Apportioning your GST obligations
For many small businesses, reporting the GST you collect after issuing tax invoices to customers can be a headache. But there is a way to save time and make the bookkeeping process a bit easier - if you meet the ATO's eligibility criteria.
Splitting your expenses for GST
Unfortunately, many common business expenses claimed by small business owners - like your home telephone and internet, computer and other electronic devices, vehicle purchase and running costs, and home power use - often have a private use component.
As only the business use portion of an expense can be claimed in your tax return, small business taxpayers regularly face the fiddly task of splitting their expenditure between business and private use.
The same goes when it comes to filling in the GST section on your BAS, as you can only claim GST credits for expenses used for business.
So each cost needs to be divided into their business and private components and the GST applying to each component calculated.
This can be tedious if there are lots of small monthly expenses to claim in your quarterly BAS.
Making an annual GST election
If these calculations are too time consuming, the ATO allows smaller businesses to make an 'annual private apportionment'.
Although it's a cumbersome name, making an annual private apportionment is an easy process and can help streamline your BAS preparation.
With this option, the ATO permits small businesses to simplify their accounting for business and private expenses by making an annual election. This allows you to claim the full amount of GST on payments you make in your quarterly BAS and adjust it in a future activity statement.
For example, if you pay $220 for your telephone service, $20 of the cost is GST. If your usage of the phone is 30 per cent business and 70 per cent private, you are only entitled to a GST credit of $6 (30 per cent of $20) in your BAS.
If you elect to use an annual private apportionment, however, you can claim a $20 GST credit for the purchase in your next BAS. When you lodge your business's annual income tax return after the end of the financial year, you adjust your GST credit amount. This can either increase the amount of GST you pay or reduce your GST refund for the financial year.
Annual apportionment: Who's eligible?
The ATO recognises that staying on top of bookkeeping tasks can be tricky for many small and micro business taxpayers, so eligibility for annual private apportionment focuses on them.
To be eligible, you need to be a small business with an annual turnover of less than $10 million, or a non-business enterprise with a GST turnover of $2 million or less. You also need to be lodging your GST reports quarterly or monthly.i
Eligible businesses can choose the annual apportionment option at any time and can start at the beginning of the next tax period for which their BAS is due.
The ATO doesn't require notification if you decide to use annual private apportionment, but you do need to keep a record of the date you decided to take advantage of the option and the date you commence.
Adjustment is via your BAS
The rules applying to annual private apportionment are fairly straightforward.
You can use the option on all business expenses that have both a business and private component, unless the business portion of the expense relates solely to making input-taxed supplies.ii
When it comes to making the annual adjustment for your GST credits, this is normally done in the BAS covering the same quarterly time period as your annual income tax return is due.
For example, if you claim a full GST credit in your 1 July to 30 September 2019 quarterly BAS, you make the annual adjustment in the BAS covering the tax period for the December 2020 quarter. This is because the due date for your annual income tax return for the 2019-20 financial year is 31 October 2020.
As you can see, it's complicated. If you would like some help with your GST reporting requirements, call us today.