Taxation and the Goods and Services Tax

• cash flow budgets help determine the likely future cash position of the business
• cash flow budgets also help in deciding when working capital will need to be borrowed
• peak debt indicates the maximum working capital required by the business during the period under consideration
• ideally overdraft facilities are returned to surplus at some point of the year for some time period
• overdraft facilities are designed to account for the seasonal ups and downs of cash
• an ongoing overdraft suggests a poorly structured financial package
• A change in management can reduce peak debt such as bringing forward sales or delaying purchases
• a strategy to managing cash flow shortages is having a discussion with creditors or investigating alternate sources of finance
• the three levels of government levy taxes in australia are federal, state and local
• from a cash perspective there are four main types of taxation that a business owner needs to understand - GST, income or company tax (for business), pay as you go tax (for employees) and superannuation (for employees)
• GST is the ultimate tax paid by the consumer
• GST is levied at a rate of 10% on most goods and services
• There are some exceptions to GST such as wages, fresh food, interest chargers and government rates and charges
• Land used for agricultural purposes is not subject to GST
• Businesses registered for GST are required to add 10%to the total invoice cost for the items they sell and remit this to the ATO w/ their business activity statement (BAS) which is generally prepared on a quarterly basis
• The formula for adding GST is (original cost x GST%) / 100
• formula for removing GST is original cost - [original cost x {100/ (100 +GST%)}]
• net price when adding GST is original cost + GST amount
• net price when removing GST is original cost - GST amount
• businesses are allowed to claim a credit on GST paid by the business on inputs and offset this against the GST they have collected
• the difference between GST collected and the input tax credits can result in an amount owing to the ATO or ana mount due to the ATO
• income and expenses for cash budgets and the statement of comprehensive income (profit and loss) are prepared without GST
• to make sure the business has enough cash to meet their GST obligations, GST needs to be calculated and included in the statement of position or balance sheet
• GST is on sales
• GST is not on interest, wages and drawings
• if profits are made the business will be liable for tax
• how tax is calculated and levied depends on the structure of the business - for partnerships and sole traders, the business profit will be added to the personal income of the operator or partners income and they will be taxed at the applicable marginal rate
• for businesses operating as companies the company is required to file a company taxation return and will pay tax at the company tax rate
• the formula for taxable income is gross assessable income - business deductions - other deductions
• the formula for gross tax payable is taxable income - tax rate
• the formula for net tax is gross tax payable - tax rebates and credits
• the formula for after tax income is equal to net tax
• pay as you go (PAYG) tax is on employees wages and paid to the ATO after each pay run