The Australian Taxation Office recently announced it will be receiving data from various government agencies that it would be put through their data matching process. Included in the agencies are state revenue offices and motor registration departments.
Where the ATO finds a sale or purchase has taken place that does not match their records they will request please-explain letters or begin audits. The purchase of a property or motor vehicle could result in audit activity where the income declared to the ATO on tax returns is insufficient to support the purchase.
The sales records of the motor registration departments could lead to please-explain letters where a GST registered business has not declared the GST included in the selling or trade-in value of the vehicle.
Q. I run a courier business and recently bought a new van for $44,000. As part of the deal I traded my old van in for $11,000 and financed the balance of $33,000. I am confused on how to I deal with the GST in this month’s BAS. Can you help?
A. To account for the purchase of your new van you will need to break the transaction down into two parts. For the purchase of the new van, as long as registration was not included in the purchase price, $4000 of input tax credit or GST paid would have been included. How you claim this $4000 will depend on the method of finance used and how you account for GST.
If you use the accrual method of accounting, and did not finance the purchase using a lease, you will be able to claim the $4000 of input tax on the BAS for the quarter when the van was bought. If you used a lease you will claim one 11th of the lease payments in each quarter as an input tax credit.
If you use the cash method of accounting for GST your claim for a lease will be the same. If you financed the purchase under a hire purchase contract, the $4000 in GST must be claimed in monthly instalments over the period of the hire purchase contract. If you used a chattel mortgage you can claim all $4000 in GST paid in the quarter when the van was purchased.
You also need to account for the sale of your old van in the quarter it was sold. This will result in $1000 of extra GST collected by you in that quarter. If you use the cash method of accounting, and also used a hire purchase contract, this will result in a net GST payment made to the ATO. This is because you will only be able to claim at most three months worth of $4000 in GST.
If a chattel mortgage was used you would receive a net refund of $3000 in GST. This is made up of the difference between the $4000 in GST paid and the $1000 of GST included in the selling value of the old van.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org
Tax for small business: a survival guide, by Max Newnham, is available in bookstores.