Assessment 2 Process Business Tax Requirement1

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Assessment 2 Process Business Tax Requirement1

Assessment 1 Process Business Tax Requirements

  • PAYG Withholding

    Under PAYG withholding, if a business supplies goods or services to another and does not quote an Australian Business Number (“ABN”) on their invoice, the business that receives the goods or services is required to withhold 46.5% from the payment to the supplier and remit this amount to the ATO.

    This 46.5% withholding for no ABN does not apply when:

  • the payment does not exceed $75 GST exclusive
  • the supply is made in the supplier’s private capacity, or as their hobby;
  • the payment is exempt income for the supplier (for example, the supplier is a non profit body
  • the payment is to a non-resident who is not carrying on a business in Australia or through an agent in Australia
  • the supplier is not an enterprise because they have no reasonable expectation of profit or gain
  • The pay as you go (PAYG) instalment system is a means of paying instalments towards your expected income tax liability on your business or investment income (or both) for the current income year.

    Your actual income tax liability is worked out when your income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.

  • The Superannuation Guarantee Levy is payable by employers who do not contribute a specified minimum level of superannuation into an approved fund for their employees. It is in the interests of employers to make the necessary superannuation contributions rather than to pay the levy, because unlike superannuation contributions, the levy is not tax deductable.

  • The Tax Office stipulates that a business must use “ordinary time earnings” to calculate the minimum compulsory superannuation guarantee contributions for employees. It says that using ordinary time earnings will ensure all eligible workers are treated the same, and will have a fair amount of super guarantee put away

  • GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. Generally, businesses and other organisations registered for GST will: include GST in the price of sales to their customers. claim credits for the GST included in the price of their business purchases.

  • GST-free supplies: Examples of GST-free supplies include the supply of food, medical services, education, child care and exports. GST is not payable on GST-free supplies. However, suppliers will be entitled to an input tax credit for acquisitions relating to those supplies.
  • ......

    Assessment 2 Process Business Tax Requirement1
    Last updated: Feb 2024

    Page 1

    od, medical services, education, child care and exports. GST is not payable on GST-free supplies. However, suppliers will be entitled to an input tax credit for acquisitions relating to those supplies.

  • Input taxed supplies: The two broad categories of input taxed supplies are financial services and supplies of residential premises. Where a supply is input taxed, no GST is payable on it. This means that landlords do not charge GST on rent of private houses or apartments.
  • You must register for GST if:

  • your business has a gross income (also known as ‘GST turnover’) of $75 000 per year or more
  • your non-profit organistion has a turnover of $150 000 per year or more
  • you provide taxi travel for passengers in exchange for a fare. This rule applies to both taxi owner drivers and people who just rent a taxi.
  • If your GST turnover is under $75 000 and you don’t register for GST, you won’t include GST in your fees. You also can’t claim GST credits for your business purchases.

  • The business activity statement (BAS) is a form submitted to the Australian Taxation Office by all businesses to report their taxation obligations.

    These include pay as you go withholding (PAYGW), pay as you go instalments (PAYGI), fringe benefits tax (FBT), wine equalisation tax (WET) and luxury car tax (LCT). PAYGW is sometimes known as “Income Tax Withholding (ITW),” PAYGI is sometimes known as “Income Tax Instalments (ITI)”.

  • a)

    Cash accounting is recognising the income and expenses in your business when they are physically paid rather than on receipt or issue of an invoice. Many business owners when starting out often use a simple, basic cash system, because it helps to keep track of cash flow.

    An accrual accounting system recognises both income and expenses on receipt of an invoice or bill although not yet due for payment. This system will create debtors and creditors in your accounting software, showing what you owe and when, as well as funds owed to the business from your customers.

    b)

    3,300 + 5,500 + 2,200 + 8,800 = 19,800

    GST of 19,800 = $198.00

  • 11,000 + 300 + 800 + 12,000 = 24,100

    8% of 24,100 = $1928

    ...

    Assessment 2 Process Business Tax Requirement1
    Last updated: Feb 2024

    Page 2

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