Acquisitions

An acquisition is any good or service you purchase for your business. This includes stock for resale, items required to produce a product or supply a service, advice or costs associated with the lease or hire of premises or business related equipment. An acquisition is something you pay for, hence coming under expenditure on your accounting records. ?

Capital Acquisitions are purchases that are of capital nature = adding long term value to the business. It must also be an item that is depreciable in that a portion of its value can be written off as a deduction on the company’s balance sheets over a set period (asset). An example of a capital acquisition would be the purchase of a deep fryer by a fish & chip shop proprietor.

All other purchases made by the business, i.e. stock for resale, utilities, subcontractors, consumables, etc. An example of this would be the purchase of the fish & chips to go into the deep fryer referred to under capital acquisitions. Any goods or services that are not depreciable.

GST-free Acquisitions

A GST-free Acquisition is a purchase of a GST-free supply, such as basic food items, medical supplies and services, and some educational supplies.

Acquisitions for making an Input Taxed Supply

Any purchases of goods or services to enable the supply of an Input Taxed Supply. These acquisitions are not subject to an Input Tax Credit.

Acquisitions Partly for Domestic/Private Use

These are any purchases of goods or services that are used for business purposes as well as for personal use. An example of this would be the purchase of a motor vehicle, which is, used 50% for the business, and 50% for personal use. Hence only 50% of the GST paid on the purchase of the vehicle is claimable as an input tax credit.

A creditable acquisition is the purchase of goods or services that attract an input tax credit. The GST paid for these goods and services are claimable from the ATO via your BAS.

An adjustment is an amendment you make on your BAS due to a change in the GST payable or input tax refundable from a previous BAS. Some of the reasons why an adjustment may be required are:

A change in the cost of goods due to a discount, refund or rebate; These goods are now used for your own personal purposes; You have written off or recovered a bad debt; the goods are no longer used for the same creditable purpose.

An example of this is where the sale of goods made to a customer in the previous reporting period, is returned for a refund in this reporting period. Because you have already remitted the GST to the ATO, you are now entitled to a refund for that amount.

Adjustment Note

An adjustment note is generally issued by a supplier. It gives details of changes to consideration for a supply. You will need to obtain an adjustment note from the supplier before you can make an adjustment to claim additional input tax credits for an acquisition for which you have been required to pay more.

Assets

Assets are the items of monetary value owned by the business. Current assets are used in operating the business within 12 months, eg money held in bank accounts, money owed by debtors, etc. Non-current assets provide benefits over a long period of time (add long term value), eg property, plant & equipment, etc. (For a more detailed description go here.)

Associates

These include people and entities closely associated with you, such as relatives or closely connected companies or trusts. A partner in a partnership is an associate of the partnership.

Bad and Doubtful Debts

Clients or customers who are unlikely to ever pay for the goods or services you have provided.

Balance Sheet

This provides a snapshot view of the business and reports on Assets, Liabilities and Equity. Information about the business is added to the Balance Sheet for the duration of the business.

The BAS is used to report your earning activities for a reporting period, and to calculate the GST payable, or claimable. The BAS also accounts for other taxes such as FBT, PAYG, WET, and LCT. The annual turnover of the business will determine the required reporting periods. In some cases, businesses can elect to report more frequently. ATO provides advice to all organisations and businesses of what they need to complete their BAS (see links).

Cash and Accrual Based Accounting

If you are registered for the GST and nominated the cash-based system of accounting, you include only what has been paid and received for that reporting period.

If you are registered using an Accrual based system, then you pay GST, or claim an input tax credit, upon issue or receipt of an invoice.

(For a fuller description go here.)

Charity

A Charity is an institution or fund whose main purpose is to benefit the community or a section of it through:

• The relief of poverty or sickness
• the needs of the aged
• the advancement of education or religion, or
• other purposes benefiting the community.

A charity needs to be endorsed by the ATO, so exempting them from paying income tax. It must have an ABN, and if it has annual turnover of more that $100,000 it must apply to be registered for GST. They are able to take advantage of special GST provisions. See Deductable Gift Recipient

(See the ATO web site for a full coverage of this topic.)

The ATO has a range of publications, which deal with all aspects of the GST for charities. These are in Acrobat Reader format.

Charitable, Religious and Non-profit Organisations

Income Tax Concessions for Charities Under the New Tax System

Charities need to be endorsed as income tax exempt charities

Charities need to be endorsed as deductible gift recipients

The endorsement process for income tax exempt charities

The endorsement process for deductible gift recipients

Gift fund requirements for deductible gift recipients

Chart of Accounts

Names and describes all the categories (line items) in the Income and Expenditure, Equity and Balance Sheets. For example, donations, fees and salaries, rent, members equity, furniture and fittings, creditors.

Deductible Gift Recipients

Organisations who fall within the categories listed in the gift provisions of the income tax law, are entitled to be endorsed as Deductible Gift Recipients. Donations or gifts to these organisations are tax deductible. Not all income tax exempt organisations are charities (eg sporting bodies).

ITEC/DGR Application Instructions

Application forms are personalised and sent to those who on their ABN application indicate that they are a charity or qualify to be a deductible gift recipient. Additional forms can be obtained by those with an ABN by phoning ATO at 13 24 78

Depreciation

Depreciation is the decrease in asset value over a set period of time. The depreciation period/rate is determined by the ATO depreciation schedule.

(For a fuller description go here.)

Enterprise

An enterprise can be described as a business. This also includes government organisations, charities, non-profit organisations, and religious orders. It does include hobbyists, or employee/personal activities.

Entity

An entity is an individual, a body corporate, a corporation sole, a body politic, a partnership, an unincorporated association or body persons, a trust or a superannuation fund.

Parent Entity

A Parent Entity is a business that has branches registered individually for GST purposes. An example of this would be a financial institution, where the company is registered for GST purposes, but has also registered each individual branch as separate entities.

Equity

Equity is the net worth of the business. It includes share capital where this is accounted for, and reserves such as the retained earnings.

Expenses

Expenses are the operating costs of the business, and include wages, rent, consumables, stock, etc.

GST-free supplies

These supplies are considered life essentials, and therefore do not attract GST. Examples of GST free supplies are: medical supplies, basic food items, some educational supplies, etc.

Income & Expenditure Statement

This is the total amount of GST you have paid out during a reporting period, that you are able to claim back via your BAS.

Input Tax Credits

This is the GST you paid on an acquisition or the GST paid on an importation if is used in your business, but not to the extent that you use the acquisition or importation to make input taxed supplies.

Input Taxed Supplies

You do not charge GST on input taxed supplies, as these are government-approved exemptions. No input tax credit is claimable for the purchase of goods or services needed to produce an input taxed supply.

Examples of input taxed supplies include

• financial supplies (Some charges by banks do include GST, such as night safes, or merchant card fees. The bank will issue Tax Invoices in these cases so you know).
• Supplies (by lease or hire) of residential premises
• supplies of long-term accommodation in commercial residential premises if a choice is made to treat the supply as input taxed
• sales of residential premises except for commercial residential premises or new residential premises
• supplies of precious metals
• supplies of food by school tuck shops and canteens if they choose to treat the supplies as input taxed and they supply nothing other than food.

Liabilities

Liabilities are the money your business owes, and has not yet paid, to people or organisations for the exchange of goods, services or work effort already supplied. Current liabilities include the bank overdraft, payments owed to creditors, and employee entitlements such as recreation leave. Non-current liabilities can remain on the Balance Sheet for more than 12 months, eg long service leave entitlements, bank loans, etc.

(For a fuller description go here.)

PAYG (Pay As You Go)

PAYG replaces the Pay As You Earn (PAYE) system, the Prescribed Payments System (PPS), the Reportable Payments System (RPS), Provisional Tax, Company Tax instalments, and other withholding schemes.

(For a fuller description go here.)

PAYG Instalments

The progressive payments of business income tax throughout the year.

PAYG Withholding

The tax that you withhold from payments you make to employees and suppliers.

(For a fuller description go here.)

Profit & Loss

see Income & Expenditure Statement

Recipient created tax invoices

These are tax invoices issued by the recipient of goods and are issued under special circumstances.

An example of this is where a farmer is onselling his wheat via the Wheat Board. Although the farmer is the provider of the goods, the Wheat Board is providing the tax invoice.

Another example is where a community organisation receives a government subsidy but is not aware of the exact amount on which to base the tax invoice, and the government agency also issues the tax invoice at the same time.

Retained earnings

Retained earnings are the net profit of the business, which is carried over to the next financial year. This is the amount of profit not distributed to shareholders.

Revenue

Revenue reflects the total value of your business income. It is the dollar value of the goods and services which you have provided to your customers and clients, including sales, funding grants, donations, etc

Supplies

These are the goods and services which you sell or provide, and they can be taxable supplies, GST-free supplies and input tax supplies.

Tax Invoices

A Tax Invoice is a document generally issued by a supplier. It shows the price of a supply, indicating whether it includes GST. It must also include other relevant information, such as ABN, etc.

See also: What if the invoice does not have all these details?

For a template of a tax invoice, go here.

Taxable supplies

A taxable is any goods or services that are attract GST.