compliant.
- Please advise users to make sure that their My work Info section is updated with their Business name, Australia Australian Business Number (ABN), Phone number, and Address- as these details are required to be listed on a Tax Invoice per the ATO. The good news is that once it is updated they can save it for all future invoices.
- Here is a reference we can share with customers from the ATO - https://www.ato.gov.au/Business/GST/Issuing-tax-invoices
For any additional questions, please reach out to Tier 2 Team.
QuickBooks Self-Employed can track GST on your Invoices.
Invoices in QuickBooks Self-Employed now include the ability to:
- Enable GST on Invoices
- Calculate GST amounts on an Inclusive or Exclusive basis
- Include or exclude GST for each line item
You have the option to choose how to charge your customers:
- Exclusive of GST means the price of your items or services doesn’t include GST
- Inclusive of GST means the price of your items or services does include GST.
You also have the option to opt out from applying GST tax to your invoices as there can be some items that are GST free, mandated by the government. Learn more about exclusive vs inclusive GST.
To set up GST:
- Tap the menu icon.
- Select Your work info.
- Tap GST.
- Select Exclusive or Inclusive.
- Tap Turn On GST.
When GST is enabled on an invoice, all line items will be required to designated to include or exclude GST, and then QBSE will calculate the total GST as a subtotal line at the bottom of the invoice. If there are no line items that are marked for GST, the Invoice preview will not show the 10% GST subtotal reference line, and the Invoice will display GST not included as a result.
Including GST on a transaction:
In addition to applying GST to an invoice, you also have the option to include GST on your transactions. To do this:
- Tap the Transactions page at the bottom of the app
- Tap the transaction you want to apply GST to
- Toggle Include GST to on
Exclusive vs Inclusive GST
The price of your product or service is either exclusive or inclusive of GST.
- Exclusive of GST means the price of your items or services doesn’t include GST and GST will be added to the item amount.
- Example: John charges $50 for each lawn he mows. Because he’s registered for GST and his prices exclude GST, he charges an additional 10% (the GST rate). Therefore, $5.00 is added as GST, so his client pays a total of $55.00.
- Inclusive of GST means the price of your items or services already includes GST.
- Example: John charges $50 for each lawn he mows, and GST is already included. This means John’s customer pays a total amount of $50. John keeps $45.00, and $5.00 is charged as GST.
Notes:
- You can set the price of items or services included on your invoice as exclusive or inclusive of GST.
- If you’re registered for GST, you’re responsible for collecting GST and sending it to the ATO.
To change the existing GST:
- There are two ways to change the GST for customers’ invoices:
- From the Work Info page: Changing GST from this page will not impact draft invoices unless you also change the GST from the specific invoice.
- From the Invoice: It will impact the existing/current invoice but not the work info set up.