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A BAS is required of any business registered for GST.
GST is a tax of 10% applied to the cost of any product or service sold in Australia. Businesses are expected to collect this tax from customers by adding it to the price of their goods, so they can then turn it over to the ATO.
A BAS helps business owners report and pay their GST as well as their pay-as-you-go (PAYG) installments and PAYG withholding tax.
Some business owners pay their taxes throughout the year instead of providing a lump-sum payment at the end of the financial year. Business owners may choose to do this voluntarily to spread out their payments. Additionally, if a business’s income is over the threshold — which we’ll discuss how to determine below — they will be required to handle their tax obligations through PAYG installments.
PAYG installments are reported on a BAS, which is provided quarterly for most organisations.
PAYG withholding tax is similar to installments. However, in the case of withholding tax, the business owner is withholding some of their employees’ wages and paying part of their yearly income tax on their behalf. This makes it easier for employees to meet their tax obligations at year end, because they’ve already paid a significant portion of it throughout the year.
PAYG withholding tax obligations are reported in the BAS provided by the ATO, and business owners pay those installments during lodgement.
The regularity with which a business is required to complete a BAS is determined by turnover.
Business owners submit their BAS to the tax office so they can pay their tax obligations throughout the year, instead of just on one date. This helps business owners and employees avoid a buildup of tax obligations, and it benefits the states and territories to which the money goes.
The goods and services tax is important to pay throughout the year because it funds a significant amount of government projects. GST accounts for 23% of state and territory revenue, according to The Australian Treasury. Because it is such a broad type of tax, a lot of purchases are subject to it. That makes it a great source of revenue. In fact, 47% of the money spent on consumption in Australia receives a GST tax, the Australian Treasury notes.
The BAS form itself helps business owners see how much money they owe quarterly, and how much of that money is GST, PAYG installments and PAYG withholding.
Not all businesses are subject to GST, and not all of them pay PAYG installments or PAYG withholding tax.
According to the ATO, a business must register for GST if the business:
The ATO determines whether or not a business is required to submit PAYG installments based on the last tax return it submits. The requirements vary depending on the type of business in question, and the requirements are outlined on the ATO website.
If a business owner is a sole proprietor or manages a trust, the threshold is typically lower. For example, if the notional tax — an estimation by the ATO on how much the business will grow over the next year — is $500 or more, the business will be subject to PAYG installment obligations.
On the other hand, the threshold for companies is higher. If a medium-sized business reports $2 million or more as their installment income on their tax return, they will be expected to submit PAYG installments.
Business owners can voluntarily enter PAYG installments if they want a more consistent cash flow. To request PAYG installments, business owners can do so through their mygov account, or they can call the ATO.
PAYG withholding tax is meant to alleviate some of the tax burden on employees by paying a portion of their tax throughout the year, smoothing out their personal cash flow. For this reason, PAYG withholding tax is required for all businesses that have employees.
According to LegalVision, a law firm specialising in legal work for businesses, organisations may also be required to submit PAYG withholding tax payments if:
The best way for a business owner to prepare for lodgement of a BAS is to keep track of the business’s cash flow with diligent bookkeeping.
To submit a BAS, the business owner must have records of how much GST their business collected, meaning they must keep track of every purchase made as well as the associated cost and sales tax.
Bookkeeping is an ongoing task that should occur at the end of each business day, if not with every purchase made. The more often a business owner updates their cash flow records, the more prepared they will be to submit their BAS.
There are several ways a business owner can lodge a BAS.
Sole traders can submit their BAS through their mygov account. Or, any business owner can lodge a BAS through the ATO’s online business portal.
An accountant or bookkeeper who is a registered tax or BAS agent can also submit a BAS on behalf of a business owner.
Many accounting software providers have updated their products to support BAS lodgement. Considering signing up? Read our wrap-up on the top accounting software products available on the Australian market.
Understanding what a Business Activity Statement is and how to lodge once is crucial; failure to meet your obligations can result in penalties, and render a business owner personally liable. For more information on how to lodge your BAS, visit the ATO website.
Please note this article is for educational purposes only and does not constitute advice.
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