Australian Convenience Store News | Accounting - Opting to Calculate GST the easy way

Opting to Calculate GST the easy way

In this article Accountant, Geoff Coy looks at how accepting the ATO's offer to calculate and pay your GST the easy way may not be in your best interests.

In recent issues we have looked at the impact of GST on your business and a 'rule of thumb' method of calculating an approximate sum of money to cover GST commitments.

Recently, the ATO wrote to business owners and outlined a simplified method of calculating and remitting GST with a view to reducing the bookkeeping and reporting burden on small business owners.

Business owners were given 3 options.

The first option was to:
ª Keep the present situation by calculating, paying and reporting quarterly.

The second option was to:
Continue to calculate and pay quarterly
ª Report some basic information quarterly
ªReport the remainder of the information annually

The third option was to:
ª Pay an amount each quarter worked out by the ATO. This is based on the amounts paid by you in the previous two quarters.
ªReport some basic information quarterly
ª Report the remainder of the information annually
ªPay or get refunded the difference at the end of the financial year.

If you have been happy in the way your business has been calculating and paying your GST and PAYG instalments then there is no need to change - particularly if you have the necessary bookkeeping and accounting systems in place.

Selecting the second option means that you still need to account for and pay the GST in the same way that you are doing now. The only difference being that most of the reporting is completed at the end of the financial year rather than with the quarterly BAS return.

The third option is really the 'easy way out' for small business owners who have not come to terms with the extra effort required to account for GST.

The main problem in selecting this option as far as it relates to the service station and convenience store industry is due to seasonal factors.

By choosing the amount calculated by the ATO your business will pay an amount of GST based on the first six months of trading as opposed to the actual GST for the quarter.

For example, Con's Convenience Store paid the following GST:
ª September quarter $7,000
ª December quarter $8,000

The ATO calculated Con's third quarter GST at $7,500 and gave him the same options as discussed above.

At the end of the March quarter Con stocked up considerably in his store and was holding more fuel than normal.

Con was able to claim the input tax credits on the stock purchases in his BAS return for that quarter but not required to remit the GST until the stock had been sold.

For this reason the GST to be remitted for the third quarter dropped to $5,000. This was less than the $5,000 figure calculated by the ATO and resulted in a similar saving to Con's cash flow for the same period.

Alternatively, had Con sold all the stock he purchased in that quarter it is possible that the actual GST would have been higher than that calculated by the ATO. In this instance Con's cash flow would have benefited if he had selected the ATO's calculation. The shortfall would then need to be made up at the end of the financial year.

With the change in seasons to autumn then winter, Con is also expecting a slowdown in turnover for the fourth quarter which should also impact on less GST to remit.

This is another reason why Con should elect not to change the way in which he calculates, reports and remits his GST

Due to the introduction of the GST Con has introduced new accounting procedures to his business. Despite the extra time spent in accounting for and reporting on the GST Con is receiving more accurate and timely reports on his business and has a better handle on his cash flow.