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Business Activity Statement
Small Business, Community and Educational
Adviser Education Programme
Completing the Business Activity Statement (BAS)
Course Workbook
Prepared for the GST Start-Up Assistance Office by
TEO Training Pty Limited
P O Box 610 Moonee Ponds Vic 3039, Telephone (03) 9375 7966 Fax (03) 9375 7488
Email: trevor.england@teotraining.com.au

Business Activity Statement Adviser Education Programme
2
IMPORTANT INFORMATION CONCERNING THIS MATERIAL - PLEASE READ
This material is provided under the Commonwealth’s GST Start-Up Assistance
Programme, and is designed to provide general information on the GST, PAYG and on
business skills, practices and processes necessary to operate with the GST, focused on
small and medium enterprises and the community and education sectors. Because
business circumstances can vary greatly, the material is not designed to provide specific
GST, PAYG or business advice for particular circumstances. Also, because aspects of the
GST are complex and detailed, the material is not designed to comprehensively cover all
aspects of the GST and PAYG as they apply to small and medium enterprises and the
community and education sectors. Further, the laws implementing GST, PAYG and
rulings and decisions under those laws, may change.
Before you rely on this material for any important matter for your business, you should:
• Make your own enquiries about whether the material is relevant and still current, and
whether it deals accurately and completely with that particular matter; and
• As appropriate, seek your own professional advice relevant to that particular matter.
This material is provided on the understanding that neither the Commonwealth nor its
personnel, TEO Training Pty Ltd nor its personnel, nor any other organisation or person
involved in developing or delivering the GST Start-Up Assistance Programme, is thereby
engaged in providing professional advice for a particular purpose.
These limitations and warnings also apply to information based on this material presented
at any seminars or workshops provided as part of the GST Start-Up Assistance
Programme.
' Commonwealth of Australia 2000

3
Contents
Page
Introduction 5
BAS and Workbook Road Map 6
Course objectives 7
Government Assistance Initiatives 8
Introduction to GST 9
Australian Business Number 10
Entity 11
Business Activity Statement 13
Goods and Services Tax 14
Input Tax Credits 25
The Tax Fraction 26
Attribution Rules 27
Tax Invoice 29
GST Systems 31
Wine Equalisation Tax 38
Luxury Car Tax 39
Wholesales Sales Tax Credit 40
Overview of PAYG 42
PAYG withholding system 43
Terminology for PAYG withholding 45
Registration for PAYG 47
Small Medium Large withholders 48
Practical issues for employers 50
Taxing of allowances 53
Non-cash benefits and PAYG withholding 54
Contractors and Employees under the New Tax System 55
Voluntary agreements 56
Labour hire arrangements 58
Prescribed Payments and Reportable Payments System 61
No ABN withholding 63
Withholders of amounts not related to employment 65
Investment income 66

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Annual reports and payment summaries 67
Terminology for PAYG instalments 69
PAYG instalments 72
Calculation of instalment income 74
Quarterly instalments 77
Annual instalments 88
Transitional provisions for the deferral of 1999/2000 instalment tax balances 94
Summary of payments for company and fund instalment payers 100
Calculation of PAYG instalments by partners 101
Beneficiaries of Trusts 103
New Taxpayers 104
Variation Credits 105
Fringe Benefits Tax 106
Running Balance Account 108
Appendix 109
ACKNOWLEDGMENT
TEO Training Pty Limited wishes to acknowledge the assistance received from
The GST Start-Up Assistance Office, and The Australian Taxation Office, in the
preparation of this Course Paper.

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Introduction
The course is a stand alone course designed to assist small to medium businesses,
community groups and educational bodies with an introduction to the new Business
Activity Statement and Instalment Activity Statement that forms part of the New Tax
System that comes into force on 1 July 2000.
The New Tax System is made up of various parts that will affect every organisation within
Australia. The reporting basis for the New Tax System is the Business Activity
Statement (the BAS) if the entity is registered for GST, or the Instalment Activity
Statement (the IAS) if the entity is not registered for GST.
Included in the BAS is the information required by the ATO for the following,
• Goods and Services Tax
• PAYG Withholding
• PAYG Instalments
• Fringe Benefits Tax
• Wine Equalisation Tax
• Luxury Car Tax
The Instalment Activity Statement requires all of the information detailed above, where it
applies to the taxpayer concerned, except the GST information.
There are two types of Business Activity Statement. The first form is the quarterly BAS
which all entities registered for GST are required to complete quarterly in respect of all
types of tax that they are liable for. This form will be completed by those required to file
a BAS on a three monthly basis, and will also be completed every third month by those
required to file a monthly BAS. The quarterly BAS form has two sides. The front side is
the actual BAS, whilst the reverse side is a calculation sheet from which amounts are
transferred to the BAS itself.
The second form is the monthly BAS. This form will be completed in the first two
months of any quarter by those required to complete a monthly BAS. This form will
request information and payments in respect of all tax types, except PAYG instalments
and FBT, for taxpayers required to complete it.
It should be noted that the ATO will provide a monthly or quarterly pre-printed form. The
form will identify the information that has to be provided when that form is completed.
The following page of this workbook shows all the descriptions on the BAS and
references each one and its Box Number to pages of this workbook.
A course of this nature cannot hope to comprehensively cover all of the various issues that
will confront different entities. Rather, this course aims to raise issues that individual
businesses and other organisations may need, or want, to consider as a consequence of the
introduction of the New Tax System.

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THE BAS AND WORKBOOK ROAD MAP
Transaction
Type
Box
No.
Page
No.
Transaction
Type
Box
No.
Page
No.
Goods and Services
tax payable
1A 14 Credit for Goods and
Services tax paid
1B 14
Wine equalisation
tax payable
1C 38 Wine equalisation tax
refundable
1D 38
Luxury car tax payable 1E 39 Luxury car tax refundable 1F 39
Credit for Wholesale Sales
tax
1G 40
Add 1A+1C+1E 2A - Add 1B+1D+1F+1G 2B -
Total amounts withheld
from all payments
4 44
Income tax instalment 5A 72 Credit adjustment for
previous income tax
instalments
5B 105
Fringe benefits tax
instalment
6A 106 Variation credit from
previous fringe benefits tax
instalments
6B 106
Deferred company/fund
instalment
7 94
Add 2A+4+5A+6A+7 8A - Add 2B+5B+6B 8B -
8A minus 8B net amount
of your obligations
9 - Positive = payable to ATO
Negative = may be a refund
or offset
- -

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Course Objective
The objective of this course is to assist the participants prepare their Business Activity
Statement or their Instalment Activity Statement with particular emphasis on:
The GST and the information required to be supplied to the ATO on the Business Activity
Statement or the Installment Activity Statement.
The PAYG withholding system that comes into force on the 1 July 2000.
The PAYG installment regime and how this will affect tax payments by entities.
An introduction to the categories in the new Business Activity Statements and Instalment
Activity Statements that form the reporting and payments basis of the New Tax System, to
the ATO.

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TAX REFORM
GOVERNMENT ASSISTANCE INITIATIVES
The role of the Australian Taxation Office
The Australian Taxation Office [ATO] has the role of providing guidance and assistance
with technical changes that will arise from the introduction of The New Tax System.
The assistance provided by the ATO includes a range of publications from general
purpose guides, to industry and sector specific publications directed at the specific issues
to be addressed by specific industries and community groups.
The ATO is also providing a wide range of seminars to assist with the introduction and
implementation of the changes.
To obtain details of publications, seminars and other assistance available from the ATO
the following options are available:
Website www.taxreform.ato.gov.au
The business Tax Reform Infoline 13 24 78
A fax from tax 13 28 60
By mail PO Box 9935 in capital cities
The GST Start-Up Assistance Office
To obtain further information visit the GST Start-Up Assistance Office website at
www.gststartup.gov.au or call their enquiry line on 02 6263 4490.
To enquire about, or register for, for the Adviser Education Programme phone 1800 351 754

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The Introduction of Goods And
Services Tax
This section discusses the basic principles of GST. It introduces GST terms and their
implications in managing the GST process. It also considers the GST portion of the BAS.
Appropriate systems are the key to managing GST in an organisation. Depending on the
size and nature of the entity, some systems will produce only basic accounting data,
whereas others will produce comprehensive management reports.
The introduction of GST provides an opportunity for all entities to review their current
systems. This review should not just focus on accounting for GST, it should also consider
how the information that is required for GST compliance purposes can be captured and
used to assist in the effective management of the entity.
This section of the workbook looks closely at various ’GST terms’ and their GST specific
meanings. While some of the terms may seem difficult to grasp, once you have a clear
understanding of them you will find that many of the mysteries of GST will disappear.
GST is a broad-based tax of 10% on the supply of most goods and services consumed in
Australia. GST started on 1 July 2000. It may affect some transactions entered prior to
that date where performance occurs on or after 1 July 2000.
GST is a very visible tax. When goods and services which are subject to the 10% GST are
purchased, it will be mandatory for the supplier to indicate that the price being paid is
GST inclusive. This is unlike many of the existing taxes, such as wholesale sales tax,
where tax may be included in the price of the goods, but which is not clearly visible to the
purchaser. This is one of the benefits of the introduction of GST. Many existing, hidden,
indirect taxes will be phased out and GST will replace them.
Although GST will replace some existing taxes, the GST charged to an organisation by its
suppliers, in many situations, will be recoverable from the ATO. One of the most
fundamental principles of a GST system is that the tax is not an added cost for a ’GST
registered’ entity.
The key elements of the introduction of GST, as a component of the New Tax System, for
an organisation are:
• The abolition of many indirect taxes; this will reduce business costs.
• Any resulting cost savings must be passed on to customers.
• An organisation may be required to register for GST.
• A registered organisation must include 10% GST in the price of 'taxable supplies'.
• An organisation will find that GST is included in the prices charged to it by its suppliers
for many of the goods and services it purchases.
• A registered organisation will be able to reclaim this GST from the ATO.

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Australian Business Number
The Australian Business Number (ABN) is critical to the operation of the GST system, as
every entity that is registered for GST will have an ABN and this is the number that must
be quoted on all your tax invoices.
Even where an entity chooses not to register for GST, it may still wish to apply for an
ABN. The ABN registration form includes the option to register for GST.
The Australian Business Number (ABN) will enable organisations in Australia to deal
with the ATO and a range of government departments or agencies using the one number.
As a general rule organisations should register for an ABN even if they do not register for
GST. Where an enterprise fails to obtain an ABN there may be financial consequences.
If the organisation does not have an ABN, or does not provide that number to other
businesses to whom it supplies goods and services, those businesses ordinarily will be
required to deduct withholding tax from payments to that business. There are very limited
exceptions to the rule. This withholding tax is 48.5cents in the dollar.
An organisation will also need to show its ABN on the tax invoices it issues to its GST
registered clients.. If it doesn’t, the document will not constitute a tax invoice (even if so
described) and its registered customers would not be able to claim input tax credits.
The ABN will not replace a tax file number, so tax file information will still be protected
by the existing privacy guidelines.
The ABN will be replacing the Australian Company Number [ACN] over time, and from
1 July it will be allowable to quote the ABN in the place of the ACN

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Entity
An entity, in legal terms, is a person, a company, a trust, or some other form of
organisation that has a separate legal identity.
Each entity that conducts an enterprise is entitled, and may be required, to register for an
ABN. If one entity conducts a number of enterprises only one ABN is required.
It should be noted that some organisations that may not be entities in a legal sense, for
example partnerships and unincorporated societies, may be entities for GST purposes and
therefore may be required to register for GST
Example 1
Mary Smith operates a plumbing business, which also installs central heating
equipment, as a sole trader. In addition to the plumbing business Mary owns
all of the shares in a company, Heating Pty Ltd, of which she is the ’working’
director. The company undertakes the prefabrication of central heating
equipment that is, by and large, sold to the company/person who installs it.
In a GST context it is very important to appreciate that whereas Mary may be
seen by the world at large to be operating one business, the prefabrication and
installing of central heating equipment, she is in fact operating through two quite
separate legal entities. In this example the first entity is Mary Smith, plumber,
and the second entity is Heating Pty Ltd. Although Mary is for all practical
purposes the sole owner and controller of both entities, and may perceive
herself to be running one business, the fact that there are two separate legal
entities, means that both Mary and the company may be required to register
separately for GST.
Example 2
Redsea High School provides various educational related services.
In addition the benefactors of the school have set up a trust which arranges and
provides outdoor educational pursuits for pupils of the school on a subsidised
basis.
In a GST context it is very important to appreciate that whereas the school and
the trust may be seen by the world at large to be one and the same, the activity
is undertaken by two quite separate legal entities. In this example the first
entity is the school and the second entity is the educational trust. Although the
trustees of the trust may be senior staff of the school and they themselves may
perceive they are running one organisation, the fact that there are two separate
legal entities, means that both the school and the trust may be required to
register separately for GST.
Where people own or control one or more separate legal entities, the GST issues are
potentially more complex and professional assistance or assistance from the ATO, may be
required.
Several related entities may be able to register for GST as one group. They will then be
considered as one enterprise for GST purposes.

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Typical situations that may fall into this category include:
Self employed shareholders and the companies they own.
Partnerships.
Partnerships and companies they own.
Trustees and the companies they own.
Trustees, and beneficiaries of the trust..
Companies and their subsidiary companies.
In all of the above situations it may be necessary to register more than one entity for GST
purposes. However, if one entity consists of a range of enterprises, only one registration is
required.
Example 1
ABC Pty Ltd currently operates a cafe, a takeaway food delivery service and a
news agency from different premises. Only one entity operates all of these
business enterprises, so only one registration is required, and one ABN will
cover all these activities.
Example 2
KELP Services currently operates a caf , a free food delivery service to elderly
people in their homes and a shop selling new and second hand books to
generate funds for the food delivery service. They all operate from different
premises. Only one entity operates all of these business enterprises, so only
one registration is required, and one ABN will cover all these activities.
Example 3
Drake school currently operates a primary school, a bookshop, and a boarding
establishment at different sites. Only one entity operates all of these business
enterprises, so only one registration is required, and one ABN will cover all
these activities. However the school may choose to register each enterprise
separately.

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Business Activity Statement (BAS)
Every entity that registers for GST is required to submit a Business Activity Statement
(BAS). Part of the BAS is your GST return.
With the BAS, most entities will make one payment and one statement to the ATO per
quarter. That is, most entities will only be required to lodge four returns and make four
payments per year.
For each tax period the entity will receive from the ATO a single tax form: the BAS.
As from July 1 the BAS will be used to advise the ATO of the GST liability of the entity
as well as being used to advise its other tax liabilities. For most entities this means that
there will only be one form to the ATO and only one payment each quarter. It should be
noted however that these organisations will still be required to file an annual income tax
return, and an annual FBT Return when appropriate.
The exceptions for filing a BAS quarterly will include businesses that are required to remit
GST on a monthly basis, or choose to remit GST on a monthly basis, and for medium-
sized remittees of source deductions from wages paid to employees. (who will still have
to remit PAYG withholding payments monthly).
A BAS will have to be filed when it is due, even if no tax liability exists for that tax
period.
The BAS can be sent to the entity, by the ATO either through the mail as a paper form, or
over the Internet as an electronic form if you have requested this option.
The entity will be required to lodge its BAS with the ATO twenty-one days after the end
of the GST tax period. Note however that there are extensions of time available for the 1st,
2nd
and 3rd
BAS returns for quarterly remittees of GST. These returns may be filed three
weeks, two weeks, and one week after the standard due dates respectively.
The GST tax period will either be one month or three months. This will have been
determined when an application for the ABN was lodged.
The entity will be required to keep adequate records so it can accurately complete the GST
section of the BAS to determine the amount of GST it will have to pay to the ATO or the
amount that may be refunded, depending on its circumstances.
Any refunds of GST may be used to reduce other amounts of tax that may need to be paid
(such as amounts withheld from salaries and wages) on the BAS for that period.

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Goods and Services Tax
EXTRACT FROM THE BAS
Boxes 1A and 1B plus G1 to G20 on the Business Activity Statement relate to the Goods
and Services Tax transactions for the relevant period, monthly or quarterly.
An Instalment Activity Statement will not have any GST boxes to complete. This is
because an IAS is only available to those taxpayers that are not registered for GST.
A brief overview of these items follows. It is necessary to accurately accumulate the
relevant information in your accounting records in order to establish your liability for GST
in respect of the current reporting period.
Supplies you have made
This section of the BAS determines the GST you have charged your customers [non cash
basis], or collected from your customers [cash basis]. The form takes all supplies made
by the organisation, deducts supplies not subject to GST, and divides the result by 11 to
arrive at the GST collected or charged. The boxes are as follows:
G1 Total sales and income and other supplies, regardless of whether they are subject to
GST. Ensure that you include supplies made prior to 1 July 2000, on which you charged
GST
G2 Exports (GST-free). No GST is payable to the ATO on this figure.
G3 Other GST-free supplies. No GST is payable to the ATO on this figure.
G4 Input taxed sales and income and other supplies (other than exports and GST-free
supplies) on which you have not charged GST.
Add 1B+1D+1F+1G=2B $
Credit for goods and
services tax paid 1B $
Wine equalisation tax
refundable 1D $
Wine equalisation
tax payable 1C $
Luxury car
tax payable 1E $
Luxury car tax
refundable 1F $
Add 1A+1C+1E = 2A $
2A minus 2B
GST net amount 3$
Goods and services
tax payable 1A $
Credit for wholesale
sales tax 1G $

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G5 Total of G2 + G3 +G4 which is the total of all your GST-free supplies and your input
taxed supplies.
G6 G1 minus G5 provides the total of your taxable supplies for the current reporting
period. It is this figure on which the 10% GST is payable to the ATO, subject to any
adjustments.
G7 Adjustments arising out of previously reported transactions which alter the total
amount on which GST is calculated for the current period.
G8 Add G6 and G7 to provide the final total figure on which GST is payable.
G9 G8 is divided by 11 to provide the actual GST payable on supplies made during the
reporting period.
Transfer the figure in Box G9 to Box 1A on the front of the form
CALCUALATION SHEET
Goods and services tax for the period 01/07/2000 to 30/09/2000
Supplies you have made Acquisitions you have made
GST accounting method Amounts at G1, G10 & G11 are GST-inclusive
G1 $ G10 $
G11 $
G12 $
G13 $
G14 $
G15 $
G16 $
G17 $
G18 $
G2 $
G3 $
G4 $
G5 $
G6 $
G19 $
G20 $
G7 $
G8 $
G9 $
The amount at G9 is your GST
payable, transfer this amount to
1A on the front
Capital acquisitions
Other acquisitions
(see exclusions)
Add G10 + G11
This is the total of your
acquisitions
Acquisitions for making
input taxed sales & income
& other supplies
Acquisitions with no
GST in the price
Total of estimated private use
of acquisitions + non-income
tax deductible acquisitions
Add G13 + G14 + G15
non-creditable acquisitions
G12 minus G16
creditable acquisitions
Adjustments
Add G17 + G18
creditable acquisitions after
adjustments
Divide G19 by Eleven
Total sales & income &
other supplies
Exports
Other GST-free
supplies
Input taxed sales &
income & other
supplies
Add G2 + G3 + G4
This is the total of your GST-free
and input taxed supplies
G1 minus G5
taxable supplies
Adjustments
Add G6 + G7
This is the total of your taxable
supplies after adjustments
Divide G8 by Eleven
GST-free
supplies
The amount at G20 is your GST credit,
transfer this amount to 1B on the front

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Acquisitions you have made
The purpose of this section of the form is to identify the GST your customers have
charged you [non-cash basis] or that you have paid to your customers [cash basis] that you
are entitled to claim back from the ATO. This is achieved by taking the total of
acquisitions by the registered person, deducting all acquisitions on which no GST has
been charged, and dividing the result by 11 to obtain the GST that can be claimed
The boxes on the form are as follows:
G10 Capital acquisitions.
G11 All other acquisitions. Ensure that you include supplies on which you have paid GST
prior to 1 July 2000
G12 Add G10 and G11 to provide the total of all acquisitions for the period.
G13 Acquisitions for making input taxed supplies as well as other supplies in respect of
which GST credits are not claimable.
G14 Acquisitions with no GST in the price, therefore no credit available.
G15 Total of estimated private use of acquisitions as well as expenses which are not
deductible for income tax purposes — no credit available.
G16 Add G13+ G14 +G15 to provide the total of your non-creditable acquisitions on
which you may not claim any input tax credits.
G17 G12 minus G16 to provide the total of your creditable acquisitions for the period.
Input tax credits are claimable on this figure subject to any adjustments arising out of
transactions reported in a previous period.
G18 Adjustments to previously reported acquisitions you have made.
G19 Add G17 + G18 This is the total of your creditable acquisitions after adjustments.
G20 Divide G19 by 11 to provide the total GST credit available to you for the current
reporting period.
Transfer the figure in G20 to BAS Box 1B.

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Goods and Services Tax
The GST is intentionally very broad in its coverage. It is intended to capture all forms of
domestic consumption, so may include a range of things that you may not have thought of.
It is important that you charge GST on all taxable supplies, so you need to have a good
understanding of what we mean by goods and services.
If you don’t charge GST when you should have, you as the supplier will still be required to
pay 1/11th of the price charged to the ATO - so making a mistake can be very expensive!
Enterprises produce the huge range of goods and services that are available to consumers.
Goods can be grown, made, or imported, and can be bought and sold repeatedly.
Services also come in many different forms. Services can involve a plumber fixing a
blocked drain, or the local swimming club teaching the kids to swim. The local Council,
Federal Government, and the local Citizens Advice Bureau all provide services. Some
services we use are costly, some cost nothing, and some organisations provide them in
return for subscriptions and members donations.
Some service organisations are huge, highly structured, and are ’big businesses’ to run.
Other service organisations are less formal, less organised, and small. One thing is
common to all enterprises that provide goods and services. They involve people in
planning, organising, and managing the supply of the huge range of goods and services
that people consume every day.
Goods are the tangible things we consume. Services are things people do for others.
Goods and services have a cost and generally a price.
Overview of GST
GST is a tax on goods and services
What is a GST? The main principles are that it is a tax:
applied to the domestic consumption of goods and services; and
it is paid by the final consumer.
The first key concept here is domestic consumption. That means the GST does apply to
imports, but does not apply to exports.
As well, it is about the consumption of goods and services. So GST is a tax on goods and
services and not on income. Therefore, an intention to make a profit is irrelevant in
deciding whether an organisation must pay GST.
It follows that many organisations that are not currently considered to be carrying on a
business for income tax purposes will nevertheless be included in the GST net. Such
organisations (which the legislation calls entities) include charities, trusts, co-operatives,
sporting and other clubs, statutory bodies and local authorities.

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Consumers, not enterprises, pay the GST
The next step is to understand that even though the tax is collected at every stage of
production, it is the consumer that actually pays the tax. This can be most readily
shown with a simple example of the manufacture and sale of a dining table. The
GST rate is 10%.
Table 1: GST on a dining table
Purchase Sale
Price
paid
(a)
GST
(b)
Total
(c)
Price
charg
ed
(d)
GST
(e)
Total
(f)
Paid to
ATO
(e-b)
Logger 20 2 22 2
Timber mill 20 2 22 40 4 44 2
Furniture
Manufacturer
40 4 44 80 8 88 4
Retailer 80 8 88 100 10 110 2
Consumer 100 10 110
10
Note: The total tax collected by the ATO is 1/11 ($10) of the selling price to the consumer
($110), or 10% of the price (before GST) paid for the goods.
As you can see, the GST is collected at each stage of the chain of production.
Each person in the chain:
1. charges GST on their sales (column (e)). The BAS calculation sheet describes this as
Supplies you have made .
2. claims back from the ATO, all GST paid on the goods they purchase as inputs to their
sales (column (b)). The BAS calculation sheet describes this as Acquisitions you
have made .
3. when they make their return to the ATO on the BAS, they subtract the GST they have
paid on the acquisitions they have made from the GST collected on the supplies they
have made, to calculate the net amount payable (last column).
Your organisation might be the timber mill in this example, though the same rules apply to
all of the organisations in the chain. For you, the GST consequences are as follows:
1. you purchase some logs from the logger for $22. That includes $2 GST
2. you turn the logs into timber that can be used by a furniture manufacturer, and charge
the manufacturer $44. That includes $4 GST
3. the key points to note are that you must remember to charge and record the GST on
your sales, and to keep a record of the GST you have paid on your inputs (the logs)
4. when you prepare the GST section of the BAS and send it to the ATO you are able to
claim back the GST on your purchases, but must submit the GST collected on your
sales. It is the difference between these ($4 collected from furniture manufacturer less
the $2 paid to the logger) that must be paid to the ATO. That is $2.

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Almost everything else that you will ever read, see or hear about GST will ultimately
be related to how to calculate the figures for your business in columns (b) and (e). If
you understand what to do to get those figures you have got the GST licked! It is
worth investing the time to get that straight now.
Because most organisations will claim back the GST on their purchases, and collect the
GST on their sales to their customers, you can see that the GST is not a burden on
organisations.
Another way of showing this is that, looking at the example as a whole, you can see that
the total in the last column shows that businesses have paid $10 to the ATO. But when
you look at the bottom row of the table, you can see that the final consumer has actually
paid that $10. The input credit mechanism (that is only available to registered
organisations, not consumers) means that the final GST cost is borne by the consumer, not
the organisation.

20
There are four kinds of supply
1. Taxable Supplies
In the example we have just looked at you charge GST on your sales - this is called a
taxable supply. The BAS calculation sheet arrives at the total of your taxable supplies
at Box G6. However you are also entitled to claim back the GST on your organisation s
inputs - this is called an input tax credit. The total supplies on which you can 1/11th
as an
input tax credit, is shown in Box G17. The example on page X covers the situation that
will apply for the supply of most goods and services.
However, there are two other kinds of supply that you also need to be familiar with - these
are GST-free supplies and input taxed supplies.
2. GST-Free Supplies
GST-free supplies are different from taxable supplies because GST is not charged on
sales. These sales are shown in boxes G2 and G3. However, full credits are still
available for all inputs to those supplies. GST-free supplies include things like health,
education, child care, exports and so on.
To demonstrate the difference between taxable supplies and GST-free supplies, we can
imagine that the retailer in the example above might get an order from overseas for the
dining table. In that case, the table would be exported. The example would then look as
follows.
Table 2: GST on an exported dining table
Purchase Sale
Pri
ce
pai
d
(a)
GST
(b)
Total
(c)
Price
charged
(d)
GST
(e)
Total
(f)
Paid to
ATO
(e-b)
Logger 20 2 22 2
Timber mill 20 2 22 40 4 44 2
Furniture
Manufacturer
40 4 44 80 8 88 4
Retailer 80 8 88 100 0 100 -8
Overseas sale 100 0 100
0
Because the table is exported, and exports are GST-free, the sale is not subject to GST.
However, the retailer is still entitled to input tax credits for the purchases made to produce
the table. In this case, then, the retailer is in credit and gets a refund of $8 from the ATO.
The amount of export sales or income is separately recorded on the BAS calculation
sheet at Box G2.

21
Now, lets demonstrate an example of a retailer who gets an order for stationery from a
residential nursing home which provides services which qualify for GST-free status.
The example would look as follows.
Table 2a: GST on stationery as input to GST-free supplies
Purchase Sale
Price
paid
(a)
GST
(b)
Total
(c)
Price
charged
(d)
GST
(e)
Total
(f)
Paid to
ATO
(e-b)
Logger 20 2 22 2
Timber mill 20 2 22 40 4 44 2
Stationery
Manufacturer
40 4 44 80 8 88 4
Retailer 80 8 88 100 10 110 2
Nursing Home 100 10 110 -10
Total GST
Paid to ATO
0
Because the organisation provides GST-free services the nursing home is entitled to input
tax credits for the purchases made to provide those services.
The next example demonstrates a purchase of computers by a school for use in its teaching
program, which has GST-free supplies.
Table 2b: Computer equipment bought for use in educational courses
Purchase Sale
Price
paid
(a)
GST
(b)
Total
(c)
Price
charged
(d)
GST
(e)
Total
(f)
Paid to
ATO
(e-b)
Equipment
Supplier
400 40 440 40
Educational
body
purchaser
400 40 440 -40
Educational
body s fees
0 0 600 0 600 0
0
Because the educational course is GST-free, the amount charged to attendees is not
subject to GST. However, the school is still entitled to input tax credits for the purchases
made to run the educational course. In this case, then, the school is in credit and gets a
refund of $40 from the ATO.
As you can see, GST-free is an appropriate way of naming these supplies because in net
terms, no GST is collected on these supplies.
All sales or income from GST-free supplies, excluding exports, are totalled and recorded
on the BAS calculation sheet at Box G3.
Most organisations will be substantially involved with making and receiving taxable
and/or GST-free supplies. The critical point to note is that in respect of both of these
kinds of supply, you can claim back input tax credits for the organisation s purchases to

22
make these supplies. The major complication that may arise will be ensuring that you
know which goods and services are GST-free, so that you know when GST does not
have to be charged on your sales.
3. Input Taxed Supplies
Input taxed supplies are the third category. These are different from the other kinds of
supply because you don’t charge GST on your sales. These are deducted in Box G4on the
BAS. It also means that you can’t claim back any input tax credits on your
purchases to make those supplies either. These acquisitions are deducted in Box
G13. This is the trickiest kind of supply because it means you have to worry about when
you charge GST and when you can claim it back too.
The main kinds of input taxed supplies are residential rents and financial services. This
treatment of financial services means you won’t be charged GST on your bank interest.
For residential rents, it means that a landlord does not charge GST on the rent charged,
and is not able to claim input tax credits for anything purchased in respect of the property.
For example, if the landlord paints the walls, buys a new oven, or replaces the carpets
GST will be charged on those items, but it cannot be claimed back. The total of input
taxed supplies is also separately recorded on the BAS calculation sheet at Box G4. The
acquisitions to make those input taxed supplies are separately recorded on the BAS in Box
G13.
4. Supplies by non-registered entity
The fourth category of supply is that made by a non-registered entity - there is no
GST charged on the supply they make. They may not claim back GST included in the
price of items they purchase. When purchases are made from an organisation or person
that is not registered for GST, the total of those purchases are recorded on the BAS in Box
G14.
Recapping the kinds of supply
Remember: There are four kinds of supply. They are:
Taxable supplies
1. charge GST on sales — BAS, Box G6.
2. claim full input tax credits for GST paid on an entity s purchases — BAS Box G17.
GST-free supplies
1. no GST charged on sales —BAS, Boxes G2 and G3.
2. claim full input tax credits for GST paid on an entity s purchases included in BAS Box
G17.
Input taxed supplies
1. no GST charged on sales —BAS, Box G4.
2. no input tax credits for GST paid on an entity s purchases — BAS Box G13.

23
Supplies by non-registered entity
1. As no GST has been charged there is no claim available for input tax credits on these
acquisitions. They are deducted on the BAS in Box G14.
To avoid any confusion make a mental note now that input taxed supplies are not the same
as input tax credits. Input taxed supplies have just been described. Input tax credits are
the credits allowed for GST paid on organisation expenses incurred to make taxable or
GST-free supplies. The distinction is discussed more fully later in this section.
Clearing up a few queries
Now that you have come this far, you might have a number of queries. It is worth while
emphasising a few points now:
• When you acquire things for your organisation for which you are able to claim input
tax credits, you don’t have to wait until you have used those things to claim the credit -
you can do that in your next GST return. Say you buy a year’s stock of stationery for
$1100 (including $100 GST). You can claim that $100 in your next return, even
though you won’t use all the stationery for some time.
• Input tax credits are available for all your inputs, not just "raw materials", and they are
available to service providers in the same way that they are to providers of goods. For
example, if you provide counselling services you can claim the GST paid on your
telephone bills, heating, electricity, room rental and so on.
• Input tax credits can be claimed for all acquisitions you have made (that have a GST
content), including capital acquisitions, in the next GST return. So, unlike income tax,
where you have to depreciate capital items over a period, GST paid on capital items
can be claimed in the next return. For example, if you buy a new building, purchase a
computer for the office, or buy a new truck for work, you can claim back the GST on
these items in your next GST return - even though these items will be used over a
period of time. The amount of capital acquisitions are shown in Box G10 on the BAS
calculation sheet.
1. Wages and salaries paid to employees and superannuation contributions paid on behalf
of employees are not subject to GST. These are outside the scope of GST and don t
appear anywhere on the BAS form, including Box G1 and Box G11.
2. By and large, the examples and the discussion here assumes that the entity making the
supply is registered for GST - most organisations will be required by law to register.
Only registered entities charge GST, and only registered entities can claim input tax
credits. If you are not registered, you don’t charge GST on your sales, but you can’t
claim input tax credits either.

24
What does this all mean for my organisation?
Turning all this new language into what it means for your organisation comes down to a
few key points. A "typical" organisation:
1. Will pay GST on most of their acquisitions
2. Will be entitled to input tax credits on those acquisitions
3. Will need to substantiate claims for input tax credits with valid tax invoices
4. Will charge GST on most of their outputs (with major exceptions - where GST-free or
input taxed supplies are made)
5. Will need to ensure that the GST consequences of every transaction in and out of the
organisation are recorded, substantiated and can be readily retrieved.
The first steps that every organisation needs to take now to prepare for this involves:
1. Identifying all your organisation s inputs
2. Identifying all your organisation s outputs
3. Classifying those inputs and outputs according to their GST treatment (that is, are they
taxable supplies, GST-free or input taxed)
4. Identify any areas of uncertainty, and seek help from the ATO or a professional
adviser if necessary
5. Consider your record keeping systems to see if they are "up to scratch" in being able to
track and record all of these transactions

25
Input Tax Credits
Enterprises can claim back from the ATO the GST that is included in the price of goods
and services they acquire for the purpose of making taxable supplies and GST-free
supplies.
These are called input tax credits.
The BAS calculation sheet describes this at Box G20 as your GST credit. The total
amount in Box G20 is then transferred to Box 1B on the BAS.
It is critical that every registered enterprise is able to keep track of these credits as they are
real dollars. An unclaimed input tax credit is like an unclaimed income tax refund.
Working out how much GST to pay the ATO
If an enterprise is registered for GST and makes taxable supplies or GST-free supplies,
part of the price the enterprise pays for most goods or services it acquires is GST.
This GST portion of taxable supplies received by the enterprise is available as an input tax
credit provided those goods or services were acquired for the purpose of making the
taxable supplies or the GST-free supplies.
The registered enterprise will deduct its input tax credits from the GST it collects from its
customers so that only the resultant net amount of GST gets paid to the ATO.
Example
Oz Cartage (Pty) Ltd transports goods nationwide. It charges customers for the services it
provides. It incurs various operating costs. It has the ATO’s approval to operate on a GST
cash basis.
In a particular tax period, the company:
• Received monies from its customers for services it provided $33,000
• Paid its external suppliers $11,000
• Paid its employees $12,000
The monies it received from its customers, and the amount it paid its external suppliers, both
are GST inclusive.
The company accounts to the ATO for GST as follows:
GST content of receipts from customers (1/11th of $33,000) $3,000 = BAS Box G9
less: GST content of payments to suppliers (1/11th of $11,000) $1,000 = BAS Box G20
Net GST to be paid to ATO $2,000 = BAS Box 1A
In this example, $3,000 is the total GST collected from customers, and $1,000 is the total
input tax credits.
In order to claim GST input tax credits the business must have a valid tax invoice in respect
of the goods or services at the time the input tax credits are claimed in the BAS.

26
The Tax Fraction
The tax fraction can be important:
• In isolating the GST content of a transaction; and
• Identifying the true 'income' and 'expenditure' of the organisation.
Total price includes cost
Because 10% is added to the value of a taxable supply, the GST component of the GST
inclusive price is 1/11th of that price; the rest (10/11ths) is the value before GST.
In relation to that supply, that remaining 10/11ths of the price is the supplier’s real ’income’
as the GST collected must be remitted to the ATO.
Similarly for the acquirer of the supply, that remaining 10/11ths of the price is ordinarily
the true cost of the taxable supply as the GST content is recoverable from the ATO.
With any taxable supply you typically would find:
GST exclusive price $10 [10/11ths]
Plus GST 10% $ 1 [1/11th: The tax fraction]
GST inclusive price $11
Example
John Brown is registered for GST and sells 10 widgits to Ann Jones who also is registered
for GST. The value of the supply is $150.00 and John adds 10% GST [$15] and charges Ann
a price of $165.00.
When John completes the GST portion of the BAS he will disclose the total of his taxable
supplies for the tax period. He will calculate 1/11th [the tax fraction] of the total which
includes the price he charged Ann, so the 1/11th of that price [ie. $15] will be included in the
total GST on supplies made that he reports to the ATO, - in BAS Box G9.
The remaining 10/11ths of the price [$150.00] is the gross income that John receives from
the transaction.
When Ann completes the GST portion of the BAS she will disclose the total amount of her
acquisitions. She will calculate 1/11th [the tax fraction] of the total acquisitions which give
rise to input tax credits including the price she paid John in BAS Box G20. In this way she
will claim back from the ATO the $15 [1/11th of $165.00] GST she was charged by John.
The remaining 10/11ths [$150.00] is the actual acquisition cost of the item to Ann.

27
Attribution Rules
When an entity completes the GST section of the BAS it is required to include:
• The total amount of taxable supplies made by the entity during the period; in BAS Box
G6 and
• The total amount of the taxable supplies it acquired during the period in BAS Box G17
provided those supplies were acquired for the purpose of operating the taxable activity.
There are rules, called attribution rules, that determine the GST return period in which
transactions must be recorded for the purposes of accounting for GST. The rules depend
on whether you use a cash basis or a non -cash basis of accounting for GST. This election
would have been made when the entity applied for an ABN. The rules are as follows:
CASH BASIS:
Include only the GST included in payments actually received or paid during
the GST Return Period.
The entity does not have to account to the ATO for the GST charged to it s customers
until the GST has actually been received in cash.
This means that any taxable supplies made by the entity that include GST, but for which
payment has not been received are excluded from the Total Sales figure that is recorded in
Box G1. These supplies will be included in Box G1 in the GST return period in
which payment is subsequently received.
Where an entity is registered on the cash basis and receives part payment for any taxable
supply that it makes, the supply is included in Box G1 to the extent of the payment
actually received
• Claim relief for the allowable portion of the GST content of payments made in the tax
period.
Where an entity acquires taxable supplies of goods and services, the price of these
acquisitions will include GST. If that entity is registered for GST on the cash basis it
is able to claim as input tax credits 1/11th of the GST inclusive payments it actually
made in the BAS period. Provided a Tax Invoice is held at the time the claim is made.
This means that only the payments actually made for supplies that include GST are
recorded in Box G10 or G11.
For an entity which is GST registered on the cash basis to be able to claim an
input tax credit, it must have:
• Paid the bill; during the period the BAS relates to; and
• Hold the tax invoice that supports the fact that an input tax credit claim is available.
• If the bill is part paid, a partial claim can be made. In this event you include only the
paid amount in Boxes G10, or G11.

28
NON-CASH BASIS
• The non-cash basis of accounting for GST requires an entity to include in Box 1 of the
BAS all taxable supplies which occur in that return period.
The effect is that you have to include all taxable supplies you make in GST period in Box
G1 of the BAS, This will include all taxable supplies that have been made but not yet
paid for.
• The amount of GST an entity is entitled to claim back from the ATO is the GST
content of the consideration for all goods or services acquired during the period,
whether or not paid for in the period.
GST input tax credits can be claimed even if payment has not been made, provided always
that a tax invoice is held. Accordingly all acquisitions in the GST return period are
included in Box G10 and G11, irrespective of whether payment has been made or not.

29
Tax Invoice
Always make sure a Tax Invoice is obtained
If an organisation wants to recover from the ATO any GST it is charged on goods and
services acquired, the general rule is it must hold a tax invoice covering that supply.
A tax invoice is a valuable document
If an organisation is registered for GST and undertakes a transaction related to creditable
acquisitions, then the tax invoice provided by the supplier can be turned into money by
claiming back the GST content from the ATO.
Generally, if an organisation does not hold a tax invoice from the supplier, it cannot claim
GST input tax credits for the goods or services purchased by that organisation.
A tax invoice is not just any invoice
For an invoice to constitute a tax invoice, it must contain certain legally required
information. If it does not meet these requirements then it is not a tax invoice and the
organisation cannot claim back the GST content as input tax credits.
THE TAX INVOICE IS THE CORNERSTONE OF GST
The tax invoice is the single most important source document for the GST. Procedures to
ensure tax invoices are correctly issued, and recorded and filed appropriately are crucial in
a GST environment. The requirements of a ’tax invoice’ are an extension of information
normally appearing on an invoice.
Tax Invoice Checklist
Invoice total including GST
Greater than $50 but less than $1000 Greater than $1000
The ABN number of the supplier The ABN number of the supplier
GST inclusive price GST inclusive price
Clearly shown the words "Tax Invoice" Clearly shown the words "Tax Invoice"
Issue date of the tax invoice Issue date of the tax invoice
Name of the Supplier Name of the Supplier
Brief description of items supplied Brief description and quantity of items
supplied
If the GST is 1/11th of the total price If the GST is 1/11th of the total price
either; indicate total includes GST or, indicate total includes GST or
the amount of the GST the amount of the GST
If the GST is not 1/11
th
of the total If the GST is not 1/11
th
of the total
price (as a result of a mixed price (as a result of a mixed
supply), each supply must be supply), each supply must be
identified, identified,
the amount of GST payable and The amount of GST payable and
the total amount payable The total amount payable
The name and the address of the
receiver or
The ABN number of the receiver

30
For registered entities if the transaction is less than $50, including GST, a tax invoice is
not required. Input tax credits can be claimed provided a suitable receipt is held.
Get the tax invoice issues right and you are well on the way to dealing with GST.
As we have seen for the preparation of the GST portion of the BAS there needs to be
a split between the amount of taxable supplies, GST-free supplies, and input taxed
supplies. In the context of any organisation, this information will have its origin in
the details that need to be shown on the tax invoices issued by the organisation for
both credit and cash transactions. The system in place should allow the aggregate
amount of each such category of supply to be readily generated at the end of each tax
period.
• Details that need to be recorded in your records in respect of each receipt of funds
• Date that the cash was received (and the date of issue of any related invoice)
• In cases where there is no related invoice, relevant details of receipt
• Total amount banked
• Split between each category for GST purposes (where not already so recorded in the
accounts receivable system).

31
GST Systems
With many organisations, a starting point in considering their systems will be to effect a
detailed analysis of their activities, and the transactions they undertake. This analysis will
prompt questions such as the following:
• What are the GST implications of those activities and transactions?
• Do GST implications prompt the need to reconsider how those transactions are entered
into and recorded?
• What additional information needs to be generated by the system to meet GST-related
obligations, and how best might this be done?
• Is the existing system sufficiently robust to allow it to be suitably adapted for GST
purposes, or are more extensive systems called for?
At the end of the day, new (or modified) practices and procedures will need to be put in
place to accommodate GST and, at the same time, the requirements of the new PAYG
system.
In designing a system for the organisation consideration should always be given to
planning the system to meet both business and tax requirements.
To provide the required GST information for insertion in the organisation s BAS,
the system (whether it be manual or computerised) will need the following
documentation:
• Tax invoices received from suppliers
• Tax invoices issued by the entity
• Bank statements/ bank reconciliations/ cashbooks
• Ledgers, and other summarised information
• GST calculation sheets
• Adjustments worksheets
• Guides and industry specific booklets dealing with GST and the PAYG system

32
Source Documents
Source documents are the documented evidence that an entity accumulates when it
processes transactions. This evidence needs to be kept in a form that facilitates easy
retrieval.
Examples of source documents:
Cheque butts Deposit slips
Bank statements Tax invoices
Pay slips Receipts
Purchase orders Credit notes
Expense claim forms Quotations
Why do we keep source documents?
We keep source documents to provide the information needed to produce accurate reports
for use by management. In addition to this function, in a GST context, they provide the
evidence needed to prove that the entity is entitled to a GST refund or, conversely, how
much GST it needs to pay to the ATO.
Controls need to be put in place to ensure the system generates the required
source documents. The ATO has information available on exactly what source
documents need to be retained and for how long.
You will find it useful to:
• Use standard source documentation that suits the organisation
• File all documentation in a logical and ordered way, consistent with the systems used
• Ensure everybody in the organisation understands the need for, and use of the source
documents
A structured reporting system reduces room for error and enables the users to have a
greater level of confidence in the accuracy and usefulness of the information.
A consequence of a good system will be that GST reporting requirements will be easier to
meet. Further:
• The risk of incorrectly claiming back GST on items purchased will be much reduced;
and
• If any of the people who procure goods or services from your organisation are GST
registered, you will be helping them fulfil their documentation needs in respect of their
purchases from you.
Review source documents at time of transaction
When you create or receive any source document, take the time and care to ensure that all
relevant information is correctly recorded

33
The more accurate and detailed the source documents are, the more useful they become,
allowing more information to be held in one place. Where possible, source documents
should be cross-referenced to provide additional detail if required.
Examples of this may be a quote matched to the invoice, or alternatively a cheque number
written on an invoice when paid.
Tax Invoices
As we discussed earlier the tax invoice is the single most important source document in
any GST system. Procedures to ensure tax invoices are collected, issued and stored
appropriately are crucial in a GST environment. The requirements of a tax invoice are an
extension of information held on a normal invoice.
Cheque butts
Most payments that an organisation makes are made through a bank account using
cheques. The cheque butt provides an opportunity for the organisation to record
information about each payment made. The cheque number is also unique and provides a
good tool for cross-referencing the payment against the tax invoice held.
Details that you may wish to write on each cheque butt are:
• Date
• Supplier
• Cheque total
• Any GST content, and whether (any part of) the payment relates to a supply that is
GST-free or input taxed.
Cash Payments
It is desirable that actual cash payments, including petty cash, should be kept to a
minimum. The reason is to ensure that there is a permanent source document that can
easily be referred to. As mentioned, payments by cheque allow the cheque butt to be used
as the source document. An equivalent methodology needs to be put in place if cash
payments must be made to ensure that those outgoings are correctly accounted for.
Drawing a cheque on the business account and banking it as part of normal sales could
achieve this.
If the payment covers an item that costs not more than $50 [including GST] it will not be
necessary to obtain a formal tax invoice from the supplier. However, a suitable
transaction receipt is still required for GST purposes.
For the preparation of the BAS there are certain details that need to be shown. There needs
to be a split between,

34
Capital acquisitions — BAS Box G10
Other acquisitions — BAS Box G11
Acquisitions of input taxed supplies — BAS Box G13
Acquisitions with no GST in the price — BAS Box G14
Private use and non tax deductible acquisitions — BAS Box G15
Deposit book
The bank deposit book is similar to the cheque butt, but instead of analysing payments it
may be used to analyse your receipts. Again this allows a lot of information to be held in
one place that can be used for different purposes.
For the preparation of the BAS there are certain details that need to be shown. There needs
to be a split between,
Taxable Supplies — BAS Box G6
GST-free supplies — BAS Boxes G2 and G3
Input taxed supplies — BAS Box G4
Care needs to be taken to ensure that if the deposit is outside the GST (such as a receipt of
a loan or transfer of funds between accounts) that this is shown separately and not lumped
into any of the three GST categories.
Details that may need to be written on each deposit form.
• Date
• Total amount of the deposit
• Total GST portion of the total amount of the deposit
• The portion of the total amount of the deposit that is attributable to each different type
of supply (taxable; GST-free, input taxed)
Nowadays, many credits to the bank account of an organisation are not by way of deposits
made of cash and cheques received. Often, there will be a significant number of eftpos or
credit card transactions. Care needs to be taken to ensure that these too are recorded
correctly in the systems and GST properly identified and accounted for. One particular
area where GST accounting is all important is that of credit card sales. Here the focus
needs to be on the total consideration (and GST content) of the GST taxable supply made,
not on the amount of the deposit made by the credit card company. This becomes an issue
when the credit card company deducts its fees before the net deposit is credited to the
organisations bank account.

35
Bank Statements
The bank statement provides the link between the inwards and outwards transactions of an
entity. It shows the deposits made, cheques issued and automatic payments made.
The bank statement provides the first opportunity to reconcile your record of the payments
and receipts against what the bank actually credited or debited to your account. This is
particularly important when there are automatic payments and direct credits or other
deposits into the account.
Some entities may find that each major activity undertaken is more easily accounted for when
each activity operates its own bank account. This allows the source documents for each to be
easily identified, collated, analysed and reported on.
Rules of thumb for bank statements:
• Keep them all for at least five years (as with all your records)
• Keep the statements for each bank account separate from those of other bank accounts
maintained
• File in date order
• Complete a bank reconciliation at least monthly.
Cashbook
No matter what system an entity chooses to use, the primary purpose of recording GST
information is to ensure that all the information required for completing the BAS is
available. If an entity has an accounts payable and accounts receivable system then a
typical flowchart showing how all the information is gathered in one place would be as
shown.
Tax Invoices
Received
Tax Invoices
Issued
Creditors
Debtors
Cashbook
Bank Statement
Reports and
information

36
Because the various types of transactions need to be analysed into their GST effect there
need to be effective checks and balances in place.
At the end of any GST tax period, the balance in the GST accounts in the general ledger
[GST received from customers and GST paid to suppliers] should equal your GST refund,
or the total GST payable to the ATO, as disclosed by your workings on your BAS for the
period.
Checks and Balances
Every entity needs checks and balances to ensure everything is recorded accurately and in
the correct period. These are called controls. An essential control is the bank
reconciliation.
The bank reconciliation should be completed at least monthly and before any information
or reports are created. If the cashbook (or computer system) reconciles to the bank
statement then there is accurate information to generate reports on cash movements in the
entity. The cashbook will also give the information required for the BAS if the entity is
registered for GST on a cash basis. If the entity is registered for GST on a non cash basis,
then further information will be required.

37
Assisting Staff To Deal With GST
In modifying or developing systems to record and account for GST the procedures that are
developed and put in place must be user friendly. These procedures must be in a form that
enables staff to follow them without being technical experts in GST.
• In developing the procedures the following actions are necessary:
• The Chart of Accounts needs to be suitably modified to classify the various types of
supply - GST supplies, GST-free supplies, input taxed supplies, by activity where
appropriate
• Implement procedures to ensure that source documents will be coded correctly to
indicate the GST status of all supplies made or received
• Ensuring that invoice documentation issued by the business complies with the "tax
invoice" requirements and facilitates accurate recording
• Reviewing current procedures to ensure that the debtors and creditors records
appropriately capture and classify GST information in an efficient and effective
manner.
• Ensuring cash flow management procedures are adequate to cope with the impact of
GST
• Ensuring that relevant totals can easily be obtained from the system for entering on the
GST return, either from a computerised or a manual recording system
• Ensuring that staff understand and can apply the “attribution rules”
• Reviewing procedures to ensure that records are kept up to date at all times to enable
the completion of the BAS within 21 days of the end of each tax period
• Understand what GST issues fall outside their knowledge and experience and contact
the ATO or professional adviser for assistance

38
Wine Equalisation Tax
Boxes 1C and 1D on the BAS relate to Wine Equalisation Tax.
For most taxpayers these boxes are not relevant.
What is the Wine Equalisation Tax?
This is a tax payable by relatively few taxpayers on the last wholesale sale (sale to a
reseller) of wine in Australia. If untaxed wine is sold directly to a consumer then the tax
will apply to the sale or use of that wine. Most taxpayers will ignore boxes 1C and 1D on
the BAS.
The tax is imposed at the rate of 29% on the wholesale selling price of wine.
Alternative values are used in the calculation if the wine is not sold wholesale.
The Wine Equalisation Tax (WET) is required to be included in the BAS or IAS at Box
1C Wine equalisation tax payable for the relevant tax period.
If a refund is claimable this is shown at Box 1D at the heading Wine equalisation tax
refundable .
Calculation of WET payable
The calculations required to determine the amount of WET payable for a relevant period
are shown in the ATO publication Business Activity Statement Instructions . They
involve separating the dealing with the wine into different categories:
1. Wholesale sale of any goods subject to WET
2. Retail sale of grape wine
3. Retail sale of wine that is not a grape wine
4. Application of the wine to own use connected with retail sale of grape wine
5. Application to own use connected with retail sale of wine that is not a grape wine
6. Wholesale sale of wine to a non-arm s length customer
In cases where the WET has been overpaid it is refundable within 4 years of when the
reason for claiming a credit arises. Credits may arise in a number of ways including:
• Incorrect calculation of the amount payable
• Exporting wine that was subject to WET
• Writing off bad debts that included WET paid by you
• Entitlement to a Commonwealth Rebate on rebateable dealings ($300,000)
Reference; ATO Business Activity Statement Instruction Booklet.
ANTS (Wine Equalisation Tax) Act 1999

39
Luxury Car Tax
A Luxury Car Tax (LCT) at the rate of 25% is payable on the value of a car above the
luxury car tax threshold, but excluding the GST component above the threshold.
Essentially this section in the BAS is to be completed only if the motor vehicles are held
as trading stock.
The definition of a car for tax purposes is subject to change depending on the purpose to
which the car will be put. The eligibility for the LCT takes into account the load and the
number of passengers the car is designed to carry.
A luxury car is a car with a GST-inclusive value that exceeds the luxury car tax threshold
ie. the GST-inclusive car depreciation limit for income tax purposes. This limit was
$55,134 in the 1999-2000 income year but is subject to change.
LCT on importations of luxury cars will be generally paid with customs duty and in these
cases it will not appear on an Activity Statement.
However if you quote your ABN the LCT need not be paid at the point of importation but
on the next BAS subject to the following:
• The business must be registered for GST and therefore obliged to submit a BAS
• The business intends to use the car for one of the following purposes, and for no other
purpose
1. Holding the car for trading stock, other than holding the car for hire or lease
2. Carrying out research and development for the manufacture of the car, or
3. Exporting the car in circumstances where the export is GST-free
The tax is required to be included in the BAS or IAS at Box 1E Luxury car tax payable
for the relevant tax period. If a refund is claimable this is shown at BAS Box 1F at the
heading Luxury car tax refundable .
Increasing adjustments to the LCT (as well as any related GST) may arise in the following
circumstances:
• An increase in the price of the car
• You quoted your ABN at the time of importation or purchase and you now use the car for
a different purpose
• You previously claimed a decreasing adjustment in respect of a bad debt which has since
been recovered
Decreasing adjustments are also possible if the reverse of the above circumstances arise,
as well as in the case of a sale being cancelled after you have paid the relevant LCT.
Reference; ATO Business Activity Statement Instruction Booklet.
ANTS( Luxury Car Tax) Act 1999

40
Wholesale Sales Tax Credit
A once only special credit for wholesale sales tax paid before 1 July 2000 is claimable
by some taxpayers provided that:
1. The taxpayer is registered for GST by 1 July 2000
2. The claim is made once only on a BAS or IAS at Box 1G lodged with the ATO in
respect of any reporting period ending on or before January 7, 2001
3. The stock in respect of which the WST has been paid is trading stock
4. Evidence of the WST paid is available and retained
5. All relevant records of the stock-take at 30 June 2000 are available to validate the
claim for the credit.
The claim is calculated in one of two ways:
1. Physical stock-take with details of the actual WST included in the cost of each item. This
can be obtained by referring to the original invoices, copies of which should be kept with
the stocktaking records. The total WST is then claimed as a special credit.
2. Where it is not possible to identify the WST content of each item on hand at 30 June you
may use the following formula:
Rate of WST applicable to a category of goods multiplied by 50% of the cost of those
goods.
Eligibility of Goods
Items in respect of which the credit is claimable are those purchased or imported and held
for sale or exchange (but not for manufacture).
Items on which you may not claim the WST credit are:
• second-hand goods, unless you imported them for sale or exchange and paid sales tax on
them
• plant and equipment which you have used in your business
• demonstration goods, or
• goods for hire or lease.
Alcoholic beverages
A partial credit is available in respect of certain types of alcoholic beverages. You are
advised to contact the ATO or your financial adviser to discuss your eligibility for the
special WST credit.

41
Subsequent adjustments to Claim for WST credit
The ATO advises that any alteration to the amount claimed as a special WST credit must
be reported by submitting a Revised Activity Statement.
Adjustment may arise in respect of the relevant goods as a result of:
• using the goods for private purposes. Include the market value of the goods at Box 1G on
the Activity Statement.
• receiving discounts or rebates that reduce the price on which the WST was calculated.
• returns received back into stock or returned to your supplier.
Reference: ATO Ruling GSTR 2000/8 issued 19.4.2000

42
Overview of PAYG
The introduction of Pay As You Go (PAYG) combines all of the various methods and
payments of income tax of taxpayers earnings under one system.
Under the PAYG systems all taxpayers currently liable to file income tax returns will still
have those obligations but all of the methods of paying the taxes attributable to their
income during an income year have been combined under the same umbrella.
The PAYG system is broken up into two parts. The PAYG withholding system deals with
the obligations to deduct tax at source. The PAYG instalment system covers income that
was not subject to PAYG withholding.
(Modified from an ATO publication)
Pay As You Go
PAYG Withholding
means paying amounts
you withhold from others
Replaces
PAYE and other
withholding systems. (The
PPS and RPS systems will
be abolished.)
PAYG Instalments
means paying your
own tax
Replaces
provisional tax and
company and
superannuation fund
system
one set of due dates
one form for reporting and payment

43
PAYG Withholding System
What is the new PAYG system?
It is a part of the New Tax System effective from 1 July 2000.
The PAYG withholding system replaces 9 existing systems which require that tax be
withheld by a payer at source and which require certain taxpayers to pay provisional tax in
advance of their final assessed income tax liability.
The withholding systems to be replaced include the current PAYE (Pay As You Earn
deductions from salaries and wages), PPS (Prescribed Payments System applicable to
certain contractors), RPS (Reportable Payments System applicable to industries).
The new PAYG withholding system will integrate all the previous systems. A payer will
be required to withhold tax on certain specified payments, including where applicable,
some non-cash benefits. Penalties will be incurred if the relevant amounts are not withheld
and remitted to the ATO on the due dates.
Payment due dates for all PAYG withholdings will be aligned so that all withholding
amounts deducted by a business will be sent to the ATO at the same time.
Note The new system affects all businesses, whether commercial or not for profit and
charities, as well as some individuals such as self-funded retirees.

44
Presenters Note:
Nine Systems replaced by PAYG withholding:
1. PAYE (Pay As You Earn)
2. PPS (Prescribed Payments System)
3. RPS (Reportable Payments System)
4. Dividend withholding tax
5. Investment income where no TFN provided
6. National resource payments, dividends, interest and royalties paid to non-residents
7. Mining on aboriginal land
8. Repaid farm management deposits
9. Withdrawals from Australian Film Industry Trust Fund Accounts
PAYG WITHHOLDING
Started on July 1 2000
What s new?
Voluntary agreements
Labour hire
No ABN
Nine systems replaced by PAYG withholding
CALCULATION SHEET EXTRACT:
Total of salary wages
and other payments
Amounts withheld
from investment
distributions where
no TFN is quoted
W2
Amounts withheld
from salary wages
and other payments
Amounts withheld
from payment of
invoices where
no ABN is quoted
Amounts withheld from all payments for the period ( dates pre-printed
by ATO)
Add W2 + W3 + W4 and write the amount at 4 on the front
W3W1
W4

45
Terminology for PAYG Withholding
Australian Business Number (ABN) —the number issued to all entities carrying on an
enterprise with effect from 1 July 2000. It is intended that the ABN will replace the ACN
and ARBN.
BAS or Business Activity Statement is used monthly or quarterly by entities which are
registered for GST to report their business tax obligations and entitlements
Commissioner s Instalment Rate (CIR) —a rate of PAYG instalment notified by the
ATO for use when paying instalment of tax
EFT — Electronic Funds Transfer
FBTAA - Fringe Benefits Tax Assessment Act
General Interest Charge (GIC) — an interest charge on late payments of tax calculated
daily on a compounding basis. The daily rate is the weighted average yield for the 13
week Treasury Note yield rate plus 8%, divided by 365. This will be adjusted quarterly.
(TAA sec 8AAD).
Goods and Services Tax (GST)- a 10% tax on most goods and services supplied in
Australia from 1 July 2000
Higher Education Contribution Scheme (HECS) —employees who have attended
tertiary institutions and have an unpaid debt in respect of the relevant fees are required to
have repayments deducted from their remuneration
IAS or Instalment Activity Statement is used by entities or individuals which are not
registered for GST to report their tax obligations and entitlements.
ITAA - Income Tax Assessment Act
Labour Hire Firm — any firm which wholly or partially arranges for individuals to
perform work or services for their clients. If this activity is only incidental to the business
then it does not fit into this definition.
Payment Summary — replaces former Group Certificate and shows total payments made
to the employee, total tax deducted therefrom as well as other information such as
reportable Fringe Benefits, and no ABN withholding.
TAA —Tax Administration Act 1953
TFN —Tax File Number
TFN Declaration — replaces former employment declaration completed by all employees

46
General References:
• Guide to Pay as You Go for business (March 2000)
• Guide to Pay as You Go for individuals (March 2000)
• Transferring from PAYE to PAYG withholding (June 2000)
• PAYG Instalment Activity Statement Instructions
• PAYG Business Activity Statement Instructions
Note: Forms published by the ATO are available on the ATO website at
www.taxreform.ato.gov.au

47
Registration for PAYG
Before a payer can be part of the new PAYG system the payer must be registered for
PAYG withholding.
How does a payer register for the new system?
Currently registered for withholding taxes:
If you are currently registered under one of the existing withholding systems you will
automatically be included in the new PAYG system. Most businesses for example are
already registered as group employers, deducting PAYE from salaries and wages.
Registering for the first time:
If you are not currently withholding any taxes then you need to notify the ATO that you
will be doing so before you make the first PAYG withholding payment.
Payers that are required to withhold tax for the first time would include those paying a
supplier of goods or services that does not provide an ABN (Australian Business Number)
as part of a business transaction
Entities required to withhold tax
Entities required to withhold tax fit into three categories, small, medium or large,
depending on the total annual amounts of tax withheld by them.
Payment to the ATO of the amounts withheld will be due on specified dates and normally
be included on one of the following two statements:
Business Activity Statement — BAS — if registered for GST
Instalment Activity Statement — IAS — if not registered for GST
Registration for PAYG
Currently registered for withholding taxes
Registering for the first time
What s required to withhold tax
BAS - monthly or quarterly only if registered for GST
IAS - monthly or quarterly if not registered for GST

48
Small, Medium and Large withholders
Different rules apply to each size category of PAYG withholders and may be summarised
as follows:
Annual
withholdings
Remittance due Report required to accompany
payment
SMALL
Up to $25,000
Quarterly
On or before the 21st
of the
month following the period end
BAS quarterly if registered for
GST or
IAS quarterly if not registered for
GST
MEDIUM
$25,001
to $1 million
Monthly
On or before the 21st
of the
month following the period end
BAS monthly or quarterly if
registered for GST
IAS monthly or quarterly if not
registered for GST
LARGE
Over $1
million
Weekly:
Deductions made from
Sat — Tues due following Mon
Wed — Fri due following Thurs
ATO approved form for weekly
payments (EFT Code Type 70)
plus
BAS monthly or quarterly
(EFT Code Type 60 for other
liabilities on BAS)
Small withholders for the year 2000-2001:
• You withheld $25,000 or less in total in respect of all types of withholdings for the
financial year ended 30 June 2000
Obligations:
• Must pay PAYG withholdings quarterly
Medium withholders for the year 2000-2001:
• You were a medium withholder for June 2000 and would have been even if PPS and
RPS withholdings had been ignored
• Your withholdings for the financial year ending 30 June 2000 exceeded $25,000
• The ATO determines that you are a medium withholder

49
Obligations:
• Must pay PAYG withholdings monthly
Large withholders for the year 2000-2001:
• Classified as a large remitter for June 2000
• Have PAYE remittances of more than $1 million (alone or as part of a company
group) for the 1999-2000 financial year
• The Commissioner determines that you are a large withholder
Obligations:
• Must pay PAYG withholdings to the ATO weekly
• Must pay electronically — direct payments or Bpay using EFT code (Type 70)
• Can offset a net GST liability against only one withholding liability by lodging a
PAYG Withholding Liability Notification on or before the withholding due date
Note A withholder classified as large as at June 30 (due to obligations under the PPS
and/or RPS systems) may be able to request reclassification to medium, or even small,
post 30 June 2000.
Large withholders from the year 2001-02 onwards:
The $1 million threshold will be calculated taking into account all payments subject to
PAYG withholding, not just withholdings previously classified as PAYE.
The total must include all the PAYG obligations of wholly-owned companies in a group
and of all branches of an entity.
Reference: Large withholders guide to paying PAYG withholding liabilities; Business
Activity Statement instructions
Note:
In calculating the total PAYG withholdings even those amounts withheld from suppliers
who do not quote an ABN must be included.
Change of status — the ATO can vary the status of a withholder on a monthly basis. The
determination will be given before the relevant month to which it will apply.
Classification for PAYG
Small - up to $25,000
Medium - $25,001 to $1,000,000
Large - over $1,000,000
Change of status

50
Practical Issues for Employers
CALCULATION SHEET EXTRACT
Under the PAYG withholding system employers have the following obligations:
1. Obtain a valid “Tax File Number declaration” from all employees. Valid employment
declarations on hand at 30 June 2000 qualify as TFN declarations.
2. Obtain a “Withholding Declaration” from employees who wish to, or need to, have
their normal PAYG withholding amounts varied (this single page form is accompanied
by 24 pages of instructions). The reasons for requiring a variation would include
having a HECS debt or being eligible for certain rebates.
3. Determine amount of tax to be withheld using relevant tax tables effective from 1 July
2000.
4. Variations issued under the PAYE system expire on 30 June 2000. New variations
need to be obtained.
5. Where no TFN is provided by an employee the rate of tax is the top marginal rate,
including the Medicare levy. An employer is required to notify the ATO in the
approved form within 14 days if an employee does not provide a TFN.
6. A transitional requirement is to report to the ATO by 31 October 2000, in the
approved form, all employees who have not provided a TFN to their employer.
7. If the payee is not an Australian resident then foreign resident tax rates apply.
Total of salary wages
and all other payments
Amounts withheld
from salary wages
and other payments
Amounts withheld from all payments for the period (dates pre-printed)
W1 $
W2 $

51
8. Deduct PAYE from salaries and wages, termination payments etc.
9. Remit to the ATO weekly, monthly or quarterly depending on the total annual PAYG
withholding threshold of the employer.
10. If the remittance date coincides with the due date for a BAS or IAS then the
calculations are entered into BAS boxes W1 to W4 and the total due is transferred to
BAS Box 4.
11. Issue Payment Summaries (previously Group Certificates) for each employee by July
14, or when requested by an employee leaving (within 14 days).
12.Provide an annual report (previously the reconciliation statement) to the ATO, by 14
August, summarising all payments made to payees and the amount of tax withheld
(including Nil amounts). An employer can report on the approved form or provide
copies of all Payment Summaries issued, with a summary statement.
PAYER S OBLIGATIONS
Register for PAYG?
Withhold where required
Notify and remit
Annual report to ATO
Issue Payment Summary to payee
NO TFN report to ATO by 31 October
References: TAA sec 16-150; Pay As You Go (PAYG) Withholding Tax Tables
effective for payments made on or after 1 July 2000

52
Categories of PAYG Withholding
Employment related:
1. Salaries and wages paid to employees
2. Remuneration paid to a director of a company
3. Salary paid to an office holder (e.g. member of the Defence Force)
4. Return to work payment to an individual
5. Payment to an individual under a Voluntary Agreement (NEW)
6. Payment under a Labour Hire Arrangement, or one specified by regulations (NEW)
7. Pension or annuity
8. Eligible termination payment
9. Payment for unused leave on retirement or termination of employment
10. Social security or similar payment e.g. old age pension
11. Commonwealth education or training payment
12.Compensation, sickness or accident payment
Investment related:
13. Investment income paid – recipient provides neither TFN nor ABN
14. Investor becoming ‘presently entitled’ to income of a unit trust
ABN:
15. No ABN quoted by recipient of a payment for a supply of goods or services (NEW)
Non-residents:
16. Dividend paid to an overseas person
17. Dividend received for a foreign resident
18. Interest paid to an overseas person
19. Interest payment received for an overseas person
20. Interest derived by a lender in carrying on a business through a permanent
21. establishment overseas
22. Royalty paid to an overseas person
23. Royalty received for an overseas person
Mining:
24. Mining payment (refer ITAA sec 128V)
25. Natural resource payment (at least one recipient is a foreign resident)
Note that only 5, 6, and 15 above are NEW types of withholding.

53
Taxing of Allowances
PAYG withholding applies to certain allowances that are not included in the normal
salaries and wages paid to employees but which are paid for:
• Working conditions eg. danger, height and dirt
• Qualifications or special duties eg. safety officer
• Expenses that are non-deductible for income tax purposes eg. for travel between home
and work
• Work-related expenses that may be income tax deductible eg. travel between work
sites
Allowances excluded from PAYG withholding
Some allowances have been specifically excluded from withholding by the Commissioner
subject to the following:
• The payee is expected to incur the expenses and they may be claimed as a tax
deduction at least equivalent to the amount of the allowance, and
• The amount and nature of the allowance is shown separately in the accounting records
of the payer
Examples of excluded allowances include payment for travel costs based on a cents per
kilometre basis but only up to 5000 kms, laundry allowances for deductible clothing up to
the threshold amount.
ATO Schedules
The ATO has produced schedules of the allowances and their treatment for PAYG
purposes.
References: PAYG Bulletin Number 1

54
Non-Cash Benefits and PAYG
Withholding
What is a non-cash benefit?
A non-cash benefit includes property or services in any form except money. Barter
transactions are a typical example of this.
PAYG withholding is required in respect of all non-cash benefits provided to persons,
other than employees, given in exchange for goods or services where the payment would
have been subject to PAYG withholding had it been made in money. This is to ensure that
the withholding provisions are not by-passed by making payments in the form of non-cash
benefits.
The payer of a non-cash benefit subject to PAYG withholding is required to:
• Establish the market value of the benefit being given to the recipient
• Calculate the relevant tax on that amount
• Remit the tax to the ATO before the benefit is supplied to the recipient
• Provide the recipient with a Payment Summary at the end of the financial year
• Recover the amount of tax paid to the ATO on behalf of the recipient from the
recipient either in cash or by offsetting that amount against any further payments due
to the recipient.
No PAYG withholding is required if the benefit is:
• A fringe benefit
• An exempt benefit under the Fringe Benefits Tax Assessment Act 1986
• The acquisition of a share or right under an employee share scheme
Example:
Sarah has entered into a Voluntary Agreement with a property developer to
landscape the gardens surrounding a new corporate office block. The property
developers offer her one of their second-hand vans as payment for her services. The
company is required to establish the market value of the van and pay over the
relevant withholding tax to the ATO before the vehicle is given to Sarah. Sarah is
then obliged to pay to the company the amount of tax paid on her behalf.
Alternatively if the company owes her more than the market value of the van it can
offset such amounts against what is due to her.
References: ATO Fact Sheet NAT3066; Fringe Benefits Tax Assessment Act 1986;
ITAA 1936 Div 13A of Part 111.s

55
Contractors and Employees under
the New Tax System
When is an individual a contractor and not an employee ?
It is important for a payer to know whether a payee is classified as an employee or a
contractor for tax purposes. If the payee is an employee then the payer will be required to
deduct tax from the salary/wages at time of payment. Alternatively if the payee is a
contractor, tax will only be deducted at time of payment if the PAYEE fails to provide an
ABN. In this event tax will deducted at the rate of 48.5 cents in the dollar.
Who is an employee within the ordinary meaning of that expression?
There are definitions in the legislation and much case law but essentially there must be a
contractual relationship between an employer and an employee requiring the provision of
service on the part of the employee. This is a difficult area of tax law and is by no means
settled.
In essence this area of the law affects the contractor, and not the person using the
contractors services. Any individual holding themselves out as being a contractor should
familiarise themselves with the ATO s publications and rulings in this area. In particular
contractors should be familiar with Draft Ruling TR2000/D2, and the rulings relating to
entities [eg companies] that are interposed between the individual performing the services,
and the person who utilises those services.
Individuals who wish to operate as independent contractors would be advised to discuss
their individual situation with the ATO or their financial adviser.
Contractor or Employee?
ATO ruling
Control is a significant factor
If an employee — PAYG withholding
If a contractor — ABN required but no withholding
Organisations using the services of contractors, and not operating under a Voluntary
Agreement,[see page 56] will not be obliged to verify the status of people who hold
themselves out to be contractors. They should however ensure that they obtain an ABN if
no tax is deducted..

56
Voluntary Agreements
The PAYG system allows for a new form of contractual arrangement between an
individual (the contract worker) offering their services and businesses requiring those
services.
This option is available under the following circumstances:
• The contract worker (payee) has an ABN, and
• The payments for the services are not subject to any other PAYG withholding eg. a
Labour Hire Arrangement
Payer
If this arrangement suits both parties the business is required to:
• Enter into a formal written contract to be signed by both parties. You may use the
ATO form NAT2772, A Voluntary Agreement for PAYG Withholding .
The original is the payer s copy, the duplicate is the payee s. There is no requirement
to lodge a copy with the ATO.
Or the parties may draw up their own contract ensuring that it contains at least the
following information:
• Commencement date of contract
• Type of service being provided
• Statement that the payments made are subject to a Voluntary Agreement under sec 12-
55 of Schedule 1, Part 2-5 of the TAA
• Payee s and payer s ABN, name, and address
• Rate of withholding
• If the contract worker is engaged more than once it will not be necessary to draw up a
new agreement each time the contract worker performs services for the business. The
Voluntary Agreement remains in force until such time as it is terminated in writing by
either party
• Deduct PAYG withholding at the payee s instalment rate as notified by the ATO
(Commissioner s Instalment Rate), if greater than 20%. If the CIR is less than 20% the
two parties must agree to use the lower rate, failing which the rate will remain at 20%.
Where no CIR has been supplied then the 20% rate applies.
(The rate is applied to the payment net of any GST that may have been charged)
• Pay the withholding tax to the ATO on the next activity statement BAS box W2.
Show gross payments in BAS box W1
• Issue the contractor with a Payment Summary by 14 July each year, or earlier if
requested
• Retain the agreements for the duration of the contract and for 5 years thereafter.
• Give an annual report of all payments withheld to the ATO by 14 August each year

57
The contract worker/payee:
• Will not be required to pay any PAYG instalments on the income earned under the
Voluntary Agreement. They effectively end up in a similar situation to an employee,
the amounts earned under the agreement being returned in their annual income tax
return as well as the credit for the withholdings.
• Must retain copies of Voluntary Agreements while they are in force and for a period of
5 years thereafter
• Must complete an activity statement by the due date, excluding payments received
under a Voluntary Agreement. This is necessary even if it is a Nil statement
• Charge GST on the value of the service only if they are registered for GST and if the
payer is not entitled to a full GST input tax credit
• A GST registered contract worker can claim input tax credits on all inputs used in
supplying the relevant services
GST implications for voluntary agreements:
In most cases the supply of the services under a Voluntary Agreement will not be subject
to GST even if the contract worker is registered for GST. However, if the business is not
acquiring the services for a creditable purpose then it will be required to pay GST on the
services.
Failure by either party to retain a copy of the Voluntary Agreement for the specified
period may result in penalties.
Example:
Tom is registered for GST and provides computer software support to a limited
number of businesses. He enters into two separate Voluntary Agreements as follows:
1. Bird and Associates, a firm of accountants. Tom will not include GST in his
invoices to the firm but he can still claim all relevant GST input tax credits on his
inputs.
2. ABC Bank Ltd., providing financial supplies, all of which are input taxed. Tom
will include GST on his invoices to the bank and he can still claim his input tax
credits.
Reference: PAYG Voluntary Agreements NAT3063-6.2000; TAA sec 12-55
Voluntary Agreements
Written contract
ABN required
GST chargeable?
Not included in instalment income of payee

58
Labour Hire Arrangements
Labour hire arrangements involve 3 parties:
1. Labour Hire Firm
2. Client of the Labour Hire Firm
3. Worker (an individual) who is not an employee of either of the other 2 parties
They involve at least 2 contracts:
1. Between the Labour Hire Firm and the client [numbering not quite right
here]
2. Between the Labour Hire Firm and the worker
A Labour Hire Firm is any firm that wholly or partially arranges for individuals to perform
work or services for their clients. If this activity is only incidental to your business then
you do not fit into this definition. The following examples where withholding tax does not
apply help to illustrate this point:
Example 1: Incidental use of a third party for a client
A solicitor using the services of a barrister for a client will not be required to
withhold tax from payments to the barrister.
Example 2: Contractor using a subcontractor on a project
A contractor using a subcontractor on a project commissioned by a client will not be
required to withhold tax from the payments under the labour hire arrangement rules.
However, there may be an obligation to withhold due to some other circumstance
such as the subcontractor not providing an ABN.
Example 3: Staff recruitment agency
The agency recruits a new CEO for a client. There will be no withholding obligation
on the part of the agency. The client will have a PAYG withholding obligation in
respect of its new employee (and possibly in respect of its payment of commission to
the agency if it fails to supply an ABN).

59
Labour Hire Firm
The PAYG withholding obligations for the parties to such an arrangement are as follows:
1. Labour Hire Firm is obliged to withhold tax from all payments it makes to the worker
and pay these to the ATO
2. The client has no PAYG obligations
3. The worker will receive a Payment Summary from the Labour Hire Firm at the end of
the financial year and return the income in his/her annual income tax return.
Example
ABC Ltd. (the client) contracts with IT Services (the Labour Hire Firm) to supply
contract workers during their peak periods to assist with processing data. Jean Jones
is on the books of IT Services and is sent to work at ABC Ltd. for a month. She will
be paid by IT Services, which is obliged to withhold tax from all payments made to
her. There is no PAYG withholding obligation on the part of ABC Ltd.
Reference: ATO publication NAT 3069.
This payment is
subject to
withholding
Labour Hire Firm
Worker
(individual)
Client

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