GST & FBT for Accounts Payable

Anne Harvey – Group Tax Manager, Corporate FinanceEric McCallum – Group Tax Accountant, Corporate Finance

24 August 2012

Objectives

• When does GST apply• What are the GST Codes• What is FBT• What does Taxable Value mean• Types of benefits which attract FBT• When is FBT charged• Vendors• Thesis Examiners

When is it applicable• Taxable supply

for consideration in course of furtherance of carrying on

enterprise connected with Australia registered or required to be registered not GST free or input taxed

• Taxable sales price includes GST pay GST on sales claim GST on purchases 1/11th of Total invoice/sale price

When is it not applicable • GST free sales

Basic food - meat, milk, bread, fruit and vegetables

Most education, child care, health

Some exports

• Input Taxed sales Residential property Financial transactions Cannot claim GST credit

When does GST apply

How Does GST work

Supplier

Raises Tax

Invoice

Purchaser

Receives Tax

Invoice

Sponsor

Vendor

UNSW

1. Taxable – AC/AO2. GST Free – FRAC/FRAO

3. Imports – IMAC/IMAO

4. Input Taxed – ACIT/AOIT

5. Non deductible – NIAC/NIAO

6. Out of scope – EXCL7. Advances - EXAD

GST Codes: Acquisitions – AP/ Expenses/Credit Card

“C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.

“C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.

University of New South Wales ABN 57 195 873 179

GST Codes Used In NS Financials

SHORT DESCRIPTION

LONG DESCRIPTION GST CODE

Capital>=$5,000

Other<=$5,000

ACQUISITIONS Purchase Orders, Credit Card Reconciliation, AP Vouchers & Journals. GL 3505 GL 3505GST In Price,

ClaimableThe purchase of taxable goods or services where GST is charged and it can be claimed (i.e. as an Input Tax Credit – ITC). This applies to the majority of purchases.

AC AO

GST In Price, & Input Taxed Supply

The purchase of taxable goods or services which are input taxed supplies but the GST charged (i.e. an ITC) cannot be claimed. E.g. financial supplies (financial services), and certain supplies relating to residential accommodation.

ACIT AOIT

GST In Price, GST Not

Claimable

The purchase of taxable goods or services which are specific non-deductible items but the GST charged cannot be claimed. E.g. fines and penalties. Also used for transactions where the original tax cannot be obtained. Note: For meal entertainment expenses, where FBT is not payable.

NIAC NIAO

GST Free Purchase

The purchase of goods or services with no GST in the price. These are referred to as GST Free purchases. E.g. GST-free basic food; water; sewerage and drainage; also used for purchases made which are consumed or used overseas e.g. accommodation; international air fares, taxi fares etc. If imported into Australia use the Import codes below.

FRAC FRAO

No ABN or Declaration

Used where the Supplier you are buying from does not have an ABN number, and hasn’t provided a declaration form (Statement by Supplier). UNSW are required to withhold 46.5% of the payment as withholding tax. Supplier to be notified.

NABC NABN

Importation Of Taxable Goods And Services

The overseas purchase of goods and services imported into Australia, where, had they been purchased in Australia instead, would have been subject to GST. E.g. machinery, equipment, computers, software etc.

IMAC IMAO

Importation of GST-Free Goods & Services

The overseas purchase of goods and services brought into Australia, where, had they been purchased in Australia instead, would have been GST-Free anyway. E.g. Pharmaceutical and medicinal drugs. Also for goods imported into Australia that don’t require customs declaration.

IMFC IMFO

Out Of Scope Payments

Not reported on the ATO Business Activity Statement (BAS). E.g. transactions between members of same GST group, payments of taxes (e.g. PAYG, payroll tax, employer payments such as wages, super, donations)

EXCL EXCL

Interim Advances This code is used for initial transactions in relation to Travel Allowances and Cash Advances. Other items where no GST is charged.

EXAD EXAD

Journals SSJ or ONL

GST adjustment journals maybe raised by the Client Service Accountants or Financial Control. Please refer to the journals procedure.

EXCL EXCL

Kensington College

Input tax purchases where 44% can be claimed as an "Input Tax Credit". AC01 AO01

Supply and Consideration

Lab Equip Coy

UNSWSupply

(goods)

PaymentConsideration

($)

Employee UNSW

Travel Advance – Funds Payment only

Goods used in business, can claim

GST charged

Cash advance

EXAD

No su

pply

for

consid

era

tion

ATO UNSWPay Taxes – Funds Payment

onlyOut of Scope EXCL

AC, AO, FRAC, FRAO

• Tax Invoice showing GST or GST inclusive price• Can rely on other supporting documentation issued by

supplier if minor defects in Tax Invoice• Purchase $82.50 or less (including GST) with Tax invoice,

Receipt, invoice, docket

• Sale < $1,000 – Tax Invoice, name & ABN of supplier, date, description, if each item is taxable sale, $ GST or Total price includes GST.

• Sale $1,000+ also show buyer’s name or ABN

Claiming ITC for GST charged

• Mixed Supplies – need to enter Taxable items and GST free items on separate lines with GST code (Telstra bills, Cabcharge, Hotels, Qantas, basic food)

• Assume GST applies to total – check for GST free• Use GST code from PO - check if agrees to Tax Invoice• Relying on default GST codes in EMS• Tax calculated in system not agree to GST on Tax invoice –

may need to split lines• Deposits – claiming GST on deposit. Adjust on final Tax

invoice• Credits from prior month. Check GST charged on Invoice.

Common GST Mistakes

No entitlement to ITC if GST not charged, or no Tax Invoice held (except for low value items, i.e. < $82.50)

No entitlement to ITC if goods or services not used for creditable purpose (used in business)

No entitlement to ITC if expense non deductible for Income Tax under Income Tax rules • Private or domestic in nature – if pay FBT(AO). No FBT (NIAO)• Entertainment

• If pay FBT (staff & associates), can claim ITC (AO)• If don’t pay FBT (students, clients, guests) cannot claim ITC (NIAO)

Audit risk – inadequate processes and controls Penalties and Fines Reputational risk BAS amendments

Risk to UNSW if GST Not correct

Mixed Supply – GST free and Taxable Supply

Mixed Supply

How to create two voucher lines from one line

Entry fields are green, all other fields are derived from the entry fields Input

Total GST is not 10% of the total invoice value

Enter the total value of the tax invoice (inc GST) (Total cash payment inc GST) 167.14

Calculated GST value by NS Financials   15.19

   

Enter the total GST on the suppliers tax invoice (Total GST on the tax invoice) 14.49

Value of the tax invoice (excluding GST)       152.65

GST Code Base Amount GST Gross Amount

Total to enter as AO including GST AO 144.90 14.49 159.39

Total to enter as FRAO FRAO 7.75 0.00 7.75

This should equal the total value of the invoice (inc GST) 152.65 14.49 167.14

         

Comments:        

If the non-taxable supplies on the invoice relate to residential rent, financial supplies, or long term student accommodation please use the code AOIT instead of FRAO 

GST Calculated

Processed3.07

93.109.31

$105.48

GST(VAT) calculated not agree to GST entered

VAT entered ≠

VAT calculated

As FRAO used VAT on Invoice of $8.46 shows as Non Recoverable. GST does not go the GST account in GL

Cabcharge Mixed Supply

Mixed Supply

How to create two voucher lines from one line

Entry fields are green, all other fields are derived from the entry fields Input

Total GST is not 10% of the total invoice value

Enter the total value of the tax invoice (inc GST) (Total cash payment inc GST) 105.48

Calculated GST value by NS Financials   9.59

     

Enter the total GST on the suppliers tax invoice (Total GST on the tax invoice) 8.46

Value of the tax invoice (excluding GST)       97.02

GST Code Base Amount GST Gross Amount

Total to enter as AO including GST AO 84.62 8.46 93.10

Cabcharge service fee no GST FRAO 9.31 0.00 9.31

Liquidated damages no GST FRAO 3.07 0.00 3.07

This should equal the total value of the invoice (inc GST)   97.00 8.46 105.48

         

Comments:        

If the non-taxable supplies on the invoice relate to residential rent, financial supplies, or long term student accommodation please use the code AOIT instead of FRAO 

Fringe Benefits Tax - Facts

FBT year 1 April to 31 MarchTax Rate 46.5% - Calculated on Grossed Up Taxable ValueFBT paid by employer – UNSWIncludes benefits under a salary sacrifice arrangementReportable Fringe Benefit included on Payment Summary in June, if >

$2000

FBT is tax on benefits (right, privilege, service or facility) provided to employees & associates (relative, partner/ spouse,

child) by an employer, associate of employer or under an arrangement

with a third party in respect of employment – reward for service

“Employee” includes current, former and future employeesNo FBT for students, clients, volunteers or independent contractors

If pay Salary PAYG deduction Employee pays tax If provide fringe benefit no PAYG deduction Employer pays tax

FBT Calculated on Taxable Value

What is Taxable ValueDetermined by the rules applying to each category of fringe

benefitGenerally the cost of the benefitSome benefits concessional tax, e.g. Motor VehiclesSome reductions and exemptions provided in legislation

GST Impact• Taxable Value based on GST inclusive amount• FBT payable depends on whether entitlement to ITC credit • Can claim Input Tax Credit for GST paid

Important correct GST codes are used and GST amount is correct.

When Does FBT apply

If expenses charged to the GL account, FBT will be accrued at month end

• Salary packaged Motor Vehicles or UNSW provided – personal use. • Medical Insurance - inpatriates• Permanent Residency – application, police & medical checks, lawyers fees

(Exempt if to enter Australia on relocation)• Gifts, awards and prizes - $300 or more• Travel for family – SSP, accompany employee on business (exclude relocation)• VC Child care support• Furniture purchase in lieu of relocation transport/ relocation allowance• Kensington College accommodation and meals – provided to tutors/employees• Reimburse deferred HECS/HELP fees• Write off Advance - Debt waiver• Outstanding Advance not acquitted within 6 months Loan – calculate

interest• Home phone/ internet – private %• Dual purpose travel – business and private• Entertainment – tax exempt body

Examples of Benefits Incurring FBT

Exemptions, Concessions or reductions in legislation

Exemptions – No FBT• work related item - provided for work purpose. Limit one item per type pa –

e.g. laptop, mobile phone, electronic diary, tool of trade, protective clothing• minor benefit < $300 and infrequent / irregular (consider associated benefits)• relocation – Required to change usual place of residence for employment.

Flights including family, relocation consultant, etc. HR administer • Airport lounge, professional subscriptions, child care/gym on premises, car

parking• LSL awards

Concessions – Lower TV• e.g. Cars, Car Parking benefits • holiday transport for overseas employment – 50% concession. Limit of one

trip per FBT year.• Temporary accommodation on relocation. HR administer

Reductions – TV reduced• otherwise deductible with declaration reduced by % of business use, e.g.

home internet use• full time education of children of Overseas employees. Less than 25 years. At

school, college, university or by tutor.

Entertainment v Sustenance

Entertainment – FBT

• Social function, farewell• Party, Christmas party• Restaurant meals• Business lunch & drinks • Celebrations, Dinners• Spouse meal of employee

travelling on business• Non travelling employee (when

dines with travelling employee)• Morning, afternoon tea, light

lunches – associates• Leisure or amusement activities• Sporting activities, golf days• Gym membership, sporting club

memberships• Holiday• Theatre/movie ticket• Cruises

Account 6457

Sustenance – no FBT (6611)

• Morning and afternoon tea for employees

• Birthday cake – morning tea for employees

• Light lunches, sandwiches, finger food, salad, juice, etc for employees

• Light breakfast at training seminar – incidental to seminar

• Finger food and light refreshments (with moderate alcohol) immediately after training or CPD seminar – incidental to seminar

• Meal at seminar that goes for over 4 hours

• Meal (with alcohol) while travelling on business - employee

• Tea / coffee – employee• Overtime meal in office

Account 6611

GST - claiming ITC and interaction with FBT

Travelling on business

• ATO view of travelling on business is away for short periods - up to 21 days at a time

• Stay in hotel, motel, serviced apartment

• Unaccompanied by family

• ATO set Travel Allowance rates – based on Salary band and destination

• Travel Allowance rates based on 1 July to 30 June year

• Travel Allowance for Payroll Tax (State based tax) to be split between Taxable and Non taxable

Tax Exempt (Domestic 7014, International 7114) Taxable component (Domestic 7013, International 7113) For 2012/2013 year tax exempt portion is

Accommodation $189.00 per day Food and Drink $98.40 per day Incidentals $17.85 per day Any excess above these rates to 7013/7113

Business Purpose

• Predominantly business undertaken• Considered Incidental to business –

extra day to acclimatise• Weekends during business period, e.g.

2 week business trip• Day to prepare/ wrap up• Make Flight connections• Due to flight availability/ delays• 1 day Stopover en route – no extra

cost• Day between business meeting

Dual Purpose

• Travel to conference then holiday• Holiday at same or different location• Book Annual Leave days in myUNSW• Family accompanies• Private portion 40% or more of total days• Travel Allowance only for business days• Frequency of trips• No restrictions on private travel

Flight cost split 50/50 between business (7103) and private (6630) FBT on 50% private

If employee pays 50% of airfare directly to Travel Agent No benefit No FBT

Travel Benefits

ABN

• Australian Business Number – www.abr.gov.au Shows type of entity – company, sole trader, partnership, etc If registered for GST – charge GST on invoices

• Must withhold 46.5% of total payment for supply unless Invoice with ABN quoted ABN of agent quoted where supply made through agent Exception to withholding applies Supplier not entitled to ABN

• Exceptions – no Withholding Payment $75 or less, excluding GST Not entitled to ABN - not carrying on enterprise or business in

Australia Statement by Supplier provided – ATO declaration of reason ABN

not quoted

Contractors and VN1 Form

• All new Vendors to complete VN1 form – process and system to manage

• VN1 form has questions in relation to the services provided and ABN status

• To assess if employee or contractor• Assess for PAYG withholding, Superannuation and Payroll Tax• Vendor Classification assists in identifying for upfront Payroll Tax

exemption, ongoing Payroll tax assessment or SGC.• If “Refer HR” – needs to be referred to HRC for setting up in HR

system. Cannot be paid through AP.

• Standard UNSW Contact Sole Trader Contractor Agreement Other Entity Contractor Agreement (Company, Partnership, Trust)

Service Provider – Payment for Service

Note: Some Sole Traders may be assessed(VN1 result) to be paid via A.P, if no Superannuation or PAYG obligations

Pay in AP

Payment to Non Individuals/ Non residents

• Payment to another University

• Payment to Organisation/ Company

• Overseas Individual non resident of Australia No Australian bank account Cannot be paid in HR Statement by Supplier required

Pay in HR

Payment to individuals in Australia Subject to PAYG deduction TFN Declaration

• Existing employees

• Individuals – in Australia

• Sole Trader entity with/without ABN

Thesis Examiners

Questions

Further Information

Finance website: http://www.fin.unsw.edu.au/PoliciesProcedures/AccountingManual/FBT.html

Contact: Anne Harvey - Ext 51635. Email: a.harvey@unsw.edu.au

Eric McCallum – Ext 52825, Lucy Lowe – Ext 51204