Replies to This Discussion

Permalink Reply by Mike Deam on April 23, 2011 at 14:33

What you have to consider in ATO Terminology is that there is very little of it that is clear.. GNR (GST Not Registered) so no GST to claim because the other side (Seller) is not registered for GST, GST FRE (Being no GST on the item in the first place) but on a BAS they end up in the same place and GST Exempt (being not reported in the BAS at all such as Wages. Despite the terminology what you are obliged to provide the ATO is G10 (Capital Items) G11 (Total Purchases including GST and GST FRE etc) and 1B GST Collected.

 

The Australian Tax system is complex because of all the exemptions. An example a needle in the hands of a GP is a medical supply and is GST FRE. In the hands of Vet is a GST Supply. A Doctor sees a patient ... As a Private Patient they are GST FRE Medical Supply. The Same Doctor sees the Same Patient as a Workcover Claim through an insurance Company and that visit has GST in it. Many insurance contracts, Car Registration etc are mixed supplies (Stamp Duty has no GST) and the list goes on. 

 

To cover these and many other issues you generally need assistance from someone (Accountant, BAS Agent, Tax Agent) who understands how to setup an Accounting system. Before you do most things you generally get training first. Understand how it works or how it reacts and managing the task becomes easy. Note that I left off Bookkeeper. A Bookkeeper cannot setup a file with GST codes without direction, to do this you must be a Registered BAS Agent http://www.ato.gov.au/taxprofessionals/pathway.aspx?pc=001/005/074&...

 

A BAS is based around the Accounts on a Profit and Loss and Balance Sheet. On the Balance sheet you'll get Capital Items that attract GST on their Purchase will appear in a BAS (GST on Capital). The only other item that will possibly be included is Inventory in a Perpetual Inventory Model where Purchases first go into Stock (Asset) before they are sold. Yes there are some weird things like formation expenses and other items that will also appear in a BAS but in general any thing else on the Balance Sheet will not be included in the BAS.

 

So the majority of the BAS will relate to the Profit and Loss. So within the Profit and Loss there will be GST Amounts to Collected, GST FRE Amounts and items that are not included in the BAS at all like Wages and Super. 

 

In Xero this GST setup its easy. Xero does not support a Perpetual Inventory model out of the box. You'd need a product like Unleashed to work with Xero. 

 

From the Balance Sheet items perspective, GST on Capital will give you G10 and will appear on the fixed asset accounts. Most of the rest of the accounts will be classified as No GST and will not be included on the BAS.

 

On the Profit and Loss its a little different. You have to account for GST FRE in its various forms (GNR etc) and there are some transactions that are not required on a BAS (such as Wages and Super). So there are some basic choices.

 

In Income its either GST, GST FREE INCOME, GST FREE EXPORTS or INPUT TAXED depending on what your income is. On the Expense Side its GST, NO GST (which means its on the BAS to be reported but does not have GST for some reason Exempt Product, Not Registered Supplier etc) or GST EXEMPT Which means its not on the BAS at all (Wages and Super)

 

As with anything the devil is in the detail on how your chart of accounts is setup. A correct setup will save you hours of time, grief and eventually money. 

 

Hope this make some sense.  

 

Mike Deam

Goldmine Bookkeeping Solutions

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Permalink Reply by Michael on April 24, 2011 at 0:31

Thanks Mike for the detailed response.

 

I do not have an issue with the ATO tax codes being an accountant in practice since before the GST was introduced.

 

The issue I have is that Xero introduced their own codes different to the ATO which do not make it easier but because they are different adds complexity. I do not do Xero data entry on a daily basis and still need to check if an expense is "No GST" or "GST Exempt".

 

Perhaps my staff and I that don't work in Xero daily are the only ones confused by the unique Xero GST codes.

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Permalink Reply by Mike Deam on April 24, 2011 at 2:05

Hi Michael,

 

I think you'll find that each software vendor has their own unique set to tax codes. MYOB have a different set to Quicken and Xero is different again. I'd imagine that there would be copyright issues if infact they used the same. As a consequence you tend to focus on a single product because that becomes familiar to you. Of course Xero has lots of advantages over MYOB - at least IMHO |-<8-) which is why I changed! 

 

With any change there is always a learning curve but that is where we can assist each other. As an Accountant/Consultant you focus on Tax and the end reports etc, As a Bookkeeper/Consultant we focus on making sure your figures are correct and that the correct systems are in place to make this possible and easy for the client. So my end point is generally your start point. The better job I do the easier your job becomes! So it's together that a great solution is created. Xero of course helps in bring parties together. 

 

But in the case in question its easy.. For an Expense its either

• GST (on the BAS and has GST)
• NO GST (On the BAS but no GST Amount)
• GST EXEMPT (not on the BAS and No GST). 

In the chart of accounts you set a default for each account just as you would in MYOB. Reviewing this will make your life easier. To make data entry easy for things that split like Insurance I often have two Chart of Account Entries (one GST, the other NO GST) so I can split the entries. Makes reviewing the exception reports simple.

 

cheers

 

Mike Deam

Goldmine Bookkeeping Solutions

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Permalink Reply by Cassandra Scott on October 6, 2011 at 12:18

I've also tried to get my head around the difference between GST Exempt and No GST when dealing with Revenue transactions.

 

Based on the reading of the help document, and then testing the application of these codes in the demo file to see where they report [or dont report] to on the BAS, I still cant figure out what the delineation is between the two of them.

 

From my testing, if you use [for a revenue transaction] GST Exempt or No GST, then these are treated as being outside the GST system and are not reported on the BAS.

 

I did ask Xero to provide qualification on the difference between these two [revenue] codes, and the following is their response:

 

@LaurusBookkeep Sometimes No GST transaction total included on return, GST Ex transaction not reported is.gd/P8rnZy ^OG

4 Oct

Still not any clearer, so if anyone can shine some light on this, t'would give my poor brain some reprieve!

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Permalink Reply by Michael on October 6, 2011 at 12:34

"Sometimes No GST transaction total included on return". Sometimes...??? Sometimes a debit goes on the right?

 

Glad to read it's not just me and my entire team.

 

The GST codes are still as broken as ever and the longer Xero get around to fixing them the more difficult it will be. I've been complaining about this for over a year now. But they do need to fix it.

 

It always seemed to me the people who wrote the GST codes in Xero have no idea about the GST system which is not complicated but did manage to make it complicated for users.

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Permalink Reply by Catherine (Xero) on October 8, 2011 at 1:03

Ahhh dammit - the perils of trying to reply in 140 characters! Apologies for that, was trying to paraphrase the help. I know there is confusion with our terminology as you've pointed out - I'm getting hold of someone from our team in Australia to help me provide a more full answer here.

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Permalink Reply by Cassandra Scott on October 10, 2011 at 1:54

Hi Catherine

It would certainly help to get one of your Australian GST experts to qualify this for us.

I've been through the Xero GST Help documents with a fine tooth comb (and a multitude of colored highlighters!) to try and determine the difference, and cant work it out.

Might be an interesting discussion point for your Aussie GST person, and the Aussie Xero users :)

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Permalink Reply by Catherine (Xero) on October 10, 2011 at 18:35

First up I can confirm there is no delineation between No GST and GST Exempt when used on revenue/income transactions. It's on expense transactions where they are handled differently.

We know the terminology is confusing and we need to address this. Be assured the guys who understand GST in Australia have definitely got this thread and it's great for them to read about everyone's experiences even though it's totally frustrating for you. Thanks for your perseverance!

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Permalink Reply by Cassandra Scott on October 31, 2011 at 6:35

Catherine

When entering a transaction and de-selecting the "include tax" checkbox, the GST coding defaults to No GST.

This should report as No GST or GST Exempt, as its utilisation would be on transactions that are outside of the GST system.

It appears that when selecting this option, the transaction is reported under "No GST on Purchases" (Which is reported on the BAS).

I would suggest that this is incorrect, and a transaction where the "include tax" checkbox has been de-selected should be reported as GST Exempt.

Happy to hear others perspectives on this.

Permalink Reply by Michael on October 31, 2011 at 6:44

I agree with Cassandra. The default tax treatment when "include tax" checkbox unselected is just wrong.

Shame that this fundamental error in accounting software is still not fixed. At the moment, I prefer clients with a shoe box of receipts than dealing with the broken tax system in Xero. I just have no faith in Xero tax calcs.

Permalink Reply by Mike Deam on October 31, 2011 at 10:30

Just ran a test in Demo to me I get the following results 

 

Revenue

GST on Income goes to G1 and GST to 1A

GST on Exports goes to G2 and G1 and No GST 

GST Free Income goes to G3 and G1 and No GST

Input Tax goes to G4 and G1 and No GST

GST Exempt does not appear on the BAS

No GST does not Appear on the BAS

 

Expenses

GST on Capital goes to G10 GST goes to 1B

GST on Expenses goes to G11 GST goes to 1B

Input Taxed Goes to G13 and G11 No GST 

No GST goes to G11 and G14 No GST

GST Exempt does not appear on the BAS

 

My only issue ... I'd expect No GST on revenue to be more like GST FREE Income ... which would match what happens on expenses with No GST

 

On the Accounts Payable Purchase you have three overall default options .. Exclusive, Inclusive or No GST. No GST will of course put it on the BAS .. as per the above 

 

If you don't want any of those results then change the GST allocation for the relevant lines or if you want to make it simpler for your clients create the GST allocation you want . Like Insurance (GST), Insurance (No GST) and use items to ensure the correct allocation. 

 

I don't see that Xero has any difference to any other accounting system - infact I find it clear and easier than most. 

 

Some clients will need professional help to define and configure their system depending on what they are doing. But they will need this same professional assistance regardless of their accounting system. Meaning the requirement is not a Xero one.. The issue for some clients is knowing when to ask for that assistance. 

Permalink Reply by Michael on November 1, 2011 at 21:54

When entering a transaction and de-selecting the "include tax" checkbox, the GST coding defaults to No GST.

This should report as No GST or GST Exempt, as its utilisation would be on transactions that are outside of the GST system.

It appears that when selecting this option, the transaction is reported under "No GST on Purchases" (Which is reported on the BAS).

I would suggest that this is incorrect, and a transaction where the "include tax" checkbox has been de-selected should be reported as GST Exempt.

Thinking about this some more, this could be my biggest issue with the GST tax treatment and goes against logic as it seems we all agree.

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