Strangely, those who initially designed the procedures recommended for calculating GST on the BAS report seemed oblivious to the fact that most companies in Australia do in fact use accounting software, in one form or another, to assist in the running of their businesses. The reason why this is ‘strange’ is that many of the numbers on the BAS report aren’t readily or easily derived from an accounting program.
Most accounting systems in Australia appear to have taken a ‘dumb’ approach to the whole issue of reporting GST and filling in the BAS.
Most of the procedures implemented are essentially manual. Yes, the work is done on a computer, but the data entry, adjustment calculations, etc., are all essentially manual processes.
For example, most systems force users to code each individual line item on a purchase order as it is entered or delivered, according to a BAS (tax rate) code. Besides being absurdly labour intensive, this approach assumes that the operator will be able to decide which BAS category is correct--something that is not always possible, besides being error prone when it is possible. (And this approach also looks suspiciously like a quick conversion from sales tax to GST, rather than a re-think of the whole issue of working in a GST based tax system.)
The central problem with this type of design is that it assumes that people who deliver purchase orders will have some basic accounting knowledge and will be able select the correct BAS codes.
This isn’t always the case. Often sales people and other non-administration staff will take delivery of goods and these people are not greatly concerned about the accuracy of the companies’ GST reporting. It is not "their" problem.
Fortunately, the designers of CAPITAL Series 7 were aware of these practical issues and this "standard" approach was not taken.
GST and The Business Activity Statement
Yet another major problem with the Australian Tax Department’s BAS report is that it assumes, rather simplistically, that 10% GST will neatly apply to all acquisitions that are not GST free. The BAS report actually asks you to divide total acquisitions where GST applies, by 11, to derive the GST to pay!
Unfortunately, there are many obvious situations where this does not occur. Any insurance contract with applicable stamp duties may or may not have GST applied to those additional taxes. Other taxes and excises also present "special cases" which are not considered by the BAS calculations suggested by the Tax Department.
These are not uncommon or unusual events. Any business with an insurance premium is likely to be affected!
As a result of this situation, simply adding up your supplier invoices from all suppliers who 'normally' charge you GST, will not allow you to derive your total creditable acquisitions as required by the BAS. At least not correctly, anyway.
Possible solutions might include:
1. Coding each individual item purchase into the BAS category it belongs in. (In other words, code everything manually, line by line.)
Unfortunately this is sometimes not practical, as tax invoices need not show which items are tax free, which are tax applied, etc. According to Tax Department guidelines, tax invoices only need to show the total GST you were charged.
2. Manage a separate recording system that splits supplier invoices into tax free and tax applied divisions, so that the total acquisitions including GST can be determined.
This approach should, of course, be dismissed, as the extra data entry work would be enormous.
3. Retrieve the actual GST recorded in the system, and from this derive, working backwards, total acquisitions including GST (assuming GST was a neat 10% of this total.)
The CAPITAL BAS Assist Report has opted for this last option. CAPITAL will automatically calculate the difference between what the Tax Department says you owe (according to their recommended simple calculations) and what your accounting records have determined that you should actually pay or be paid.
CAPITAL’s GST report also shows the percentage of GST assigned to every supplier transaction recorded in the system. Anything that is not 10% can be readily cross-checked.
When you are satisfied that the difference between the GST amount in your system and the method suggested by the Tax Department is correct, the BAS report shows you how to fill in the BAS entries, so that the simple "divide by 11" rule still produces the correct numbers.
So the only thing the user need do is allocate purchases and other expenses to the same types of accounting codes they have always done in the past. For example, rent, wages, advertising, car insurance and so on.
CAPITAL examines each category, calculates the appropriate GST you should have paid, lists the total amount of data entry errors or any legitimate discrepancies, and then gives you all the numbers you need to fill in the acquisitions section of the BAS consistently.
There really is no need to code all your supplier invoices, manually, against BAS codes as other systems do.