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Aus Tax Codes: The great No GST vs GST Exempt ambiguity

I have a very confusing time with "No GST" vs "GST Exempt".

I was even more confused after reading the Help documentation regarding the GST tax codes. "No GST" would suggest to me that GST is not applicable to the transaction and this idea is supported by the action of un-checking the Tax Applied box for each transaction. However, according to the Help documentation, "GST Exempt" is what should be applied to entries without GST (such as loan repayments). This is further confused by not following the terminology used by the ATO which is "GST Free" for GST transaction with zero rate.

An entry with "No GST" should not be reportable, while there should be a GST Free category that should be shared between income and expenses (the online help suggests having a GST Free Income category but tries to apply the "No GST" to "GST Free" purchases but not sales.

With a "GST Free" category applicable to purchases and sales, "No GST" should merge with "GST Exempt" (and called "GST Exempt").

Reading the help does expalin the situation but does not make it easy to remember let alone understand.

To have a tax code handled differently depending is just confusing. No education will be able to help with this ambiguity. Every transaction involving "No GST" or "GST Exempt" needs me to review the support documentation to make sure I select the right one, especially if I am not processing transaction daily.

I have reported this to Xero support on a few occasions over the past year but am wondering if I am the only one that sees this as an issue and wish for this to be corrected to standard ATO terminology.

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Permalink Reply by Catherine (Xero) on November 3, 2011 at 22:10

Thanks Cassandra for taking some time to talk to Tim from our Australian office. I understand it was a really valuable discussion and we appreciate you guys being so engaged and so patient. We're definitely trying to get some improvements underway.

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Permalink Reply by Mike Deam on November 4, 2011 at 1:21

Hi Michael,

That box seems to effect all the lines on the document.. I must admit I don't tend to use this much other than to flick between GST Inclusive and GST Exclusive and tend to set the GST on the individual line...

The other well known purple package seems to just have a button for Inclusive or Exclusive and perhaps removing the NO GST option from the drop down box (Amounts Are) would be the best solution then you are effectively forced to set a tax rate on each line.

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Permalink Reply by Heather Smith on February 23, 2012 at 11:20

Hey thanks to all contributors - yes I to am trying to get my head around No GST vs GST Exempt ... has there been any update from XERO Catherine...

I understand copyright issues and using different terminology, but it seems a little bit too complicated with the current options...

When I look at the chart of accounts I check the default accounts and summarise them as per the MYOB column. From that, I have established what I think they should be in XERO.

	MYOB	XERO
ASSETS	NT, CAP	GST Exempt, GST on Capital, GST on Capital Imports
LIABILITIES	NT	GST Exempt
EQUITY	NT	GST Exempt
INCOME	GST/FRE/ITS/EXP/NT	GST on Income, GST Free Income, GST Free Exports, GST Free Exports, Input Taxed Sales
EXPENSES	GST/FRE/ITS	GST on Expenses, No GST on Purchases, Input Taxed Purchases

Does that make sense? Do you agree with my allocations?

My issue is that I am looking at client files and they have No GST allocated all over the place … shouldn’t Assets & Liabilities & Equity generally have a default GST Exempt allocation?

Thanks,

Heather

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Permalink Reply by Tim Wright on March 8, 2012 at 0:52

Hi Heather

We caught up in Brisbane at the Xero roadshow around our thinking how we can make this easier and we were pleased you felt we were on the right track. Whilst we don't have a confirmed date yet of when, we're keen to make the changes so stay tuned (the sooner the better as far as I am concerned!)

Checking your table, it looks ok. It's certainly best to work back from reporting outcome desired rather than legacy tax code used and our Help Topic should help you do this. Additionally, take a look at the table for the mapping we apply to MYOB Chart of Accounts imported to Xero. As a broad rule of thumb we'd expect an account that had N-T to have GST Exempt. There are some exclusions to this though especially when talking about Bank accounts.

Couple of thoughts in summary….

Expense Accounts: You note No GST On Purchases but the tax code name is actually called No GST. You're right that when using No GST on the expense account/expense transactions it'd be shown as No GST on Purchases on the GST Audit Report. No GST on Purchases on the Audit Report will be reported at G11 and G14 on the GST Calculation worksheet.

Asset Accounts: If those assets were N-T, GST Exempt is fine. Just be aware that you could want No GST on them depending on the reporting outcome that's desired. Having No GST on Balance Sheet accounts (except Bank, Credit Card and PayPal accounts) could result in them being reported at G11 on G14 on the GST Calculation worksheet if used on an Expense type transaction. Again, you see these transactions identified as No GST on Purchases in the Audit Report.

The exception to the rule is that any Bank account must have No GST, Xero requires it currently. Don't worry, they're always excluded from the Activity Statement.

Of course when we make the change, all this will be much easier. Feel free to drop me a line if you'd like to discuss further.

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Permalink Reply by Heather Smith on March 8, 2012 at 1:12

Tim,

Thanks for your response & yes I appreciated your time at the conference.

I have the chart permanently fixed on my desk

I also have seen an issue that may have been raised before...when you process a manual journal entry...to select the NOT REPORTABLE TAX CODES you need to select Amounts Are Tax Inclusive to be able to journalise that they are NOT tax inclusive, which is counter intuitive.

You say “The exception to the rule is that any Bank account must have No GST, Xero requires it currently. Don't worry, they're always excluded from the Activity Statement.”

This is too confusing for users, especially as you are branding as “EASY TO USE”. I believe it needs to change.

Sorry to be picky, thanks again,

Heather

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Permalink Reply by Tim Wright on March 8, 2012 at 3:33

Thanks Heather

Sorry - thought we'd covered this during our chat in Brisbane...

Mike commented earlier in this thread on the Amounts 'do not include tax' option and tax code it applies as well.
Updating this is part of the same plan. We're looking at applying a tax code that is excluded from the BAS when the option 'Amounts Do Not Include...' is chosen on a transaction. In the interim, you're quite right in how you manage it.

Same applies for Bank accounts tax code handling.

In a nutshell with what we are planning and evaluating, there will be a one tax code = one AS reporting outcome.

Thanks again, hope that helps.

Tim

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Permalink Reply by Heather Smith on March 8, 2012 at 4:14

Tim,

I agree we probably did talk about it.

I am trying to absorb everything, and make sure I am clear where everything stands.

I did mention to someone else (about a dozen times) their beta product was slow, and they have come out and said, but no one said it was slow...

dotting my i's and crossing my t's

Heather :)

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Permalink Reply by Tim Wright on March 8, 2012 at 4:29

Thanks Heather.

No problem at all. I thought we'd discussed it but then you got me thinking whether we had!

We're always keen to hear feedback and experiences.

So far feedback on what we're thinking around this has been really positive and hope it won't be too long before we can announce our plans. It's better we get it right!

Tim