GST & BAS Detailed Handbook

contents
1 Overview
Introduction
Objective
Scope Of Material
What Is The New Tax System?
How Does The New Tax System Apply To The Community, Voluntary
and Cultural Sectors?
Overview Of The BAS
There are Two Types of BAS
The BAS And Calculation Sheet Road Map

Business Activity Statement (BAS)
Calculation Sheet
Business Activity Statement

Instalment Activity Statement
Other Issues To Consider In Completing The BAS
Payment Options
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Goods and Services Tax

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Introduction
What Is GST?
Australian Business Number Registration
Entity
GST Registration
Cancelling GST Registration
Significant Registration Issues
Grouping
Branching
Sub-Entities
Other Important Points
Types Of Supply For GST Purposes

Taxable Supplies
Input Tax Credits
Taxable Supplies Made By You (e.g. your sales)
Taxable Supplies Made To You (e.g. your acquisitions)
GST-Free Supplies
GST-Free Supplies Made By You (e.g. your sales)
Special Rules For Charities
GST Free Supplies Made To You (e.g. your purchases)
Input Taxed Supplies

Input Taxed Supplies Made By You (e.g. your sales)
Input Taxed Supplies Made To You (e.g. your purchases)
The Most Common Input Taxed Supplies
Supplies Outside The Scope Of The GST Legislation

Barter/Contra Arrangements
Reporting
Accounting For GST On A Cash Or Non-Cash (Accruals) Basis
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THE NEW TAX SYSTEM MANUAL
contents
contents
Tax Invoices
The Tax Invoice Is The Cornerstone of GST
Tax Invoice Checklist - Invoice Total Excluding GST
Taxable Supply Example
Each Person In The Chain
GST-Free Supply Example
Input Taxed Supply Example
Other GST Issues

New Motor Vehicles
Donations, Grants, Gifts And Sponsorships
Sponsorships
Donations And Gifts
Grants
Grants Are Revenue Neutral
Fundraising
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Completing The GST Calculation Sheet For Acquisitions Made By You 42

G10 Capital Acquisitions
G11 Other Acquisitions
G12 Total Acquisitions
G13 Acquisitions Used In Making Input Taxed Supplies
G14 Acquisitions With No GST In The Price
G15 Estimated Private Use & Non-Income Tax Deductible Acquisitions
G16 Non-Creditable Acquisitions
G17 Total Creditable Acquisitions
G18 Adjustments
G19 Total Creditable Acquisitions
G20 Total Input Taxed Credits
Exercise Solution
Other BAS Items

1C 1D Wine Equalisation Tax
What is Wine Equalisation Tax?
1E 1F Luxury Car Tax
1G Wholesale Sales Tax Credit
Eligibility Of Goods
3 Completing The BAS - GST Calculation Sheet

Introduction
GST Calculation Sheet Option
GST Derived From Accounts Option
Supplies You Have Made - Summary
GST - Exercise
Completing The GST Calculation Sheet For Supplies You Have Made
G1 Total Sales & Income & Other Supplies
Non-Profit Bodies
G2 Exports
G3 Other GST-Free Supplies
G4 Input Taxed Sales & Income & Other Supplies
G5 Total GST-Free and Input Taxed Supplies
G6 Total Of Taxable Supplies
G7 Adjustments
You have Two Options To Account For Adjustments
Determining If You Have A Net Increasing Or
Decreasing Adjustment
Calculating An Increasing Or Decreasing Adjustment For
Supplies
Calculating An Increasing Or Decreasing Adjustment
For Acquisitions
Determining The Net Adjustment
Adjustments Summary Worksheet
G8 Total Of Taxable Supplies After Adjustments
G9 GST Payable
Acquisitions You Have Made - Summary
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4 Pay As You Go
Introduction
Pay As You Go Withholding
Information for the BAS/IAS
W1 Total Of Salary, Wages And Other Payments
W2 Amounts Withheld From Salaries And Other Payments
PAYG Voluntary Agreements

PAYG Voluntary Agreement Form
W3 Amounts Withheld From Investments - No TFN

W4 Amounts Withheld From Invoices - No ABN
4 Pay As You Go Withholding
Flowchart
Other PAYG Withholding Obligations

Are Any Organisations Exempt From PAYG Withholding?
PAYG Withholding Exercise
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5 PAYG Instalments
Introduction
Completing The Business Activity Statement
T1 Instalment Income
T2 Instalment Rate
T3 New Varied Instalment Rate
T4 Reason For Variation
5A Pay As You Go Instalment
5B Credit Arising From Reduced Pay As You Go Instalment
7 Deferred Company/Fund Instalment
Example
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iii
contents
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6 Fringe Benefits Tax

Introduction
What Is An Employee?
What Is An Arrangement?
What Is An Associate?
What Is A Benefit?
Rate Of Tax
Example 1 - Fringe Benefit Tax Consequences of Salary Sacrifice
Categories Of Fringe Benefits

Concessional Benefits
Exempt Benefits
Valuation Of Fringe Benefits
Rebatable Employers
Example 2 - Rebatable Employer Fringe Benefit Tax Consequences
of Salary Sacrifice
Recent Amendments To FBT Legislation

Lodgment Of FBT Returns
Completing The BAS For Fringe Benefits Tax

Lodging Your First Activity Statement
F1 ATO - Calculated Fringe Benefits Tax Instalments
F2 Estimated Total Fringe Benefits Tax Payable
F3 Varied Fringe Benefits Tax Instalment
F4 Reason For Fringe Benefits Tax Variation
6A Fringe Benefits Tax Instalment
6B Credit Arising From Reduced Fringe Benefits Tax Instalments
Working Out Your Amount Payable Or Refundable

Quarterly Business Activity Statement
Monthly Business Activity Statement
Income Tax Exempt Status For Non-Profit Organisations That Are

Not Charities
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What Is A Charity?
The Effect Of Being Endorsed As An Income Tax Exempt Charity
How Do You Become Endorsed?
Are You A Charitable Fund Or A Charitable Institution?
Charitable Institutions
Physical Presence In Australia Test
Disregarded Amounts
Deductible Gift Recipient Test
Prescribed By Law Test
Charitable Funds
How to Determine Whether a Charitable Fund Will Be
Entitled To Endorsement
Charitable Funds Not Established By Will Before 1 July 1997
Australian Purposes Test
Australian Distribution Test
Gift Distribution Test
Charitable Funds Established By Will After 1 July 1997
Certain Charitable Funds Cannot Be Endorsed

Revoking Endorsement
Review Rights
iv
8 Deductible Gift Recipient Endorsement
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Special Requirements For Public Benevolent Institutions

Special Requirements Of School Building Funds
Who Can Claim Deductions For Gifts?
What Types Of Gifts Are Deductible?
Gift Types
Gift Conditions
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Australian Business Number

Gift Funds
Receipts
Changing Your Purposes Or Activities

Checklist To Assist You In Determining Your Income Tax Status
Under The New Tax System
Specific Questions For ITECs
Specific Questions For Charitable Funds
Specific Questions For DGRs
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Introduction
How Do You Obtain Endorsement As A DGR?
7 Income Tax Exemption For Charities

Introduction
Non-Profit
Non-Profit Clause
Dissolution Clause
Exemptions
Cultural Organisation
Community Service Organisation
Educational Organisation
Employment Organisation
Friendly Societies
Health Organisations
Religious Organisations
Resource Development Organisations
Scientific Organisations
Sporting Organisations
Three Tests
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9 ADDITIONAL INFORMATION
Schedule A
Section 65J Rebate For Certain Non Profit Employers Etc
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Glossary
105 - 109
Government Assistance Initiatives
110
The Role Of The ATO
The GST Start-Up Assistance Office
Other Helpful Internet Sites
Notes
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1 overview
INTRODUCTION
SCOPE OF MATERIAL
The GST Start Up Assistance Office has contracted AIM and GST Etc Pty Ltd
to develop this manual to explain to individuals and organisations in the
community, voluntary and cultural sectors how The New Tax System might
affect them. The manual will also help the community, voluntary and cultural
sectors complete new reporting forms required by the Australian Taxation
Office (ATO).
This manual is not intended to cover all the various issues that will confront different
organisations.
The manual has been developed as a practical handbook to be used in free workshops
for the community, voluntary and cultural sectors from mid August to late October 2000.
The manual is also a reference source for those not attending the workshops.
For example, this manual does not cover the Wine Equalisation Tax (WET) or Luxury Car Tax
(LCT) in great detail because these generally do not apply to community sector
organisations.
Details are also provided of other information sources available in respect of the BAS and
other taxation reporting requirements. You will find a listing of helpful contacts on page 110
of this manual.
Where you have specific issues relating to tax or reporting requirements, it is recommended
that you seek the advice of your taxation advisor or the ATO.
OBJECTIVE
WHAT IS THE NEW TAX SYSTEM?
The objective of this manual is to assist the readers prepare their first Business Activity
Statement (BAS) or Installment Activity Statement (IAS) with particular emphasis on:
The New Tax System commenced on 1 July 2000. It includes:
> The Goods and Services Tax (GST) and the information required to be supplied to the
ATO on the BAS;
> The Pay As You Go (PAYG) Withholding system;
> The PAYG Instalment regime and how this will affect tax payments by entities;
> The categories in the new BAS/IAS that form the reporting and payments basis of
The New Tax System to the ATO; and
> Fringe benefits tax (FBT).
This manual also covers in some detail, endorsement for Income Tax Exempt Charities
(ITEC) and Deductible Gift Recipients (DGR).
This manual contains 9 chapters including the introduction which gives an outline of this
manual and a brief overview of the BAS and IAS.
Following the introduction, the second chapter of this manual is designed to assist
community sector organisations with the introduction to GST by giving a sound foundation
of how the GST operates.
> The GST - this is a 10 per cent tax on most goods and services consumed in Australia;
> A single number for each business entity - an Australian Business Number (ABN) which will
eventually be used as a single identifying number for all dealings with Government;
> A PAYG Withholding system which replaces a number of withholding taxes
(e.g. Pay As You Earn, Withholding where no TFN quoted on investments) and a PAYG
instalment system which replaces provisional tax and the company and superannuation
fund instalment system;
> Requirements for endorsement as an ITEC or DGR;
> Reporting fringe benefits on employees group certificates;
> Changes to the Diesel Fuel Rebate Scheme;
> WET; and
> LCT.
The new tax system will also simplify the way you report to the ATO. A single form - the BAS
or the IAS - will be used to report the range of matters described above. Chapters 3, 4, 5 and
6 of this manual show you how to complete the BAS or IAS.
The third chapter follows with instructions on completing the GST sections of the new BAS
that form part of The New Tax System.
The fourth and fifth chapters of this manual focus on the PAYG Withholding and Instalment
elements of the Calculation Sheet and Activity Statement.
The sixth chapter of this manual concerns FBT and instructions on working out any final
amount payable or refundable for the Activity Statements.
The seventh and eighth chapters of this manual cover endorsement for ITECs and DGRs
whilst the last chapter includes a FBT rebatable employer schedule, glossary and helpful
contacts section.
1
HOW DOES THE NEW TAX SYSTEM APPLY TO THE COMMUNITY, VOLUNTARY
AND CULTURAL SECTORS?
The New Tax System applies to activities undertaken in most sectors including the
community, voluntary and cultural sectors. The following guide will help identify whether
The New Tax System will apply to you
You must register for both an ABN and the GST if you carry on an enterprise and your
turnover is over the annual threshold of:
> $50,000; or
> $100,000 for a non-profit entity.
For the purposes of the above test:
> An entity includes a sole trader, a partnership, an unincorporated association, and other legal
entities, such as a corporation or trust;
> An enterprise covers various activities undertaken with the expectation of profit or gain,
e.g. a business, a charitable institution, but does not include hobbies or activities as
an employee.
There are Two Types of BAS.

1. The first form is the monthly BAS. This form will be completed in each of the first two
months of any quarter by those required to complete a monthly BAS (in addition to the
quarterly BAS being completed in the third month). This form requires information and
any relevant payment in respect of all tax types, with the exception of PAYG Instalments
and FBT, for taxpayers required to complete it.
2. The second form is the quarterly BAS which covers all types of tax that GST registered
entities are required to complete on a quarterly basis. This form will be completed by
those required to file a BAS on a three monthly basis, and will be completed every third
month by those required to file a monthly BAS. The quarterly BAS, like the monthly BAS,
is double sided with the front being the actual BAS and the back (reverse side) being
the calculation sheet from which amounts are transferred to the BAS itself.
It should be noted that the ATO will provide a pre-printed monthly or quarterly form
that identifies the relevant information required in order to accurately complete the
Activity Statement.
You must also register for an ABN, and you may register for GST, if:
THE BAS AND CALCULATION SHEET ROAD MAP
> Your annual turnover does not exceed the appropriate threshold (see above) and:
> You want to apply for endorsement as an ITEC; or
> You want to apply for endorsement as an DGR; or
> You receive a grant, or supply goods or services to a business and do not want the payment
you receive to be subject to a 48.5 % PAYG Withholding tax.
The following reference map shows all the descriptions on the BAS and Quarterly
Calculation Sheet, and references each one and its "Box Number" to the pages of this paper
as an easy referral guide.
Business Activity Statement (BAS)
GST;
PAYG Withholding;
PAYG Instalments;
FBT;
WET; and
LCT.
Both the BAS and the IAS require all of the information described above with the exception
that the latter does not require the information pertaining to the GST.
Credit for Goods and Services Tax paid
1B
47
PAGE TRANSACTION TYPE

NO.
Goods and Services Tax payable
1A
40
Wine Equalisation Tax refundable
The New Tax System encompasses significant changes in taxation and is made up of
various parts that affect every organisation within Australia. The reporting basis for The
New Tax System is the BAS if the entity is registered for the GST, or the IAS if the entity is
not registered for GST.
>
>
>
>
>
>
PAGE
NO.
BOX
NO.
OVERVIEW OF THE BAS
Included in the BAS is the information required by the ATO for the following:
BOX
NO.
TRANSACTION TYPE
Wine Equalisation Tax payable
1C
48
Luxury Car Tax payable
1E
49
Add 1A+1C+1E

2A minus 2B GST net amount

Pay As You Go Withholding

Pay As You Go Instalments

Fringe Benefits Tax payable

Deferred company/fund instalment

Add 2A+4+5A+6A+7

8A minus 8B net amount for this
statement
2A
77
77
58

5A
65

6A
75
66

8A
77
77
1D

1F
Luxury Car Tax refundable

1G
Special credit for wholesale sales tax

2B
Add 1B+1D+1F+1G

5B
Credit arising from reduced PAYG

instalments

Credit arising from reduced Fringe Benefits 6B

Tax instalments

8B
Add 2B+5B+6B

Positive = Payable to ATO
Negative = may be a refund or offset
48

49

50

77

66

76

77

1
Calculation Sheet
BUSINESS ACTIVITY STATEMENT

BOX
NO.
PAGE
NO.
Every entity that registers for GST is required to submit a BAS. Part of the BAS is
your GST return.
G10
42
For each tax period, the entity will receive from the ATO a single tax form: the BAS.
BOX
NO.
PAGE TRANSACTION TYPE

NO.
Total sales & income & other supplies
G1
32
Capital Acquisitions
Exports
G2
33
Other Acquisitions
43
G11
Other GST free supplies
G3
34
44
Input taxed sales & income & other

supplies
G4
34
Add G2+G3+G4
This is the total of your GST-free and
input taxed supplies

G1 minus G5

Adjustments

Add G6+G7
This is the total of your taxable supplies
after adjustments

Divide G8 by eleven

Total of salary, wages and other payments

Amounts withheld from salary, wages and
other payments

Instalment income
New varied instalment rate

ATO calculated fringe benefits tax
instalment

Estimated total fringe benefits tax payable
G5
35

G6
35

G7
36

G8
40

G9
40

W1

W2

T1
T2

F1

F2
53
Add G10+G11
This is the total of your acquisitions

Acquisitions for making input taxed sales
& income & other supplies

Acquisitions with no GST in the price

Total of estimated private use of
acquisitions + non income tax deductible
acquisitions

Add G13+G14+G15
This is the total of your non-creditable
acquisitions

G12 minus G16
This is the total of your creditable
acquisitions

Adjustments

Add G17+G18
This is the total of your creditable
acquisitions after adjustments

Divide G19 by eleven

Amounts withheld from investment
distributions where no TFN quoted

Amounts withheld from payment of
invoices where no ABN is quoted

New varied instalment rate
Reason for variation

Varied fringe benefits tax instalment

Reason for fringe benefits tax variation
G12
TRANSACTION TYPE

53

62
63

73

73

G13
44

G14
45

G15
45

G16
46

G17
46
As from 1 July 2000, the BAS will be used to advise the ATO of the GST liability of the entity
as well as being used to advise its other tax liabilities. For many entities this means that
there will be only one form and one payment to the ATO each quarter. It should be noted
however that some organisations will still be required to file an annual income tax return,
and an annual FBT return where applicable. Some entities though, may be exempt from
income tax or FBT and may not be required to lodge an annual income tax or FBT return.
The exceptions for filing a BAS on a quarterly basis will include businesses that are required
to remit GST on a monthly basis, or choose to remit GST on a monthly basis, and for
medium-sized remitters of PAYG deductions (including the former PAYE deductions)
from wages paid to employees (who are still required to remit PAYG Withholding
payments monthly). See the section on PAYG in this manual to determine whether
you are a medium-sized remitter of PAYG deductions.
Entities with an annual turnover in excess of $20 million are required to remit their
BAS monthly.
When you lodge your application to register for GST, you are required to elect which tax
period will apply to you. The choice is either one month or three monthly tax periods.

G18
47

G19
47

G20
47

W3
56

W4
57
The entity will be required to lodge its BAS with the ATO twenty-one days after the end of
the GST tax period. Note however that there are extensions of time available for the 1st, 2nd
and 3rd BAS returns for quarterly remitters of GST. These returns may be filed three weeks,
two weeks and one week after the standard due dates respectively.
(Note: The first quarterly BAS is due no later than 11 November 2000. As this day falls on a
Saturday, many entities will need to lodge their BAS by Friday 10 November 2000)
Similarly, the 1st and 2nd monthly BAS lodgement dates have been extended two and one
week(s) respectively for those with a turnover below $20 million.
Even if no tax liability exists for a tax period, a nil return must be filed by the due date.
Failure to lodge the BAS/IAS by the due date will incur late payment penalties.

T3
T4
64
65

T3
64

T4
65
The BAS can be sent to the entity by the ATO either through the mail as a paper return, or
over the Internet as an electronic form if you have requested this option.
The entity is required to keep adequate records so it can accurately complete the GST
section of the BAS to determine the amount of GST it will have to pay to the ATO or the
amount that may be refunded, depending on its circumstances.
Any refunds of GST may be used to reduce other amounts of tax that may be paid (such as
amounts withheld from salaries and wages) on the BAS for that period.
goods and services tax

INSTALMENT ACTIVITY STATEMENT
INTRODUCTION
If you are not registered for GST, you may still need to report other tax liabilities such as
PAYG and FBT. To do this you will be required to use an IAS. This form is very similar to a
BAS, but it does not include a section to fill out GST details.
This chapter discusses the basic principles of GST and reinforces your
understanding of how the GST operates. It introduces GST terms and their
implications in managing the GST process in addition to considering the GST
issues of the BAS.
This form is usually lodged quarterly, depending upon the entitys reporting requirements.
(For those required to complete an IAS, Chapter 3 of this manual is not relevant.)
OTHER ISSUES TO CONSIDER IN COMPLETING THE BAS

When lodging your BAS with the ATO, make sure that you:
> Have signed and dated the BAS at the declaration (note: the person must be authorised to
make the declaration). If lodged electronically, your lodgement must include your
electronic signature;
> Lodge the BAS in time to ensure the ATO has it by the due date. This date is printed in
the top right-hand corner of the BAS form (see item A5 for date statement is due on and
item A6 for payment due date);
> Complete the "time taken" section at the bottom of the front of the form to provide
information to the ATO as to the length of time taken to complete the task
(including collecting the information); and
> If you are using your accounting system to provide the information complete the compulsory fields on the back of the Calculation Sheet that relate to GST.
You must complete certain information for statistical reasons.
PAYMENT OPTIONS
You have several options for the payment of any amounts that you are required
to remit, including:
>
>
>
>
>
Direct credit payments;

Direct debit payments;
Bpay (Bpay code: 75556);
Mail payments;
Payments at the post office.
While some of the terms may still seem unclear or difficult to grasp, once you have a sound
understanding of them you will find that many of the mysteries of GST will disappear.
Appropriate systems are the key to managing GST in an organisation. Depending on the
size and nature of the entity, some systems will produce only basic accounting data whereas
others will produce comprehensive management reports.
The introduction of the GST provides an opportunity for all organisations from the
community, voluntary and cultural sectors to review their current systems if they have not
already done so. This review should not just focus on accounting for GST, it should also
consider how the information required for GST compliance purposes can be captured
efficiently and used to assist in the effective management of the entity.
WHAT IS GST?
The GST is a broad-based tax at 10% on the supply of most goods and services consumed
in Australia. It is also payable on most goods imported into Australia regardless of GST
registration. GST commenced on 1 July 2000, yet it affected some transactions entered into
prior to this date where performance occurred on or after 1 July 2000.
GST is a very visible tax. Where goods and services subject to the 10% GST are supplied, it
is mandatory for the supplier to indicate that the price paid is inclusive of GST. This is
unlike many other taxes, such as wholesale sales tax, where tax was included in the price of
goods, but was not visible to the purchaser.
Although GST will replace some existing taxes, the GST charged to a registered organisation
by its suppliers, in many situations, will be recoverable from the ATO. One of the most
fundamental principles of a GST system is that generally the tax is not an added cost for a
"GST-registered" entity. The GST system intends that the ultimate consumer bears the tax.
The key elements of the introduction of the GST rely on:
>
>
>
>
>
The abolition of many indirect taxes: resulting in the reduction of some business costs;
Any resulting costs savings to be passed on to consumers;
An organisation may be required to register for GST;
A registered organisation is required to include 10% GST in the price of "taxable supplies";
An organisation will find that GST is included in the prices charged to it by its suppliers
for many of the goods and services it purchases; and
> A registered organisation will be able to claim back this GST from the ATO
(termed input tax credits).
2
AUSTRALIAN BUSINESS NUMBER REGISTRATION
The Australian Business Number (ABN) is an eleven digit unique identifier that enables
organisations in Australia to deal with the ATO and will in time be used as the sole business
identifier by all government departments. The ABN is critical to the operation of the GST
system as every entity that is registered for GST will have an ABN and this is the number
that is quoted on all your tax invoices.
As a general rule, organisations should register for an ABN even if they do not register for
GST. This is because if an enterprise fails to obtain an ABN, there may be financial
consequences.
Consequently, an entity for ABN purposes includes:
(For further information on PAYG Withholding, see page 51.)
>
>
>
>
>
>
>
>
An organisation will need to show its ABN on all tax invoices. Without the ABN, the
document will not constitute a tax invoice (even if so described) and its GST registered
customers will be unable to claim input tax credits for supplies related to that document.
Where people own or control one or more separate legal entities, the GST issues are
potentially more complex and professional assistance or clarification from the ATO may be
required.
The ABN will not replace a tax file number, so tax information will still be protected by the
existing privacy guidelines.
Several related entities may be able to register for GST as one group. They will then be
considered as one enterprise for GST purposes.
The ABN will replace the Australian Company Number (ACN) over time and from 1 July
2000, companies are permitted to quote their ABN in place of the ACN where the 9 digits
of the ACN correspond with the last 9 digits of the ABN.
(For further information on special registration options see pages 11 13.)
If the organisation does not have an ABN, or does not provide that number to other
businesses to whom it supplies goods or services, those businesses ordinarily will be
required to deduct PAYG Withholding tax from payments to that business. Apart from the
limited exceptions to this rule (explained below), the withholding tax is the highest marginal
tax rate plus the Medicare levy (currently 48.5%).
ENTITY
An entity in legal terms, is a person, a company, a trust, or some other form of organisation
that has a separate legal identity.
Each entity that conducts an enterprise is entitled, and may be required, to register for an
ABN. If one entity conducts a number of enterprises, only one ABN for the entity is required
(although it may elect to apply the Branching rules - see page 12).
It should be noted that some organisations that may not be entities in a legal sense, for
example partnerships and unincorporated societies, may be entities for GST purposes and
therefore may be required to register for GST.
Example:
In a GST context, it is very important to appreciate that whereas the hospital and the trust
may be seen by the world at large to be the one and the same, the activity is undertaken
by two quite separate legal entities. In this example, the first entity is the hospital and
the second entity is the building fund trust. Although the trustees of the trust may be the
senior staff of the hospital and they themselves may perceive they are running the one
organisation, the fact that they are separate legal entities means that both the hospital
and the trust may be required to register separately for the GST.
Bluehelp Hospital (a non-profit hospital) provides various health related services. In

addition, the benefactors of the hospital have set up a trust for a building fund.
An individual;
A body corporate;
A corporation sole;
A body politic;
A partnership;
An unincorporated association or body of persons;
A trust;
A superannuation fund.
Typical situations that may fall into this category include:

>
>
>
>
>
>
Self employed shareholders and the companies they own;

Partnerships;
Partnerships and companies that they own;
Trustees and the companies they own;
Trustees and the beneficiaries of the trust;
Companies and their subsidiary companies.
In all of the situations above, it may be necessary to register more than one entity for GST
purposes. However, if one entity consists of a range of enterprises, only one registration is
required. Regardless of the number of trading names an entity may have, a single
registration is required.
Example:
The Merville Charity operates two different branches including a sheltered workshop
and charitable education program. They both operate from different locations yet
only one entity manages both of these business enterprises. Only one ABN is
required to cover these activities and similarly, only one registration is necessary for
GST purposes.
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2
GST REGISTRATION
CANCELLING GST REGISTRATION
Compulsory GST registration is based on two requirements. The first being that the entity is
carrying on an enterprise, and the latter being that annual turnover meets the registration
turnover threshold which is $50,000, or $100,000 for non-profit bodies. (Annual turnover
excludes input taxed supplies and donations, but includes the GST-exclusive amount of
taxable supplies and GST-free supplies. Consequently, annual turnover includes grants
made to the organisation but excludes bona-fide donations.)
You must cancel your GST registration within 21 days of ceasing to carry on your enterprise.
To calculate your turnover you need to look at your turnover for this month and the previous
11 months. If you exceed the threshold at this point, you must register. If you do not exceed
the threshold, take this months turnover and look forward to the next 11 months. If you are
likely to exceed the turnover threshold in the coming year, you should register for GST to
avoid penalties for not registering when you should have.
Where an entity satisfies the carrying on an enterprise test and its annual turnover does not
meet the relevant turnover threshold, the entity has the option to register for GST.
Are you carrying on an enterprise?
NO
You cant be registered
YES
Does your annual turnover equal or
exceed $50,000
($100,000 for non-profit bodies)?

YES
NO
You have the option to register
You are required to be registered for

GST
Example:
The Helping Hand Foundation is a non-profit organisation that operates an

opportunity shop with an annual turnover of $70,000. Although the Helping Hand
Foundation is not required to be registered for GST, it may elect to register for GST
so that where it is entitled to, it can claim input tax credits. However, once
registered, the Helping Hand Foundation must charge GST on any taxable supplies
it makes.
You can also cancel your registration if your annual turnover falls below the threshold.
This is not compulsory though, as you can remain voluntarily registered if you chose.
If you chose to voluntarily register for GST, you must remain registered for at least
12 months. This is an important factor to consider if you are deciding whether to
voluntarily register.
To cancel your registration, you need to apply to the ATO in writing.
SIGNIFICANT REGISTRATION ISSUES

The GST legislation allows organisations to either group or branch, but not to do both.
Organisations would need to look at their structural arrangements to determine what
arrangements would best suit their operation with respect to the costs of compliance,
particularly the costs of actioning internal transactions. Certain non-profit organisations
may also form non-profit sub-entities.
Grouping
Companies within a 90% owned group, and in some cases other entities (such as nonprofit bodies and religious groups), can be approved as a GST group. One member of
the group then deals with all the GST liabilities and entitlements (except for GST on most
taxable importations) of the group, and intra-group transactions are excluded from the GST.
The general requirements for non-profit bodies to be treated as a group are that all
members of the group:
>
>
>
>
Are non-profit bodies and all members are of the same non-profit organisation;
Have the same tax periods and the same accounts basis;
Are registered for GST; and
Do not belong to any other GST group.
Branching
A branch of a registered entity can be separately registered as a GST branch. Separate GST
returns are given, and separate payments and refunds of GST are made, in respect of the
branch. Transactions between branches are not excluded from the GST.
The general requirements to be registered as a branch are that:
> The branch has an independent system of accounting;
> The branch can be separately identified either because the activities of the branch are
distinct from the other activities of the entity, or because the branch is in a distinct location
from the other parts of the entity; and
> An enterprise is, or is intended, to be carried on through the branch.
11
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2
Sub-Entities
Certain non-profit entities are permitted to register sub-entities separately for GST if they
are part of that non-profit entity. By arrangement with the ATO, sub-entities can use the
ABN of the non-profit entity, or will need their own ABN. The benefit of using sub-entities is
that sub-entities may fall below the registration threshold and thus be exempt from
registration.
If you are a GST branch of an organisation, or a non-profit sub entity, and you are registered
for GST, you must complete the GST section of the BAS in terms of income and expenses
that your branch/sub-entity has received and incurred.
If you are the parent entity of a registered GST branch, you must complete the GST section
in terms of your income and expenses directly received and incurred by you (excluding all
income and expenses received and incurred by the GST branch in their own right).
To be able to take advantage of the sub-entity rules the entity must be:
> A charitable institution, trustee of a charitable fund or a gift deductible entity; or
> A non-profit body that is exempt from income tax.
TYPES OF SUPPLY FOR GST PURPOSES
These non-profit organisations with small independent branches (units) have the option of
treating their units as if they were separate entities for GST purposes and not part of the
main organisation.
The GST does not apply to all transactions so it is important that you understand what
transactions it does apply to and how transactions are categorised to accurately manage GST.
A unit will be considered to be independent if it:

> Maintains an independent system of accounting; and
> Can be separately identified by the nature of its activities or location.
> Taxable supplies;

> GST-free supplies;
> Input taxed supplies.
If an entity chooses this option it must record each unit that is being treated as a separate
entity for the purposes of GST.
There are other types of supply which are outside the scope of the GST legislation.
More information can be found on these types of supply on page 18 of this manual.
There are three types of supply for GST purposes:
Other Important Points

> Non-profit sub-entities are separate entities for GST purposes;
> Non-profit sub-entities are relevant for GST purposes only, and not for PAYG ,
FBT or Income Tax;
> An organisation cannot create a sub-entity for its core activities such as membership of the
main orgainsation;
> Where an organisation creates multiple sub-entities and the turnover of the main organisation
is reduced to below $100,000, the main organisation cannot elect to cancel their registration it must remain registered for the benefits of sub-entities to be enjoyed.
This means that where the sub-entity turnover is less than $100,000 it can choose whether
to register or not. Where the sub-entity turnover has a turnover of $100,000 or more it will
be required to register separately for GST and will have the same rights and obligations as
other GST registered entities, except for the ability to form other non-profit sub-entities.
Example:
13
A GST-registered church runs a fete once a year to raise money for church activities.
Separate accounting records are kept for the fete. From the turnover of previous fetes
it is estimated that the current years fete will raise $60,000. Since the fete keeps a
separate accounting system and it conducts different activities to the churchs
activities, the church may elect to treat the church fete as a separate entity for GST
purposes. Because the turnover of the fete is less than $100,000, the organisers of
the fete can choose whether or not to register the fete for GST purposes. If the
organisers choose not to register the fete for GST, the sale of items at the fete will
not have GST included in the price. However, GST that has been included in the
price of inputs to the fete such as the hire of stalls and a marquee cannot be
claimed as input tax credits.
TAXABLE SUPPLIES
Taxable supplies are those supplies which are subject to GST. For a supply to be taxable,
there must be:
>
>
>
>
>
>
A supply;
For consideration (any form of payment, not limited to money .ie. barter);
By a registered entity;
Conducting an enterprise;
Where the supply is connected with Australia; and
Not a GST-free, input taxed, out of scope supply
(for further information on these terms see pages 15 - 18 of this manual, respectively).
Where you receive a taxable supply, you might be able to claim an input tax credit.
INPUT TAX CREDITS

Entities can claim back from the ATO the GST that is included in the price of goods and
services they acquire for the purpose of making taxable supplies and GST-free supplies.
Input tax credits are only available for creditable acquisitions which require that there is:
>
>
>
>
>
>
An acquisition of a thing;
By a registered entity;
For consideration;
Which is a taxable supply;
With a tax invoice; and
For a creditable purpose.
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2
Taxable Supplies Made By You (e.g. your sales)
Taxable supplies are supplies that you make that are subject to GST. When you make a
taxable supply, you will be required to account to the ATO, for GST equal to 1/11th of the
amount that you receive from your customer.
Example:
An advocacy organisation sells a book for $100 plus 10 per cent GST. The total price
inclusive of GST is $110. The advocacy organisation is required to remit the $10 GST
(1/11th) on the supply to the ATO.
Note: Where a grant made by government is received by an organisation registered for GST, there
is a supply by the organisation to the grantor in return for the grant. This is a taxable supply and
the organisation is required to remit 1/11th of the grant amount to the ATO.
GST-FREE SUPPLIES
As the name suggests, no GST is charged on the supply of these goods or services. However,
it is important to emphasise that there are no GST-free organisations. Rather, an organisation
must classify each transaction it makes, to determine the GST treatment. Irrespective of the
supplies and acquisitions an organisation makes, GST is payable on all acquisitions of taxable
supplies.
GST-Free Supplies Made By You (e.g. your sales)
If you are registered for GST and make GST-free supplies, you will not need to account for any
GST on these supplies.
You should therefore, ensure that you do not include any GST-free supplies that you make in
determining the amount of GST that you are required to account for.
Taxable Supplies Made To You (e.g. your acquisitions)

You will also acquire goods or services from your suppliers that are subject to GST. That is,
they are taxable supplies made to you.
If you buy goods and services that are subject to GST and you use these to make GST-free
supplies in carrying on your organisation, you are still entitled to claim an input tax credit in
respect of those purchases. Examples of such purchases might be stationery, accounting
services or signage.
To work out the GST that you have paid to your supplier you will generally be able to take
1/11th of the price charged to you.
Example:
Example:
A soup kitchen buys saucepans from a homeware store. The value of the saucepans
is $275 (including GST). The amount of GST included in the price of the saucepans
is 1/11th of $275. This equates to $25 GST.
However, if the GST does not equal 1/11th of the price charged, the supplier is required to
show you the GST separately on the tax invoice.
Example:
A soup kitchen buys fresh vegetables and cleaning products from a supermarket.
The combined value of purchases is $96. The fresh vegetables amount to $30
and the cleaning products $66. The amount of GST included in the purchases is
1/11th of $66. This equates to $6 and each supply must be separately identified
on the tax invoice.
If you are registered for GST, you will be able to claim back from the ATO any GST paid to
your suppliers in relation to acquisitions you have made, provided:
> You have a tax invoice;
> The acquisition is for business purposes; and
> The acquisition does not relate to the making of input taxed supplies.
A religious institution purchases candles for use in its religious services for $330
(including $30 GST). The religious institution is entitled to an input tax credit of $30
for that transaction.
Special Rules for Charities

The following supplies made by charitable institutions, trustees of charitable funds or gift
deductible recipients are also GST-free: (see pages 78 for discussion of definition of charity)
> Supplies other than accommodation where the amount charged is less than 50 per cent of the
GST-inclusive market value;
> Supplies other than accommodation where the amount charged is less than 75 per cent of the
acquisition cost;
> Supplies of accommodation where the amount charged is less than 75 per cent of the
GST-inclusive market value;
> Supplies of accommodation where the amount charged is less than 75 per cent of the cost
of providing it;
> Sale of donated second-hand goods provided nothing has been done to the goods to
change their nature.
Example:
A GST-registered charity supplies community housing for $120 a night. The market
value of this supply is $200 a night. Since the supply of accommodation is made by
the charity for less than 75 per cent of its market value, it will be GST-free.
The GST able to be claimed by you is called an input tax credit.

The supply is GST-free, therefore the charity will not include GST in the price charged for the
accommodation.
15
16
2
Example:
Clothes donated by She-girl stores are reprocessed by the Robert River Op Shop
(which is registered for GST) for resale as toy dolls. Since the second-hand goods are
altered considerably and their nature has been changed, they will not be GST-free.
The supply is a taxable supply, therefore the Op-shop will include GST in the price charged
for the toy dolls.
GST-Free Supplies Made To You (e.g. your purchases)
In carrying on your business you might purchase goods and services that are GST-free.
You must therefore, ensure that you do not include any GST-free acquisitions that you make
in determining the input tax credits that you are able to claim.
The most common GST-free supplies include:
GST FREE SUPPLIES
GST FREE SUPPLIES

Religious services
Private health insurance

Non-commercial activities for charities
Exports

Basic food and beverages for human consumption
Child care

Raffles and bingo conducted by charitable institutions
Water and sewerage

Health & medical services
Subdivided farm land

Education
Supplies of going concerns (or on-going businesses)
INPUT TAXED SUPPLIES

These are supplies on which there is no GST and no entitlement to input tax credits.
Input Taxed Supplies Made By You (e.g. your sales)
If you make supplies of input taxed goods or services, you will not be required to account
for GST on the supply.
However, if you buy goods or services that are subject to GST, and you use these to make
input taxed supplies in carrying on your business, you are not entitled to claim an input tax
credit in respect of those acquisitions. This is the major difference with GST-free supplies
discussed above. This means that the GST becomes a cost to your business. You may choose
to pass on this cost, in the pricing of the input taxed goods or services that you supply.
Example:
The Supportive Housing Organisation rents residential accommodation to a sole

parent. If the supply of the residential accommodation does not fall within the GSTfree supply category because it is charged at market rates, the supply of the
accommodation will be input taxed. This means that the Supportive Housing
Organisation could not claim input tax credits for GST it pays to maintain the
accommodation, such as replacing windows or using the services of a plumber.
Note that this general rule is altered for certain acquisitions of goods or services made by financial
institutions, such as banks.
17
You should ensure that you do not include any input taxed supplies that you make in
determining the GST that you are required to account for.
Input Taxed Supplies Made To You (e.g. your purchases)
If you acquire goods or services that are input taxed, you will not be charged any GST
by the supplier.
You must therefore, ensure that you do not include any input taxed acquisitions that you
make in determining the input tax credits that you are able to claim.
The Most Common Input Taxed Supplies
The main types of supplies that will be input taxed include:
> Financial supplies;
> Residential rents and the sale of existing residential properties;
> Supplies of food by school tuckshops and canteens under certain conditions.
SUPPLIES OUTSIDE THE SCOPE OF THE GST LEGISLATION

This is not a formal term designated in the law, but we use it to explain the fact that no GST
will be payable on the supply. Good examples are donations, salaries and wages or certain
government taxes, fees and charges.
BARTER/CONTRA ARRANGEMENTS
Barter transactions may also be caught by the GST. For example, a local club provides a
venue to a local GST-registered charity for their annual gala dinner in return for advertising.
Each supply has a GST-inclusive value of $1,100.
GST would be payable by the registered club as 1/11th of the market value (including GST)
of the advertising received as consideration for the supply of the venue. GST would also be
payable by the charity as 1/11th of the market value (including GST) of the venue hire
received as consideration for the supply of the advertising. Both parties would be entitled to
input tax credits equal to the amount of GST payable (assuming they are entitled to a full
input tax credit).
Example:
Where a lawn bowls club (registered for GST) receives one months supply of free
printed stationery from the local printer (registered for GST) in return for advertising
the printer as a major sponsor of the club, two supplies occur. In this barter
arrangement, GST is payable by the lawn bowls club on the value of the advertising
although no money has been exchanged. Similarly, GST is payable by the local
printer on the value of the stationery.
Assuming that both the advertising and printing are valued at $110 and the lawn bowls club
and printer are entitled to claim input tax credits for these supplies, the net GST result will
be nil. The lawn bowls club will have an obligation to remit 1/11th ($10) of the value of
advertising to the ATO but will receive an offsetting input tax credit for the $10 GST incurred
on the acquisition of the stationery.
Similarly, the printer has an obligation to remit $10 GST on the supply of the stationery but
is entitled to a $10 input tax credit for the $10 GST on the acquisition of the advertising.
18
2
REPORTING
If you are registered for GST, the ATO will send your organisation either a monthly or
quarterly BAS for each tax period. The annual compulsory turnover threshold for
compulsory monthly reporting is $20 million, however you may choose or need to report on
a monthly basis. For example, you may be entitled to net refunds of input tax credits and
would want to receive these monthly.
The Tax Invoice Is The Cornerstone Of GST

The tax invoice is the single most important source document for the GST. Procedures to
ensure tax invoices are correctly issued, recorded and filed appropriately are crucial in a
GST environment. The requirements of a "tax invoice" are an extension of information
normally appearing on an invoice.
Tax Invoice Checklist - Invoice Total Excluding GST
GREATER THAN $50 BUT LESS THAN $1000

ACCOUNTING FOR GST ON A CASH OR A NON-CASH (ACCRUALS) BASIS
The ABN of the supplier;

GST-inclusive price;
GST-inclusive price;

Clearly show the words "Tax Invoice";
Clearly show the words "Tax Invoice";

Issue date of the tax invoice;
Issue date of the tax invoice;

Name of the Supplier;
Name of the Supplier;

Brief description of things supplied;
Brief description and quantity/extent of things supplied;

The amount of GST payable;
The total amount payable;

The total amount payable;
The name of the recipient;

If the GST is 1/11th of the total price either indicate
total includes GST or the amount of the GST;
The address or ABN of the recipient;

If the GST is not 1/11th of the total price (as a result of a
mixed supply), each supply must be identified.
If the GST is 1/11th of the total price indicate total

includes GST;
For other businesses that do not meet this criteria, they will generally be required, or will
want to account for GST on an accruals basis.
When applying to register for GST you would have made this choice by completing certain
items on your ABN application form. You need to consider which method you use to
account for GST when completing the items on the Calculation Sheet.
The choice of accounting for GST is completely independent from that chosen for income
tax purposes. Therefore, an entity accounting for income tax under the accruals basis of
accounting may account for GST under the cash basis if its turnover is less than $1 million
per annum.
If an organisation wants to recover from the ATO any GST it is charged on goods and
services acquired, the general rule is it must hold a tax invoice covering that supply.
> A tax invoice is a valuable document.
If an organisation is registered for GST and undertakes a transaction related to creditable
acquisitions, then the tax invoice provided by the supplier allows the organisation to claim
an input tax credit from the ATO.
The ABN of the supplier;
There are two methods of accounting for GST - on a cash or on a non-cash (accruals) basis.
Businesses who have an annual turnover (from GST-free and/or taxable supplies) of under
$1 million, or are a charitable institution, or an entity that accounts for income tax on a
receipts (cash) basis, have the option to account for GST on a cash or accruals basis.
TAX INVOICES
GREATER THAN $1000
If the GST is not 1/11th of the total price (as a result of a

mixed supply) each supply must be identified.

If the transaction is less than $50, excluding GST, a tax invoice is not required.
Input tax credits can be claimed provided a suitable receipt is held.
Get the tax invoice issues right and you are well on the way to dealing with GST!
The issuing of a tax invoice is required if the GST-exclusive value of a taxable supply is
greater than $50. If asked to provide a tax invoice, you must do so within 28 days of the
request from the purchaser.
You must be in possession of a tax invoice for any related claims for input tax credits when
you lodge your BAS. If you do not have a tax invoice, you cannot claim the input tax credit
until you obtain the tax invoice.
> A tax invoice is not just any invoice.
For an invoice to constitute a tax invoice, it must contain certain legally required
information. If it does not meet these requirements then it is not a tax invoice and the
organisation cannot claim back the GST content as input tax credits (see the tax invoice
checklist that follows).
19
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2
Examples of tax invoices
TAX INVOICE
Taxable Supply Example

It is important to understand that even though the GST is collected at every stage of
production, it is the consumer that actually pays the tax. This can be most readily shown
with a simple example of the manufacture and sale of a wool blanket. The GST rate is 10%.
GST on production and sale of a wool blanket
Murtoa Community Hall
PURCHASE
ABN 00 123 456 789
DATE
1 August 2000
Farmer
QUANTITY
DESCRIPTION OF SUPPLY
Hire of hall and equipment
AMOUNT
TOTAL
$880
Yarn producer

$880
Blanket Manufacturer

Retailer

Consumer

Total GST paid to ATO
SALE
Price paid
(a)
GST
(b)
Total
(c)
Price charged
(d)
GST
(e)
Total
(f )
Paid to ATO
(e-b)
20

40

80

100

2

4

8

10

22

44

88

110

2

2

4

2

10

20

40

80

100

2

4

8

10

22

44

88

110
$880
TOTAL INCLUDING GST
Note: The total tax collected by the ATO is 1/11 ($10) of the selling price to the consumer ($110),
or 10% of the price (before GST) paid for the goods.
As you can see, the GST is collected at each stage of the chain of production.
TAX INVOICE
Murtoa Community Hall

ABN 00 123 456 789
DATE
ADDRESS
1 August 2000
Murtoa Football Club 222 Main Street Murtoa
QUANTITY
DESCRIPTION OF SUPPLY
Hire of hall
GST
Each Person In The Chain:

> Charges GST on their sales (column (e));
> Claims back from the ATO all GST paid on the goods they purchase as inputs to their
sales (column (b)); and
> When they make their return to the ATO on the BAS, they subtract the GST they have
paid on the acquisitions they have made, from the GST collected on the supplies they have
made, to calculate the net amount payable (last column).
Your organisation might be the yarn producer in this example, though the same rules apply
to all of the organisations in the chain. For you, the GST consequences are as follows:
AMOUNT
You purchase some wool from the farmer for $22. That includes $2 GST.
TOTAL
$5,000
$5,000
$500
$500
You turn the wool into yarn that can be used by a blanket manufacturer, and charge the
manufacturer $44. That includes $4 GST.
The key points to note are that you must remember to charge and record the GST on your
sales, and to keep a record of the GST you have paid on your inputs (the wool).
TOTAL INCLUDING GST
21
$5,500
When you prepare the GST section of the BAS and send it to the ATO you are able to claim
back the GST on your purchases, but must submit the GST collected on your sales. It is the
difference between these ($4 collected from blanket manufacturer less the $2 paid to the
farmer) that must be paid to the ATO. That is $2.
22
2
Almost everything else that you will ever read, see or hear about GST will ultimately be
related to how to calculate the figures for your business in columns (b) and (e). If you
understand what to do to get those figures you are well prepared for GST.
Input Taxed Supply Example

Hot water service bought by religious organisation for use at its residential rental property
(rented at market rates).
Because most organisations will claim back the GST on their purchases, and collect the
GST on their sales to their customers, consumers bear the ultimate cost of the GST.
PURCHASE
Another way of showing this is that, looking at the example as a whole, you can see that the
total in the last column shows that businesses have paid $10 to the ATO. But when you look
at the bottom row of the table, you can see that the final consumer has actually paid that
$10. The input tax credit mechanism (that is only available to registered organisations, not
consumers) means that the final GST cost is borne by the consumer, not the organisation.
Price paid
(a)
GST
(b)
Total
(c)
Price charged
(d)
GST
(e)
Total
(f )
Paid to ATO
(e-b)
1,200

8,000
120

0
1,320

8,000
120

0

120
Hot water service

supplier

Religious organisation
GST-Free Supply Example

Computer equipment bought for use in training courses

Residential rent

PURCHASE
Equipment supplier

Training Organisation
(purchaser)

Training
Organisations fees

Price charged
(d)
GST
(e)
Total
(f )
Paid to ATO
(e-b)
400

600
40

0
440

600
40

-40

0

0
Because the training course is GST-free, the amount charged to attendees is not subject to
GST. However, the training organisation is still entitled to input tax credits for the purchases
made to run the educational course. In this case, the training organisation is in credit and
gets a refund of $40 from the ATO.
As you can see, GST-free is an appropriate way of naming these supplies because in net
terms, no GST is collected on these supplies.
23

120

1,320
Total
(c)

440

1,200
As the religious organisation is using the hot water service solely for providing residential
rent, it is not entitled to an input tax credit for the purchase of the hot water service.
The religious organisation then does not charge any GST to the tenant on residential rent.
GST
(b)

40
SALE
Price paid
(a)

400
SALE
OTHER GST ISSUES

New Motor Vehicles
In an attempt to protect the motor vehicle industry from the anticipated postponement
of vehicle purchasing resulting from the abolition of wholesale sales tax, the Government
passed legislation which phases in any entitlement to receive input tax credits for new
vehicle purchases. The phasing in rules for new motor vehicle purchases deny any input
tax credit for the year from 1 July 2000 to 30 June 2001 and allow a partial input tax credit
of 50% for the year from 1 July 2001 to 30 June 2002. Thereafter, full input tax credits are
available for new vehicle purchases.
However, entities that were exempt from sales tax on the purchase of new motor vehicles
and are registered for GST will be able to claim full input tax credits from 1 July 2000
(with the exception of any LCT components).
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2
Donations, Grants, Gifts And Sponsorships
For a payment to be considered a gift, it must be unfettered, that is, there must be no
obligations to do anything in recognition of the gift and no expectation on the part of the
donor to receive anything of material benefit in return for the donation. Consequently, the
receipt of a gift is not a taxable supply, unless there is another supply made for the
consideration (gift).
Non-Monetary Sponsorship
If a sponsor provides goods and services in return for other goods and services, such as
advertising and promotion, there is a supply by both parties to each other. This is called
"contra sponsorship". If both parties are registered for GST, each will be liable to pay GST
on the supply to each other. The GST will be 10 per cent of the GST-exclusive market value
of the supply made by the other party, or 1/11th of the GST-inclusive market value.
Example:
Where the supply is made by each party to the other in the same tax period, no GST will be
payable to the ATO because the value of the supply is the same as the value of the
acquisition (assuming the value is determined by arms length dealings).
John Brown, a wealthy businessman, makes a gift of $1,000,000 to an

environmental organisation. He gives the money with no stipulation as to how it is
to be used. The environmental organisation uses the money to regenerate some land
and names the regenerated area after John. As a token of appreciation, a plaque is
presented to John in recognition of his gift.
Each party will still need to account for GST payable and input tax credits on each
transaction.
Example:
As John does not receive a material benefit from the presentation of the plaque, there is no
taxable supply by the environmental organisation to John.
A paint manufacturer provides paint to the local childrens art association worth
$4,400 (including $400 GST) in return for advertising worth $4,400 (including
$400 GST).
(For further details of what is a "material benefit", refer to the ATO Ruling GSTR 2000/11.)
Sponsorships
Sponsorships usually require the recipient to do something. They are usually payment for
services (such as advertising) and will be subject to GST if the sponsored entity is
registered for GST.
Monetary Sponsorship
If the organisation supplying the goods or services (such as advertising) is registered for
GST, the organisation paying the sponsorship fee will be entitled to an input tax credit of
1/11th of the payment if it is registered. If the entity supplying the goods or services is
registered for GST, it will be liable to pay GST on the supply.
Example:
A GST registered charity is given $2,200 sponsorship by a local business in return for
a full page advertisement in its newsletter. GST is payable by the charity on the
supply. The GST payable is 1/11th of the amount paid, that is $200.
GST would be payable by the association as 1/11th of the market value (including GST) of
the paint received as consideration for the supply of the advertising. GST would also be
payable by the paint manufacturer as 1/11th of the market value (including GST) of the
advertising received as consideration for the supply of the paint. Both parties would be
entitled to input tax credits equal to the amount of GST payable (assuming they are entitled
to full input tax credits).
Donations and Gifts
A donation in the form of a payment in cash or in kind, that is made unconditionally, is not
subject to GST because no benefits or rights flow as a result of the payment, and the
recipient does not have to use the donation for a particular purpose.
Unconditional grants and unconditional sponsorships are also not subject to GST for the
same reasons.
Example:
An arts festival is given $1000 "sponsorship" by a local hairdresser with no

requirement to provide any goods or services in return. This is effectively a
donation and will not be subject to GST.
Example:
A football club is given timber by the local hardware store to rebuild a scoreboard.
No goods and services are requested or paid in return. The "sponsorship" will not
be subject to GST.
The local business is entitled to an input tax credit of $200.

Example:
25
A community art gallery is organising an exhibition and is given $11,000 sponsorship

by a photographic company in return for advertising signs at the exhibition. GST is
payable by the community art gallery on the supply of the advertising. The GST
payable is 1/11th of the sponsorship paid, that is, $1,000. The photographic
company is entitled to an input tax credit of $1,000.
26
contents
Grants
When a grant is paid to your organisation for a specific purpose or with any conditions, GST
is payable on the grant only if you are registered for GST. If there is no obligation tied to the
grant and no goods or services of "material benefit" are provided by your organisation, GST
will not be payable.
(For further information on "material benefit", refer to ATO Ruling GSTR 2000/111.)
The amount payable to the ATO is 1/11th of the grant. The entity making the grant (the
grantor) is entitled to an input tax credit equal to 1/11th of the grant amount. You will need
to give them a tax invoice.
Where your organisation is not registered for GST, no GST is payable and the grantor is not
entitled to an input tax credit.
Example:
Example:
Childs Play Theatre Inc. receives an annual grant of $55,000 from the Yarra Shire
and uses this to teach performance to young children in remote communities. As
Childs Play Theatre Inc. is registered for GST, it must remit $5,000 to the ATO, and
the Yarra Shire is entitled to claim the $5,000 included in the grant as an input tax
credit.
John performs mime for the elderly and receives $3000 each year from the Yarra
Shire to support his service. As John is not registered for GST, his work is not subject
to GST and the Yarra Shire cannot claim any amount attributable to Johns grant
as an input tax credit.
INTRODUCTION
This chapter works through an example on how to complete the GST section
of the BAS and provides instructions on the information requirements to do
so. (This chapter is not relevant for the purposes of completing your Activity
Statement if you are required to file an IAS instead of a BAS.)
The back of the BAS includes a "Calculation Sheet". The aim of the Calculation Sheet is to
assist businesses in determining the amount of GST payable and the amount of their input
tax credit. First we will discuss supplies you have made and then we will look at acquisitions
you have made.
Depending on your record keeping and accounting system, you may be required to
complete all of the Calculation Sheet or only some of the items. The two options for
completing the Calculation Sheet are as follows:
GST CALCULATION SHEET OPTION

Businesses who elect to use this option must complete all relevant items contained in the
Calculation Sheet.
GST DERIVED FROM ACCOUNTS OPTION

This option permits businesses to use balances derived from their own accounting system,
rather than completing the Calculation Sheet.
However, the following items must still be completed for statistical reasons:
Grants Are Revenue Neutral

Where a grant is given and the funder is entitled to claim an input tax credit, the net effect
on revenue is neutral.
Example:
Bright Light Theatre, registered for GST, receives an annual grant of $5,000 from
the Yarra Shire to fund a folk festival. Bright Light Theatre has to pay 1/11th of the
grant to the ATO as GST. If the shire decides to maintain the existing level of
funding, it will increase the grant by $500. The shire claims the $500 GST as an
input tax credit. The effect on both the shire and Bright Light is revenue neutral.
Fundraising
Certain fundraising events run by charities such as a fete, ball, gala show, dinner
performance or similar event, may be input taxed. The event must be separate from and not
forming part of a series, or regular run, of like, or similar events. It may also include an
event that involves the sale of small fundraising items such as flowers, confectionery and
chocolates (not alcoholic beverages or tobacco products), provided the charitable
organisation is not in the business of making such supplies.
27
> For supplies, you must complete items G1, G2 and G3;
> For acquisitions, you must complete items G10, G11 and G12; and
> You must complete items G9 (GST payable) and G20 (GST input tax credit).
Note:
> You can only elect to use this option if you have record keeping and accounting systems
that can accurately provide details of the GST payable to the ATO (item G9) and the
input tax credits you are able to claim (item G20);
> Your system must also incorporate proper audit trails;
> All businesses that are registered for GST must complete items 1A and 1B on the front
of the BAS, in respect of their GST obligations to the ATO.
[For further details regarding the specific system requirements that businesses must satisfy, you
should refer to pages 30 and 31 of the ATOs booklet titled "Business Activity Statement
Instructions" (ATO BAS Instructions Book)].
28
3
SUPPLIES YOU HAVE MADE - SUMMARY
The steps necessary to complete items G1 to G9 are set out in the example below.
The details of supplies that you have made is completed on the left hand side of the
Calculation Sheet (on the back of the BAS). When completing the details:
GST - EXERCISE
> If you account for GST on a cash basis - only include amounts for supplies where you have
actually been paid. If you have been partly paid for a supply, then include only the amount
you have been paid; or
> If you account for GST on an accruals basis - include all amounts for supplies where you
have either been paid (either partial or in full), or you have issued an invoice.
The following provides a summary of all items that need to be completed for supplies that
you make, if you are completing all the fields on the Calculation Sheet for GST purposes.
The Happy Charity is registered for GST and operates a number of initiatives. These include
raffles to raise funds, rental of a residential property, cake stalls, an opportunity shop that
sells donated second-hand goods and a commercial rag factory which shreds some clothes
from the opportunity shop.
For the quarter, July through to September, the accounts for the Happy Charity according to their
GST status were as follows:
RECEIPTS (SUPPLIES)
After the summary we will consider each of the fields in more detail.
ITEM
YOU ARE REQUIRED TO -
Enter your total income from all sales and other supplies that you have made for the tax period
**G1
(inclusive of any GST).

Enter the total of any exports that you have made for the tax period.
**G2
Note: You will also have included these supplies at item G1.

Enter the total of any other GST-free supplies that you have made for the tax period.
**G3

Enter the total of any input taxed supplies that you have made for the tax period.
G4

Add together items G2, G3, G4 (G2+G3+G4).
G5
This gives you the total of your GST-free and input taxed supplies you have made.

Deduct item G5 from item G1 (G1-G5).
G6
This gives you the total taxable supplies that you have made for the tax period.

Enter a net increasing adjustment at this item (if applicable).
G7

Add items G6 and G7 (G6+G7).
G8
This gives you the total of your taxable supplies including adjustments for the tax period.

Divide item G8 by 11 (G811). This gives you the GST payable to the ATO.
G9

Transfer the amount from item G9 to item 1A on the front of the BAS
OUTSIDE
THE SCOPE
OF GST
GST-FREE
SUPPLIES
TAXABLE SUPPLIES
INC GST
GST
AMOUNT
INPUT
TAXED
SUPPLIES
Raffle tickets

$100,000
Rag factory

$1,000
Opportunity shop

$60,000
Cake stalls

$3,300
Residential Rent

$10,000
$11,000
$15,000
Sale of old computer

$2,200
$15,000
$13,200

$200

$1,200
Donations
TOTALS
$163,300
$10,000
**Designates those items that must be completed by every business.
29
30
3
PAYMENTS (ACQUISITIONS)
OUTSIDE
THE SCOPE
OF GST
TAXABLE ACQUISITIONS
INC GST

$55,000
Printing raffle tickets

$550
Cake ingredients

Bank fees for operating an account

GST
AMOUNT
Electrical goods prizes
$1,500
$30
Electrician

$220
Plumber

New Computer

$5,500
Cash register

$550
Electricity

$330
Telephone

$220
Rates: rag factory

Maintenance

$1,320
Repairs

$440
Factory wages

Allowances
TOTALS
$1,530
$64,130
GST-FREE
INPUT TAXED
ACQUISITIONS ACQUISITIONS
$5,000

$50

$20

$500

$50

$30

$20

$120

$40

$5,830
COMPLETING THE GST CALCULATION SHEET FOR SUPPLIES YOU HAVE MADE

$700
$33

G1
Total Sales & Income & Other Supplies

Step 1 Add up the following amounts and enter at item G1:
>
>
>
Taxable supplies (including GST);

GST-free supplies; and
Input taxed supplies.
$13,200 + $163,300 + $10,000 = $186,500

$500
Notes:

$100
> This item should include the total value of all sales income and receipts from all supplies
that you have made in carrying on your business during the relevant tax period
(GST-inclusive where relevant);
> This item should also include any revenue earned from the sale of the assets of your business.
$1,300
$33
Example:
You should note that:

> For simplicity, the Happy Charity does not account for any of its activities as a non-profit
sub-entity;
> The cake stall sales are GST-free as the cakes are sold at less than 50 per cent of the
GST-inclusive market value (ordinarily, cake sales are subject to GST);
> The computer (originally purchased for $2,800) is sold at market value (the sale would be
GST-free if it were sold at less than 50 per cent of the market value or less than 75 per cent
of the acquisition cost);
> On 30 September, a customer of the rag factory returned $198 of rags
(this amount includes GST);
> The plumber is not registered for GST and therefore does not charge GST on plumbing
services, nor was an ABN quoted;
> In this Quarter, ( July to September), an amended phone bill for the last tax period was
received indicating an additional $110 is payable (caused by a billing error);
> The cash register, normally a capital acquisition, is a GST-related expenditure item
purchased for complying with the GST; and
> The maintenance and repairs costs relate to the input taxed supply of residential property
(at market rates). Although GST is paid on these costs, there is no entitlement to an
input tax credit on these acquisitions as they have been incurred for the purpose of
making input taxed supplies.
31
Using the previous information, we will now complete the blank Calculation Sheet provided.
>
>
>
>
>
>
Income from sales, service fees, repairs, hire, commissions, fares, royalties,
the redemption of monetary gift vouchers, etc;
Amounts kept from cancelled lay-by sales and forfeited security deposits;
Rental income from business premises that you have leased to someone;
Income from selling business assets; e.g. a computer, furniture, motor vehicle;
Contributions from employees for fringe benefits you have provided;
Monetary value of any barter/sponsorship arrangements.
Non-Profit Bodies
If you are a charitable institution, trustee of a charitable fund, deductible gift recipient,
registered club or similar non-profit organisation, include amounts received from all your
various activities including:
>
>
>
>
Membership fees;
Trading, such as from sales of goods (new and used);
Providing services to people in need;
Conducting raffles (Only net proceeds if cash prize. Gross proceeds for non-cash prizes the corresponding purchase of a prize will be included as an acquisition);
> Other fundraising activities;
> Sponsorship; and
> Grants.
If you have chosen to treat some of your separately identifiable branches as separate
entities (non-profit sub-entities), do not show the amounts from the activities of these
branches. However, you will need to include all transactions with the branch as though it
were a separate entity.
32
3
Step 2 Make sure you have not included amounts received such as:
>
>
>
>
>
>
>
>
Income from the sale of a monetary gift voucher; annuities;

Income from hobbies (ie unregistered activities);
Insurance settlements (provided the insurer has been notified of
your input tax credit entitlements);
Income from supplies not connected with Australia.
Salary and wages, pensions, gifts;
Trust and partnership distributions or dividend income;
Loans received;
Bona-fide donations and unconditional gifts.
Step 3 You may also need to consider some special rules, for example, if you:
>
>
Other GST-Free Supplies
Only complete this section if you have made GST-free supplies, other than export supplies.
>
Income earned from all GST-free supplies (other than exports, as these
were included above).
= $163,300
Notes:
> Any amounts included in this section should also appear in G1; and
> You should ensure that the supply is GST-free as discussed earlier.
Step 2 You may also need to consider some special rules, for example, if you:
Provide long-term accommodation (ie someone stays with you for

28 days or more); or
If you make lay-by sales, or hire purchase supplies.
(For further information about item G1, please refer to the ATO BAS Instructions Book
at pages 34 to 39.)
G2
G3
>
>
Account for GST using the simplified accounting methods for food retailers; or
Are a charitable institution making supplies at less than market value of
50% or 75% of cost (depending on the type of supply being made).
(For further information about item G3, please refer to the ATO BAS Instructions Book at
pages 40 to 42.)
Exports
Only complete this section, if you have made export sales.
>
>
>
G4
Input Taxed Sales & Income & Other Supplies
Only complete this section, if you have made input taxed supplies.
The free on board value of exported goods (this is the value used for
customs purposes) where the export is GST-free
(e.g. exported books, services etc);
Payments for the repair, processing, modification of goods from overseas
which will be exported following repair etc; and
Payments for goods used up in carrying out the repair etc.
>
Income earned from all input taxed supplies made as part of

carrying on your business.
= $10,000
Notes:
= $Nil
Notes:
> Any amounts included in this section should also appear in G1.
> You should ensure the requirements have been met in order for your supply to be treated as
GST-free and that you have the appropriate documents to support this.
> Any amounts included in this section should also appear in G1; and
> You should ensure that the supply is input taxed.
pages 42 and 43.)
(For further information about item G2, please refer to the ATO BAS Instructions Book at pages
39 and 40.)
33
34
3
G5
Total GST-Free And Input Taxed Supplies
Carry out the following calculation and enter at item G5:

G2 + G3 + G4 = G5
$Nil + $163,300 + $10,000 = $173,300
Adding together items G2, G3 and G4 gives you the total of your supplies on which you do
not have to account for GST.
page 43.)
G6
Total Of Taxable Supplies

G1 - G5 = G6
$186,500 - $173,300 = $13,200
Taking the total of the supplies on which you dont have to account for GST away from your
total supplies, gives you the GST-inclusive total of taxable supplies on which you will be
required to account for GST.
page 43.)
G7
Adjustments
You will have adjustments where, in an earlier tax period, you have paid GST or claimed an
input tax credit and, because of some event that has occurred in a later tax period, the
amount previously paid or claimed is no longer correct.
The following are some examples of why adjustments may be necessary:
> There was a change in consideration due to a discount, rebate or refund;
> A bad debt was written off or you recovered some amount that was previously written
off as a bad debt;
> You take the goods out of the business for private purposes; or
> Your use of a good changes and you start to use it more or less for private purposes or
to make input taxed supplies.
In many instances, where an adjustment occurs, you are required to issue an adjustment
note which is similar to a tax invoice.
(For further information about adjustment notes, please refer to ATO Ruling GSTR 2000/1.)
Adjustments relating to both your supplies and acquisitions are dealt with in this section.
You Have Two Options to Account for Adjustments:
1 Increase or decrease the appropriate supply or acquisition item(s) (either G1, G10 or G11
usually) on the BAS by the adjustment amount(s) which occurs in the same tax period
(you may use this method for adjustments which occur in previous tax periods only where
separate accounts are maintained for the adjustment eg. rebate account); or
2 Show the net adjustment at either G7 or G18.
Where you elect to increase/decrease the relevant acquisition/supply item(s) by the
adjustment amount(s), you will show any change for your sales or other supplies at G1.
If the change relates to exports, other GST-free supplies or input taxed supplies, also
show the change at G2, G3 or G4. Where there is a change to the consideration for
your acquisitions, you will show the change at G10 or G11. If the change relates to a
non-creditable acquisition, also show the change at G13, G14 or G15.
If you elect the option to show net adjustments, you will enter an amount at either G7
or G18 depending on whether you have an overall net increasing or net decreasing
adjustment. Therefore, if you chose this method, consider these two items together to
determine which item it is you need to complete. This method is discussed below.
(For further information about adjustments, please refer to the ATO BAS Instructions Book
at pages 59 to 73.)
35
36
3
Determining If You Have A Net Increasing Or Decreasing Adjustment
Step 2 Determine the adjustment
Where it is necessary for you to make adjustments you need to determine whether you have
a net increasing or a net decreasing adjustment. To determine this you need to:
>
1. Calculate your increasing adjustments for supplies (see below);

2. Calculate your decreasing adjustments for supplies (see below);
>
3. Calculate your increasing adjustments for acquisitions (see below);

4. Calculate your decreasing adjustments for acquisitions (see below);
5. Add together your increasing adjustments for supplies and acquisitions (the sum of
(1) and (3) above); and
>
6. Add together your decreasing adjustments for supplies and acquisitions [the sum of
(2) and (4) above].
Therefore, the refund of the rags results in a decreasing adjustment for

supplies of $198.
> If your increasing adjustments from (5) above are greater than your decreasing
adjustments from (6) above, you need to enter the difference between the two amounts
at G7 - this is a net increasing adjustment;
> if your decreasing adjustments from (6) above are greater than your decreasing
adjustments from (5) above, you need to enter the difference between the two amounts
at G18 - this is a net decreasing adjustment.
Calculating An Increasing Or Decreasing Adjustment For Acquisitions

Step 1 Calculate the amount of your adjustments for acquisitions
>
>
Notes:
> You should not enter amounts at both item G7 and G18. Only one item will need to be
completed with either your net increasing or net decreasing adjustment, as described above;
> You do not make adjustments to correct mistakes made in a previous BAS. If you make an
honest mistake and you voluntarily tell the ATO about it, any penalty that applies will be
remitted in full. However, you will have to pay interest on any understated tax or
overclaimed credit. To rectify a mistake, you must lodge a Revised Activity Statement
which can be obtained from the ATO; and
> You do not have an adjustment if something is returned merely for repair or maintenance.
Calculating An Increasing Or Decreasing Adjustment For Supplies
Step 1 Calculate the amount of your adjustments for supplies
>
>
For each supply where an adjustment is necessary, determine the

GST- inclusive amount you had previously included at item G1 on
the BAS (the old amount); and
Determine the new amount for the sale or supply (the new amount).
For each acquisition where an adjustment is necessary, determine

the GST-inclusive amount you had previously included at items
G10 and G11 on the BAS (the old amount); and
Determine the new amount paid or payable for the acquisition
(the new amount).
Step 2 Determine the adjustment

>
>
37
If the new amount is greater than the old amount for a supply, you will
have an increasing adjustment (because you have not paid enough GST on
the supply). Record the difference between the two amounts as an increasing
adjustment on a separate sheet of paper.
If the new amount is less than the old amount for a supply, you will have a
decreasing adjustment (because you have paid too much GST on the earlier
supply). Record the difference between the two amounts as a decreasing
You need to do this for all adjustment events in relation to your supplies.
If the new amount is less than the old amount for a supply, you will
have an increasing adjustment (because you have claimed too much
input tax credit in respect of the acquisition). Record the difference
between the two amounts as an increasing adjustment on a
separate sheet of paper.
If the new amount is greater than the old amount for a supply,
you will have a decreasing adjustment (because you claimed too
little as an input tax credit in respect of the earlier acquisition).
Record the difference between the two amounts as a decreasing
Therefore, the additional phone expense results in a decreasing adjustment

for acquisitions of $110.
38
3
Determining the Net Adjustment
G8
Add together any increasing adjustments for supplies and acquisitions.
Total of Taxable Supplies After Adjustments
($Nil)
G6 + G7 = G8
$13,200 + $Nil = $13,200
Add together any decreasing adjustments for supplies and acquisitions.

Adding together items G6 and G7 gives you the GST-inclusive total of supplies on which
you are required to account for GST to the ATO.
($198 + $110 = $308)
page 44.)
If the increasing adjustment above exceeds the decreasing adjustment, you have a net
increasing adjustment - you will enter the difference between these two amounts at G7.
Alternatively, If the decreasing adjustment above exceeds the increasing adjustment, you
have a net decreasing adjustment - you will enter the difference between these two amounts
at G18.
G9
Carry out the following calculation and transfer to item 1A on the front of your BAS:
Adjustments Summary Worksheet
G8 divided by 11 = GST payable
AMOUNT
SUPPLIES
Increasing adjustments

Decreasing adjustments
GST Payable
ACQUISITIONS
$0 Increasing acquisitions

$198 Decreasing acquisitions
AMOUNT
$13,200 divided by 11 = $1,200
TOTALS
$0

$110
$0

$308

Total net increasing (G7)/decreasing (G18) adjustment

(cross out which ever is not applicable)
$308
Therefore, this example results in a $308 decreasing adjustment and will

be included at G18.
(For further information about calculating adjustments and for suggested worksheets, please refer
to the ATO BAS Instructions Book at pages 59 to 75. For further information about item G7,
please refer to the ATO BAS Instructions Book at pages 44 and 59 to 75.)
Dividing the GST-inclusive amount of your supplies by 11, gives you the GST that you are
required to account for to the ATO. You are required to transfer this amount to item 1A on
the front of your BAS.
(For further information about items G9 and 1A, please refer to the ATO BAS Instructions Book
at page 44.)
You have now completed the part of the Calculation Sheet that relates to supplies
that you make.
We will now look at completing the acquisitions side of the Calculation Sheet.
ACQUISITIONS YOU HAVE MADE - SUMMARY

The details of acquisitions you have made are completed on the right hand side of the
Calculation Sheet (on the back of the BAS). When completing the details:
> If you account for GST on a cash basis - only include amounts for acquisitions that you
have actually paid for and, for which you have a tax invoice. If you have partly paid for
an acquisition, then only include the amount you have paid.
> If you account for GST on an accruals basis - include all amounts for which you have a
tax invoice (regardless of whether or not you have paid).
Note:
You do not need to have a tax invoice if the amount of the acquisition is for $50 or less (excluding
GST). It is sufficient to have a receipt or other record of the acquisition.
39
40
3
The following provides a summary of all items that need to be completed for acquisitions
that you make, if you are completing all the fields on the Calculation Sheet for GST
purposes. After the summary, we will consider each of the fields in more detail.
Once again, if you are using the GST derived from accounts option, the items you must
complete are indicated by "**".
COMPLETING THE GST CALCULATION SHEET FOR ACQUISITIONS

MADE BY YOU
G10
Capital Acquisitions
A capital acquisition is the purchase of assets that you use in carrying on your business that
you treat as capital in your accounts. See the examples opposite
ITEM
YOU ARE REQUIRED TO -
**G10

**G11

**G12

G13

G14

G15

G16

G17

G18

G19

**G20
Enter the total of acquisitions that you make of capital items for the tax period.
>
>
Capital assets imported; and

Capital assets acquired in Australia.
Enter the total of other acquisitions that you make for the tax period
(these would be non-capital items).

Add items G10 and G11 (G10+G11). This gives you the total of your acquisitions for the tax period.

Enter the total of the acquisitions that you made that relate to input taxed supplies that you make
(if any). Note: You will also have included these acquisitions at items G10 or G11 above.

Enter the total of all acquisitions that you made that you did not pay GST on (ie. they were GST-free).
Note: You will also have included these acquisitions at items G10 or G11 above.

Enter the total amount that you estimate that the acquisitions were used for private purposes or that
were not deductible for income tax purposes.
Note: You would also have included these acquisitions at items G10 or G11 above.

Add items G13, G14 and G15 (G13+G14+G15).
This gives you the total of the acquisitions for which you are not able to claim any input tax credits.

Deduct item G16 from item G12 (G12-G16).
This gives you the total of your acquisitions for which you are entitled to claim an input tax credit.

Enter your net decreasing adjustment at this item, (if applicable).

Add items G17 and G18 (G17+G18). This will give you the total of your acquisitions including
adjustments for which you are entitled to an input tax credit.

Divide item G19 by 11 (G19/11). This will give you the amount of your input tax credit.
Transfer the amount from item G20 to item 1B on the front of the BAS.
= $5,500 (office computer)

Notes:
> This item should include the GST-inclusive value of all acquisitions made as part of carrying
on your business during the relevant tax period.
> It should also include the total GST-inclusive value of acquisitions that are used partly for
business purposes and partly for private purposes. As you will see below you are required to
deduct the GST-inclusive amount to the extent that it is used for private purposes.
Example:
>
>
>
>
Office furniture, a computer;

Other plant and equipment;
A second-hand car; and
A building.
Step 2 Make sure you have not included amounts for acquisition for which you are
not entitled to an input tax credit or which should go at another item, for example:
>
>
We will now consider each of these items in more detail below.
>
You should note at the outset that there are two types of acquisitions to be recorded. At
G10, you record capital acquisitions and at G11 you record other (non-capital) acquisitions.
>
>
Non-capital acquisitions e.g. expense items or trading stock

(these go at item G11);
New motor vehicles (as there is usually no input tax credit for the
first year);
Acquisitions for which you do not yet have a tax invoice
[unless the invoice is for $55 or less (including GST)];
Goods imported for warehousing (you only include these when
Customs releases them for use in Australia); and
Land or buildings that were acquired using the margin scheme
(ie. the GST you paid for them was less than 1/11th of the total amount paid).
Where any of the examples above apply to you, we suggest that you seek advice from your
tax accountant, business advisor or the ATO.
Step 3 You may also need to consider some special rules, for determining the
amount to include at item G10, for example, if you:
>
>
>
Import goods for use in your business;

Acquire rights from overseas (e.g. you buy software from someone overseas); or
Deal with associates (ie related parties).
pages 47 to 49.)
41
42
3
G11
Other Acquisitions
Other acquisitions are acquisitions that you make in carrying on your business that are not
treated as capital in your accounts. See the examples below.
G12
Total Acquisitions

G10 + G11 = G12
$55,000 + $550 + $220 + $550 + $330 + $220 + $1,320 + $440+ $1,300 + $33 =
$5,500 + $ 59,963 = $65,463
$59,963
This gives you the total of both your capital and non-capital acquisitions.
>
>
Non-capital goods that you acquire for carrying on your business; and
Expenses incurred in carrying on your business.
at page 54.)
G13
Notes:
> This item should include the GST-inclusive value of all acquisitions made as part of
carrying on your business during the relevant tax period;
You are not entitled to claim input tax credits to the extent that an acquisition that you have
made relates to the making of input taxed supplies by you.
Only complete this section, if you have made input taxed supplies.
> It should also include the total GST-inclusive value of acquisitions that are used partly
for business purposes and partly for private purposes. As you will see below you are
required to deduct the GST-inclusive amount to the extent that it is used for private purposes.
Example:
>
>
>
Acquisitions Used In Making Input Taxed Supplies

>
Trading stock, stationery, fuel costs, freight costs;

Telephone, postage, repair expenses, petty cash items, motor vehicle running
costs and repairs; and
Reimbursements to employees for goods or expenses.
Acquisitions or importations you use, or plan to use, for making

input taxed supplies.
$1,320 + $440 = $1,760

Notes:
Step 2 Make sure you have not included amounts for the following:
>
>
Acquisitions for which you do not yet have a tax invoice

[unless the acquisition was less than $50 (excluding GST)];
The compulsory third party motor vehicle insurance premium
(you cannot claim this for the first 3 years of GST).
> Any amounts included in this section should also appear in G10 or G11; and
> You should include a percentage of the GST-inclusive amount of the acquisition that
relates to the making of input taxed supplies.
>
Any purchase to the extent that you are entitled to claim an

input tax credit.
amount to include at item G11, for example, if you:
Step 3 You may also need to consider some special rules, for determining
the amount to include at G13, for example, if you:
>
>
>
>
>
>
>
>
>
Account for GST using the simplified accounting methods for food retailers;
Import goods for use in your business;
Acquire second-hand goods as trading stock;
Provide insurance;
Provide refunds for returnable containers;
Have expenses for long term accommodation;
Acquire rights from overseas (e.g. you buy software from someone overseas); or
Deal with associates (ie related parties).
Make financial supplies (e.g. interest bearing loans).
pages 54 and 55.)
pages 50 to 53.)
43
44
3
G14
Acquisitions With No GST In The Price
This section records those acquisitions where you have not paid any GST, as the acquisition
was GST-free or input taxed. Therefore, you have no input tax credits to claim.
>
>
All acquisitions or importations on which you have not paid GST, as the
supply to you is either GST-free, input taxed or made by an
unregistered supplier; and
Any taxes, fees and charges where you have included them at G11,
but no GST was paid on them.
$700 + $100 + $500 + $33 = $1,333

Notes:
Notes:
> Any amounts included in this section should also appear in G10 or G11; and
> You should include a percentage of the GST-inclusive amount of the acquisition that
relates to private use or non-income tax deductible expenditure.
Examples of non-income tax-deductible expenditure include (note there are others):
>
Penalties payable under any Australian law or the law of a foreign country;
>
Certain travel expenses for relatives; and
>
Certain entertainment expenses.
at pages 56 and 57.)
G16
Non-Creditable Acquisitions
> Any amounts included in this section should also appear in G10 or G11;
>
>
Purchases of second-hand goods where you are entitled to a

notional input tax credit; and
Amounts also included in G13.
G13 + G14 + G15 = G16

$1,760 + $1,333 + $Nil = $3,093
amount to include at G14, for example:
>
>
The claiming of input tax credits for second-hand goods even though you did
not pay any GST to the person from whom the goods were purchased; and
Imported goods.
at page 55.)
G15
Estimated Private Use & Non-Income Tax Deductible Acquisitions
G17
Total Creditable Acquisitions

G12 - G16 = G17
>
$65,463 - $3,093 = $62,370
Acquisitions or importations that you use, or intend to use,

for private purposes; and
Amounts to the extent that they are non-deductible for
income tax purposes.
= $Nil
at page 57.)
>
45
Adding together items G13, G14 and G15 gives you the total of your acquisitions for which
you are not entitled to claim an input tax credit.
Taking the acquisitions, for which you are not entitled to an input tax credit, away from your
total acquisitions, gives you the acquisitions for which you are entitled to an input tax credit.
at page 57.)
46
3
G18
Adjustments
Exercise Solution
The completed supplies/acquisitions portion of the Calculation Sheet should look like this:
= $308 decreasing adjustment
ITEM
G2

G3

We dealt with adjustments relating to your acquisitions at G7.
G4

If you have a net decreasing adjustment, you will include the amount at G18.
G5

at pages 57 to 58 and 59 to 75.)
G6

G7
G19
Total Creditable Acquisitions
G8

G9

G17 + G18 = G19

$62,370 + $308 = $62,678
Adding together items G17 and G18 gives you the GST-inclusive total of your acquisitions
for which you are entitled to claim an input tax credit.
at page 58.)
ITEM
$186,500 G10

$0 G11

$163,300 G12

$10,000 G13

$173.300 G14

$13,200 G15

$0 G16

$13,200 G17

$1,200 G18

G19

G20

$1,200 1B
G1
As explained at item G7, you will have adjustments where, in an earlier tax period, you have
paid GST or claimed an input tax credit and, because of some event that has occurred in a
later tax period, the amount previously paid or claimed is no longer correct.
AMOUNT

1A
AMOUNT
$5,500

$59,963

$65,463

$1,760

$1,333

$0

$3,093

$62,370

$308

$62,678

$5,698

$5,698
Transfer amounts 1A and 1B to the front of the BAS.
OTHER BAS ITEMS

1C 1D
Wine Equalisation Tax
Items 1C and 1D on the BAS relate to Wine Equalisation Tax.

G20
Total Input Tax Credits
Carry out the following calculation and transfer to item 1B on the front of your BAS.
G19 divided by 11 = G20
$62,678 divided by 11 = $5,698
For most taxpayers these boxes are not relevant as the WET applies to wine wholesalers.
What is the Wine Equalisation Tax?
This is a tax payable by relatively few taxpayers on the last wholesale sale (sale to a reseller)
of wine in Australia. If untaxed wine is sold directly to a consumer then the tax will apply to
the sale or use of that wine. Most taxpayers will ignore items1C and 1D on the BAS.
The tax is imposed at the rate of 29% on the wholesale selling price of wine.
Alternative values are used in the calculation if the wine is not sold wholesale.
Dividing the GST-inclusive amount of your acquisitions by 11, gives you the GST that you
are able to claim as an input tax credit from the ATO. You are then required to transfer this
amount to item 1B on the front of your BAS.
(For further information about item G20 and 1B, please refer to the ATO BAS Instructions Book
at page 58.)
The Wine Equalisation Tax (WET) is required to be included in the BAS or IAS at item 1C
"Wine equalisation tax payable" for the relevant tax period.
If a refund is claimable this is shown at item 1D at the heading "Wine Equalisation Tax
Refundable".
Where the WET applies to you, we suggest that you seek advice from your tax accountant,
business advisor or the ATO.
[Reference; ATO BAS Instruction Book pages 77, ANTS (Wine Equalisation Tax) Act 1999.]
47
48
3
1E 1F
Luxury Car Tax
A Luxury Car Tax (LCT) at the rate of 25% is payable on the value of a car above the luxury
car tax threshold, but excluding the GST component above the threshold. Essentially this
section in the BAS is to be completed only if the motor vehicles are:
> Not to be held by the purchaser as trading stock;
> Not more than 2 years old; and
> Not GST-free as exports.
The LCT can be payable on a second sale of a car within 2 years of its manufacture for a
greater consideration.
The definition of a car for tax purposes is subject to change depending on the purpose to
which the car will be put. The eligibility for the LCT takes into account the load and the
number of passengers the car is designed to carry.
A luxury car is a car with a GST-inclusive value that exceeds the luxury car tax threshold ie.
the GST-inclusive car depreciation limit for income tax purposes. The luxury car tax
threshold for the 2000-2001 financial year is $55,134.
LCT on importations of luxury cars will be generally paid with customs duty and in these
cases it will not appear on an Activity Statement.
However if you quote your ABN the LCT need not be paid at the point of importation but on
the next BAS subject to the following:
> The business must be registered for GST and therefore obliged to submit a BAS;
> The business intends to use the car for one of the following purposes, and for no other purpose:
> Holding the car for trading stock, other than holding the car for hire or lease;
> Carrying out research and development for the manufacture of the car; or
> Exporting the car in circumstances where the export is GST-free .
1G
Wholesale Sales Tax Credit
A once only "special credit for wholesale sales tax" (WST) paid before 1 July 2000 on eligible
goods held as trading stock at 30 June 2000, is claimable by some taxpayers provided that:
> The taxpayer is registered for GST by 1 July 2000;
> The claim is made once only on a BAS or IAS at item1G lodged with the ATO in
respect of any reporting period ending on or before January 7, 2001;
> The stock in respect of which the WST has been paid is trading stock;
> Evidence of the WST paid is available and retained;
> All relevant records of the stock-take at 30 June 2000 are available to validate the
claim for the credit.
Eligibility Of Goods
Items for which the credit is claimable are those purchased or imported and held for sale or
exchange (but not for manufacture).
Items on which you may not claim the WST credit are:
> Second-hand goods, unless you imported them for sale or exchange and paid
sales tax on them;
> Plant and equipment which you have used in your business;
> Demonstration goods; or
> Goods for hire or lease.
(For further information please refer to the ATO BAS Instructions Book at page 99.)
Where the WST credit applies to you, we suggest that you seek advice from your tax
accountant, business advisor or the ATO.
(Reference: ATO Ruling GSTR 2000/8.)
The tax is required to be included in the BAS or IAS at item 1E "Luxury car tax payable" for
the relevant tax period. If a refund is claimable this is shown at BAS item 1F at the heading
"Luxury car tax refundable". Where the LCT applies to you, we suggest that you seek advice
from your tax accountant, business advisor or the ATO.
[Reference; ATO BAS Instruction Book pages 87, ANTS (Luxury Car Tax) Act 1999.]
49
50
4 PAY AS YOU GO
INTRODUCTION
PAYG is part of The New Tax System and is a single, integrated system for
reporting and paying:
>
>
Under PAYG Withholding, amounts are held back from particular kinds of payments or
transactions and paid to the ATO. Like the old PAYE system, the frequency of completing
the PAYG Withholding section of your BAS will vary depending on your classification.
ANNUAL AMOUNTS
WITHHELD
CLASSIFICATION OF
WITHHOLDERS
FREQUENCY OF
PAYMENTS
METHOD OF PAYMENT
Less than $25,000
Small
Quarterly (within 21 days)
Manual or electronic
$25,000 - $1,000,000
Medium
Monthly (within 21 days)
Manual or electronic
Greater than $1,000,000
Large
Weekly
Electronic only
Tax on business and investment income; and

Withholding amounts ("withholding" is the process by which you deduct
amounts from payments to others and remit those amounts to the ATO).
It replaces 11 existing systems, including provisional tax, company and

superannuation fund instalments and Pay As You Earn (PAYE).
PAY AS YOU GO
(PAYG)

PAYG Instalments
Note: According to the new PAYG Withholding regime, withholding applies to a total of 24 types
of payments. However, we deal only with those payments where the withholding must be
reported on the BAS/IAS. The other payments (royalties and payments to foreigners and so on)
from which tax must be withheld, have separate reporting and payment mechanisms that are not
covered by this workshop.
PAYG Withholding
INFORMATION FOR THE BAS/IAS

Paying your own tax
Replaces provisional tax and the company

and superannuation fund instalment
system
Paying amounts you withhold from others
Information from the PAYG Withholding transactions are recorded in four boxes on the
back of the BAS or IAS. The amount withheld and to be remitted to the ATO is totalled and
carried forward to the front of the form. The items covered in this section are:
Replaces PAYE and eight other

withholding systems (PPS and RPS will be
abolished)
>
>
>
>
>
W1
W2
W3
W4
4
Total of salary, wages and other payments;

Amounts withheld from salary, wages and other payments;
Amounts withheld from investment distributions where no TFN is quoted;
Amounts withheld from payment of invoices where no ABN is quoted; and
Pay as you go withholding (W2 + W3 + W4) (on front of BAS/IAS).
One set of due dates

One form for reporting and payments
PAY AS YOU GO WITHHOLDING

From 1 July 2000, PAYG Withholding has replaced nine other withholding tax systems
with an integrated, comprehensive withholding system. The nine systems that were
replaced are:
>
>
>
>
>
>
>
>
>
51
Pay As You Earn (PAYE);

Reportable Payment Systems (RPS);
Withholding from natural resource payments to non-residents;
Withholding from repaid Farm Management Deposits;
The collection of mining withholding tax that applies to payments for mining on
Aboriginal land;
Prescribed Payments Systems (PPS);
Withholding where no Tax File Number (TFN) is quoted on investments;
Withholding from certain withdrawals from Australian Film Industry Trust Fund Accounts;
The collection of withholding tax which applies to dividends, interest and royalties
paid to non-residents.
52
4
W1
Total Of Salary, Wages And Other Payments
Item W1 is the gross amount (including the amounts withheld) of all payments made
(whether or not any tax was deducted).
These payments are generally for work or service. They include:
> Ordinary salary or wages paid to full-time, part-time and casual employees, including
overtime, penalties and shift allowances, and other allowances;
> Commissions, retainers, performance or incentive or bonus payments and holiday
leave loading;
> Severance, termination and redundancy payments;
> Directors fees and remuneration;
> Payments to office holders in any Federal, State, Territory or eligible local Government body;
> Payments for unused annual or long service leave;
> Eligible termination payments and superannuation type payments such as
pensions or annuities;
> Compensation, sickness and accident payments in respect of incapacity for work which
are made as regular or periodic payments;
> Payments made to workers by labour hire firms under labour hire arrangements;
> Payments made to an individual payee for work or services where the parties (payer and
payee) enter into a voluntary agreement that amounts will be withheld from those payments;
> Amounts paid as non-cash benefits, but not including amounts subject to Fringe Benefit Tax.
W2
Amounts Withheld From Salary, Wages And Other Payments
Calculate the total amount of tax deducted from each of the payments listed in item W1.
The total amount withheld is reported at item W2.
This is essentially what you were required to do under the old PAYE or group tax regime.
However, you should ensure that you are using the personal income tax rates that apply
from 1 July 2000 as the tax rates for individuals have changed.
PAYG Voluntary Agreements

PAYG Voluntary Agreements fall under this category and they enable businesses to withhold
amounts from payments they make to individual workers (unincorporated but with their
own ABN) to help the workers pay their income tax. When you withhold under a voluntary
agreement, you deduct amounts from the gross payments to the worker and send the
deducted amounts to the ATO. Such agreements will particularly benefit payees who were
on the Prescribed Payments System (PPS) or Reportable Payments Systems (RPS) who wish
to continue to have tax deducted from their payments.
A voluntary agreement is a written agreement between a business (the payer) and a worker
(the payee) to bring work payments into the PAYG Withholding system. The worker must
be an individual who has an ABN and the payments must not be subject to any other
PAYG Withholding. The payer will withhold amounts from payments it makes to the payee
and send the amounts withheld to the ATO. The payee will not be required to pay PAYG
Instalments for that income. A voluntary agreement does not change a payees obligation
to lodge an income tax return. All of the income the payee earns, including income from
voluntary agreements, must be included in their annual income tax return.
Voluntary agreements offer some advantages for both the payer and the payee. GST will not
be payable on supplies made under a voluntary agreement unless the worker is supplying
services to a business that is not fully entitled to input tax credits for that transaction, such
as a business making financial supplies. If the worker or payee is carrying on an enterprise
and is registered for GST, they can claim input tax credits for any GST paid for goods and
services bought and used in performing the work or services under the voluntary
agreement. Having an amount withheld from income under a voluntary agreement also
means that the worker will not have to pay PAYG Instalments on that income.
Voluntary agreements to withhold may only be used where no other PAYG Withholding
applies and the payment is in whole or in part for the performance of work or services.
Example:
>
>
A computer consultant who has a contract with a school to install

computers the school has purchased;
A fencing contractor who contracts with the local council to construct a
fence around the community sporting grounds with materials provided
by the council.
A voluntary agreement must be a written agreement between the payer and payee
that includes:
>
>
>
>
>
>
>
The commencement date of the agreement;

What the payments are for (e.g. plumbing services);
The payees ABN, name and address;
The payers ABN, name and address;
The rate of withholding ;
The signatures of both the payer and the payee; and
A statement that the payments made under the arrangement are subject to a
voluntary agreement under section 12-55 of Schedule 1, Part 2-5 of the
Taxation Administration Act 1953.
The ATO can provide you with a PAYG Voluntary Agreement Form (shown on the following
page) if you prefer to use a standard form for such arrangements.
53
54
4
Diagram showing checklist of when you can enter into a voluntary agreement
Is the payment under an arrangement, in
whole or in part, for the performance of
work or services?

YES
Is the payee an individual?
NO
NO
YES
Is the payment subject to any other PAYG
withholding?
YES
You cannot enter into a PAYG

voluntary agreement
NO
Does the payee have an ABN?
NO
YES
Do the payer and payee agree to enter
into a voluntary agreement and to record
that agreement in writing?
NO
YES
You can enter into a PAYG voluntary agreement
If you do enter into a voluntary agreement the rate of withholding will be either the payees
instalment rate as notified by the ATO or a flat rate of 20%. The payer then withholds at the
appropriate rate from the gross amount payable after deducting any GST charged. The
payees instalment rate is a percentage figure normally used to calculate PAYG Instalments.
The ATO will generally notify payees of their instalment rates during July 2000. For the
purpose of voluntary agreements, the instalment rate used must be the rate notified by the
ATO - this is called the Commissioners Instalment Rate (CIR). The payee must disclose
their CIR or state they do not have one. If the payee has a CIR greater than 20%, the payer
must withhold at the CIR. If the payee has a CIR of 20% or less, the payer must withhold at
the flat rate of 20% unless the payer and payee agree to use the CIR. If the payees CIR is
not known at the time of the agreement, the flat rate of 20% applies.
W3
Amounts Withheld From Investments - No TFN
Item W3 is the amount of tax deducted from a payment arising from an investment where
the recipient has not quoted its TFN. The payments are generally interest, dividends or unit
trust distributions where a resident investor has not provided a TFN. However, the TFN
quotation rules only apply to certain types of investments including interest bearing
deposits, loans to government bodies or companies, units in a unit trust and shares in a
public company.
55
56
4
W4
Amounts Withheld From Invoices - No ABN
Item W4 is the amount of tax deducted from any payment, in respect of the supply, where
the supplier does not quote their ABN.
Where another business supplies you with goods and services, they are required to quote
their ABN on their invoice or some other document before you make the payment.
Normally an ABN will be quoted on the suppliers invoice and you keep this invoice in your
business records. If their ABN is not quoted you are generally required to withhold from the
payment at the top marginal rate plus the Medicare levy (currently a total of 48.5%).
The calculation is made as follows:
Payment of invoice x 48.5% = amount required to be withheld.
Only the amount deducted, not the amount of the payment is reported at item W4.
Note: When the supplier does not provide you with an ABN, if the price quoted to you includes
GST, you cannot claim the GST input tax credit for that supply.
Are There Exceptions To Withholding When An ABN Is Not Quoted?
Yes. An amount need not be withheld where:
> The whole of the payment is exempt income of the supplier (e.g. the supplier is an income
tax exempt charity (ITEC). If you are an ITEC, you should provide the recipient of your
supply with some evidence that you are exempt from taxation, such as a copy of the notice
from the Commissioner of Taxation or a supplier statement. Exempt organisations can also
produce a statement that they create themselves which should contain:
> The name and address of the organisation;
> The type of organisation, such as a school, sports club or religious body;
> A statement that its income is exempt from tax under subdivision 50A of the Income Tax
Assessment Act 1997, and that therefore it does not need to quote an ABN and you
do not need to withhold from your payment; and
> The signature of an appropriate office holder.
> The payer is an individual paying a supplier for a supply of a private or domestic nature;
> The payment does not exceed $50 (excluding GST);
> The supplier is an individual under 18 years of age, is not your employee, and the
payments you make to that person do not exceed $120 per week;
The ATO has produced a form called a "Statement by a Supplier" which the supplier can
provide to you explaining the reason why the ABN is not quoted for the supply and asking
you not to withhold money from the payment you make to them. If a supplier provides such
a statement to you, you should keep the statement for five years.
4 Pay As You Go Withholding
The total amounts of tax withheld and reported at items W2, W3 and W4 are added together
and brought forward to the front of the BAS/IAS at item 4.
W2 + W3 + W4 = Item 4 (on the front of the BAS/IAS)
Flowchart
A flowchart is included to assist you in determining whether you have withholding
obligations that should be reported in a BAS or IAS.
Do you make payments to others for
work or service ?
e.g. salary wages, directors fees or
voluntary agreements
YES
NO
Do you pay dividends, interest or unit
trust distributions to others who have not
provided you with their TFN?
YES
NO
Have you made payments to a supplier
where the supplier did not provide you
with their ABN?
(Be satisfied that the supply is excluded
from the no ABN rule)

NO
You are obliged to withhold amounts

from payments that you make.
These amounts should be reported
in your activity statement and paid
to the ATO.

YES
You are not required to withhold amounts from payments that you make to others
> The supply is wholly input taxed under the GST (this includes most financial supplies
and supplies of residential rent etc);
> The payment is to a non-resident who is not carrying on a business in Australia or
through an agent in Australia;
> The supply is made by a member of a local governing body under a State or Territory law; or
> The payee has made a written, signed statement that the supply is private or domestic
in nature, or relates to a hobby.
57
58
4
OTHER PAYG WITHHOLDING OBLIGATIONS
>
>
>
>
>
>
>
Your organisations name and ABN;

The name of the supplier;
The suppliers address;
The total amount invoiced;
The amount you withheld;
The date that you paid and withheld; and
The signature of a person authorised to sign on behalf of your organisation.
You should also keep a copy of the payment summary to help prepare your annual report
for PAYG Withholding when no ABN is quoted. The annual report has to be sent to the ATO
by 31 October. The annual report will contain details for the financial year of all the amounts
you have withheld where no ABN was quoted and details of all the payment summaries
that you have issued. Annual report forms will be available from the ATO.
ARE ANY ORGANISATIONS EXEMPT FROM PAYG WITHHOLDING?

No. Every payer has to withhold from payments subject to PAYG Withholding.
Organisations that are exempt from income tax are not exempt from PAYG
Withholding obligations.
PAYG WITHHOLDING EXERCISE

Having gone through the basic elements of how to complete the PAYG Withholding section
of the BAS/IAS (including the calculation sheet), it is useful to put the theory into practice,
with the following exercise.
- W/H TAX
EXPENSE
PAYMENT TO
At the end of the financial year, you give each employee from whom you have withheld
amounts a payment summary which shows how much they were paid during the year and
how much was withheld. Where you withhold because a supplier did not quote you an
ABN, you should give the supplier an original and copy of a payment summary when you
pay them the remaining 51.5%. The payment summary is then included in their tax return.
This operates in a similar way to group certificates under the old PAYE system.
Payment Summary Forms are available from the ATO. If you want to create your own
payment summary form, it must contain:
Wages - S. Lowe
GST
Nil
*$150
$600
$30
Nil
$20
$220

$220
Nil
$48.50
$100
$51.50
$1850
Totals
Nil
*Nil
$30
$320
Plumber
Nil
*$80
$400

Electrician
$400
Allowance - S. Lowe
Nil
*$100
$500

Wages - B. Thomson
$450

Wages - C. Smith
CHEQUE
AMOUNT
$378.50
$20

$1,471.50
*Please note that these amounts are for illustrative purposes only and may not reflect the correct
amount of tax withheld.
Using the above information we will complete the calculation sheet of the BAS for the PAYG
Withholding section.
ITEM
DESCRIPTION
W1

W2

W3

W2

4
Total of salary, wages & other payments
AMOUNT
$1,530

Total withheld from salary, wages & other payments
$330

Amounts withheld from investment distributions where no TFN is quoted
$Nil

Amounts withheld where no ABN quoted on invoice
$48.50

Sum of W2, W3 and W4
$378.50
The total amount to be remitted to the ATO for withholding payments is $378.50.
Because the Happy Charity withholds less than $25,000 they are only required to report
their withholding amounts on a quarterly basis.
In the first chapter of this manual, the example of the Happy Charity was used. The Happy
Charity is registered for GST so it will report its PAYG Withholding obligations on the BAS.
For the quarter, July through September, the Happy Charity had the following expenses
relating to employees and contractors. Also assume that the plumber did not provide an
ABN to the Happy Charity:
59
60
5 PAYG INSTALMENTS
INTRODUCTION
The PAYG Instalment system replaces the company tax instalment and
provisional tax systems for the 2000/2001 income year. Certain trading trusts
and, in some circumstances, trustees of fixed and discretionary private trusts
may also be required to remit tax under the PAYG Instalment system.
Non-profit organisations and ITECs that are endorsed as Income Tax Exempt are not
subject to the PAYG Instalment system and will not be required to complete items T1 - T4,
5A , 5B and 7 on the BAS/IAS. An ITEC will not have an Instalment Rate identified in box
T2 on their BAS/IAS. (See the chapters in this manual which deal with Income Tax exempt
status for non-profit organisations and charities to see if your organisation falls within one of
these categories).
Other organisations that do not have income tax exempt status will be subject to income
tax and the PAYG Instalment system.
5
An organisation must remit and lodge its BAS on or before 21 days after the end of the
relevant financial quarter. For those with a 30 June year end, the lodgment dates will be:
QUARTER ENDS
INSTALMENT IS DUE
ON OR BEFORE
30 September
21 October

31 December
21 January

31 March
21 April

30 June
21 July
For GST and PAYG Withholding tax purposes, the organisation may have to lodge more
often than quarterly e.g. monthly or weekly. In these circumstances, the PAYG Instalment
section of the BAS/IAS will only be completed quarterly.
Organisations currently remitting tax will receive an Instalment Rate Notice ("IRN")
from the ATO specifying the ATOs estimate of the organisations current year tax, called
Notional Tax and effective tax rate, called the Instalment Rate. Start-up organisations will
receive an IRN after lodging their first income tax return.
COMPLETING THE BUSINESS ACTIVITY STATEMENT
An organisation with a current IRN will be liable to remit income tax on their BAS/IAS using
one of the following methods:
To assist you to understand the PAYG Instalment section of the BAS/IAS we will use the
example of the Tindara Bowling Club. The Tindara Bowling Club is not an income tax
exempt organisation.
> One annual instalment based on the Notional Tax appearing on the IRN; or
> One annual instalment based on the organisations estimate of current year tax called,
Benchmark Tax; or
> One annual instalment based on income receipts x the Instalment Rate appearing on the
IRN (only available from the 2002/2003 income year); or
> Four financial quarter instalments based on the organisations estimate of its
Benchmark Tax; or
> Four financial quarter instalments based on the quarters income receipts x the
Instalment Rate appearing on the IRN.
An organisation may only choose to remit annually if its Notional Tax on its IRN is less than
$8,000 and:
> It is not registered or required to be registered for GST; or
> It is not a partner in a partnership that is registered or required to be registered for GST; or
> It is not a company in a GST instalment group or GST joint venture group.
All other organisations must remit PAYG Instalments quarterly and must lodge their annual
income tax return at the end of the income year as required by Government Gazette.
Any PAYG Instalments for that year will be credited to your assessment.
The relevant boxes on the BAS for PAYG Instalments are T1, T2, T3, T4, 5A, 5B and 7.
T1
Instalment Income
In box T1, an organisation will insert its total instalment income for the relevant period
(e.g. quarter).
Instalment income is essentially ordinary assessable income however it excludes exempt
income and statutory income (such as capital gains). Types of instalment income for
organisations would include:
>
>
>
>
>
>
Sales of goods or service;

Membership fees and subscriptions;
Sponsorship and tied grants (e.g. payments for advertising);
Interest earned on investment accounts;
Dividends and trust distributions earned (excluding any imputation credits); and
Rents earned.
Do not include in your gross ordinary income GST, Wine Equalisation Tax and Luxury Car
Tax that you charge to your customers.
You should also include the following income for each quarter where amounts have been
withheld from payments made to the organisation:
> For failing to quote a valid TFN (e.g. on a bank account); or
> For failing to quote a valid ABN.
Other amounts the organisation has withheld from payments it makes to others under
PAYG Withholding are not included in instalment income.
61
62
5
Tax is paid on capital gains when the organisation lodges its income tax return at the end of
the year.
The income period to which the organisation attributes instalment income will be
determined according to the ordinary rules of cash and accruals accounting.
The Tindara Bowling Club has the following receipts for the quarter ending 30 September 2000:
AMOUNT
RECEIPTS
Interest receipt

Commercial rent

Franked dividends

Gain on shares sale
Instalment Income to box T1
T2
INCLUDED OR
EXCLUDED
INSTALMENT INCOME
$12,000 Included

$25,000 Included

$18,000 Included

$30,000 Excluded
INCLUDED IN
CALCULATION FOR T1
$12,000

$25,000

$18,000

$0

$55,000
Instalment Rate
In item T2 the Commissioners Instalment Rate will be pre-printed. Where the organisation
has previously varied its Instalment Rate (discussed below) that varied rate will be preprinted in item T2. An organisation should only complete the PAYG Instalment section of
the activity statement if there is a figure pre-printed at T2 on the back of the activity
statement.
An ITEC organisation that has been endorsed by the ATO will not have an entry in T2 and
therefore, will not need to complete the PAYG Instalment section of the BAS.
The Instalment Rate represents the estimated tax rate payable by the organisation having
regard to the previous years deductions, and anticipated use of any carried forward losses
or favourable changes in the law that would otherwise be used to reduce the tax payable
(excluding capital gains). The Instalment Rate is calculated by the Commissioner based on
the last assessment information provided to the ATO.
T3
New Varied Instalment Rate
Where the Instalment Rate pre-printed in the T2 box would not correctly reflect the expected
tax liability for the income year, it may be varied to a rate chosen by the organisation.
There is no prescribed method to re-calculate a varied rate. Generally, the following formula
should be used:
Estimate of current year tax

Estimate of current year instalment income

x 100

The Instalment Income should be calculated based on the conditions stated above as for
the T1 box.
The Instalment Rate should be expressed to two decimal places (using rounding).
Care should be taken in estimating the above. If the estimated tax using the varied
instalment rate is less than 85% of the actual assessed tax at the end of the year, the
shortfall in tax will be subject to the General Interest Charge (approximately 18%).
If the Instalment Rate is varied, the organisation should insert the varied rate at item T3 and
calculate the tax for that period using that formula. You cannot revoke the instalment rate
you have chosen for a quarter after you have notified the ATO of the rate.
Assume that due to a contraction of the activities of the Tindara Bowling Club, the club wishes to
reduce its Instalment Rate:
$22,400

$240,000
x 100

The varied rate is estimated to be 9.33% and is inserted into item T3.
You need to decide whether to use the Commissioners Instalment Rate or whether to use a
varied Instalment Rate. If you do not vary the Instalment Rate, go directly to box 5A of the
front of the activity statement.
Assume that the Tindara Bowling Club has a pre-printed instalment rate of 18.25%
63
64
5
T4
5B
Reason For Variation
Where the Instalment Rate is varied at box T3, the reason for the variation should be stated
at box T4. The appropriate codes are as follows:
CODE
REASON
01
Mergers, acquisitions and takeovers
You will only need to complete 5B if you varied your Instalment Rate. Where the
organisation has varied the Instalment Rate in box T3 so that it is less than the Instalment
Rate pre-printed in box T2, some of the tax previously paid will be refunded or will be off-set
against other liabilities on the BAS. If there is an amount to be off-set or refunded, it will be
shown in item 9 on the BAS.
The amount of the credit to be off-set or refunded will be calculated as follows:
02
Cessation of business activities
Step 1

Expected utilisation of losses of a revenue or a capital nature

Step 2
Significant (abnormal) transactions affecting income or expenses

Change in trading conditions affecting income or expenses
Step 3

Domestic or foreign financial market changes
Step 4

Change in investment strategies or policies

Step 5
Change in products mix

Step 6
Business expansion or contraction

03

04

05

06

07

08

09

10
Change in entity structure
Total of all instalments from previous quarters for the current income year (even if not paid).
(Total in box 5A in each previous BAS in that income year).

Total all the credits claimed in previous quarters for the current income year.
(Total in box 5B in each previous BAS in that income year).

Subtract the amount in step 2 from the amount in step 1 above.

Total all the Instalment Income from all the previous quarters for the current year.
(Total the box T1 in each BAS).

Multiply the total for step 4 above by the varied Instalment Rate in the box T3 on the current BAS.

Subtract the amount at step 5 from the amount at step 3 above.
If the amount is a positive figure, the amount of your credit or refund is that amount.
The positive amount above should be written in box 5B
11
Internal or external restructuring of business activities
12
Change in any legislation
Using the balance sheet of the Tindara Bowling Club the refund is calculated as follows:
13
The refund or tax off-set for the box 5B is calculated as follows:
Change in profit margin

Tindara Bowling Clubs reason for the variation is a contraction of the clubs
activities. The code 09 is inserted in box T4
5A
Pay As You Go Instalment
7
T1 ($55,000) x T3 (9.33%) = $5,131.50.
Insert $5,131 in box 5A.
If you have varied your instalment rate, continue to box 5B.
1.
2.
3.
4.
5.
Total of 1st & 2nd Instalments paid

Total all the credits claimed
Subtract step 2 from step 1
Total all the Instalment Income
Multiply step 4 by the varied Rate in T3
6.
Subtract step 5 from step 3 above
$31,390
$0
$31,390
$172,000
$16,048
$15,342
The $15,342 should be recorded in box 5B (as a refund or tax off-set).
The Instalment Income in box T1 is multiplied by the Instalment Rate in either box
T2 or T3 (depending on whether the Instalment Rate is varied) to produce the total
instalment payable.
65
Credit Arising From Reduced Pay As You Go Instalment
Deferred Company/Fund Instalment
Companies will pay their 1999/2000 income tax at various periods during the 2000/2001
income year. These payments will span the implementation date of the new PAYG
Instalment system. Companies may experience cash flow problems when paying their
1999/2000 instalments and current year PAYG Instalments concurrently. To alleviate any
cash flow problems, the 1999/2000 instalments below may be waived and/or the portion of
assessed tax may be deferred and repaid over the period stated.
66
FRINGE BENEFITS TAX

INTRODUCTION
The formula for determining the amount of the instalment that you may defer is as follows:
Quarterly instalment amount =
Fringe benefits tax is payable by an employer in respect of fringe

benefits provided:
Amount you are deferring

Number of quarterly payments

>
Steps for working out the maximum amount you can defer:
>
>
Work out the amount of your assessed tax for the 1999/2000 income year and the amount of your
final instalment for that income year;

Step 2

Using your amount of assessed tax for 1999/2000 and information in the following table, work out
the maximum amount you can defer. You can choose to defer less than the maximum amount;

Step 3
Work out the actual amount you have chosen to defer;

Step 4
Work out your quarterly instalment account based on the amount you have chosen to defer at Step 3.
Use the following formula and information in the table below to do this.
Step 1
WAIVE THIRD
INSTALMENT
MAXIMUM AMOUNT
THAT MAY BE
DEFERRED
< $8,000
Yes
100% of the assessed tax
$8,000 - $300,000
Yes
> $300,000
No
Example:
By the employer, an associate of the employer or a third party under

an arrangement with the employer or an associate;
To an employee or an associate of the employee;
In respect of the employment of the employee.
What Is An Employee?
An "employee" is defined to include a current, future or former employee.
What Is An Arrangement?
An "arrangement" is defined very widely and can include things as nebulous as an "implied
understanding" between the parties. It also includes unilateral action by one party.
Table for working out the maximum amount you can defer:
AMOUNT OF ASSESSED
TAX FOR 1999/2000
NUMBER OF QUARTERLY
PAYMENTS
What Is A Benefit?
Similarly, "benefit" is defined broadly to include "any privilege, right, service or facility".
21

21

10
The Tindara Bowling Clubs assessed tax for the 1999/2000 income year was
$47,450. Likely tax was $10,750 per tax instalment under the Company Instalment
System (COIN).
What Is An Associate?
The definition of "associate" is taken from the income tax legislation and is very broad. It
includes not only natural persons who are related to the employer or the employee (as the
case may be) but also companies and trusts that are "related" to the employer or employee.
For example, a trustee of a trust is an associate of each beneficiary of the trust and their
relatives. A company is an associate of the persons who control it.
If a benefit is provided not only "in respect of employment" but also for other reasons, it
will be deemed to be "in respect of employment". The onus is on the employer to show
otherwise. So, an interest free loan to an owner of a business who is also employed in the
business will prima facie be in respect of employment unless the owner can prove
otherwise.
It can be seen from the above brief description that the reach of the FBT legislation is very
wide indeed.
The Tindara Bowling Club paid 1st and 2nd instalments of likely tax on 01/06/00
& 01/09/00 (a total of $21,500). The Club elects to waive the third instalment
due on 01/12/00.
On 01/03/01 the Club may and does choose to defer 42% of assessed tax
(42% x $47,450 = $19,929).
The Club must pay 58% of assessed tax (52% x $47,450 = $27,521).
Since the Club has paid $21,500 already, it must make a further payment on
01/03/01 of $6,021 when it lodges its income tax return for the year ended
30/06/00 on 01/03/01. This amount is not included in the BAS.
The $19,929 will be payable by 21 equal quarterly instalments each of $949.
The Tindara Bowling Club will insert $949 in each quarterly BAS at item 7.
67
68
6
RATE OF TAX
CATEGORIES OF FRINGE BENEFITS
The rate of FBT is the equivalent of the top marginal rate of income tax including the
Medicare levy; that is 48.5%.
There are 13 categories of fringe benefits. They are:

>
>
>
>
>
>
>
>
>
>
>
>
>
However because of the difference between company income tax rates and the FBT rate,
and the treatment of some benefits for income tax purposes up until 31 March 1994, there
were significant after-tax savings to be made by some employees "salary sacrificing" part of
their salary in exchange for the provision of fringe benefits.
To restore equality of tax treatment to salary paid by way of cash and salary paid by way
of benefits, important changes were made to the calculation of FBT and the income tax
treatment of fringe benefits effective from 1 April 1994. (Note: The FBT year runs from
1 April to 31 March.) In brief, the majority of benefits are now treated in the same manner
for income tax purposes. The amount of FBT is deductible for income tax purposes
(where previously it was not) and a "gross up factor" (1.9417 before the arrival of GST)
was introduced into the FBT legislation to calculate the taxable value of a fringe benefit.
The following example illustrates that it may now be disadvantageous to enter into a salary
sacrifice arrangement unless the amount being sacrificed is at the top marginal tax rate.
Even where the salary sacrifice is at the top marginal rate, a break-even result will be
achieved unless the benefit is exempt or concessional. In this example the fringe benefit is
an expense payment fringe benefit, say the payment of $10,000 in school fees incurred by
the employee in respect of the education of the employee's children.
CONCESSIONAL BENEFITS
A number of benefits are taxed concessionally by being assessed at reduced values.
These include remote area benefits, in-house benefits and benefits for overseas postings.
If a fringe benefit is used for business purposes, in whole or part, a rule known as the
"otherwise deductible" rule applies to reduce the value of the fringe benefit by the
business component.
Example 1 - Fringe Benefit Tax Consequences of Salary Sacrifice

EMPLOYEE REMUNERATION
CASH SALARY
Total Remuneration
Less
Benefits
FBT $10,000 multiply 1.9417 multiply 48.5%
SALARY SACRIFICE
$60,000

$60,000

($16,480)
($10,000)

$33,520

Adjusted salary (after packaging)
Less
Income tax and Medicare levy
School fees

Cash remaining
$60,000

($10,000)
($9,417)

$40,583

($9,164)

$31,490

The employee is $2,101 worse off by the salary sacrificing in this example.
COST TO EMPLOYER
School fees
FBT
Cash salary

Tax deduction 36%

Cost to employer
69
CASH SALARY
SALARY SACRIFICE

$60,000

$60,000
$21,600

$38,400
Car fringe benefits;

Debt waiver fringe benefits;
Loan fringe benefits;
Expense payment fringe benefits;
Housing fringe benefits;
Living away from home allowance fringe benefits;
Airline transport fringe benefits;
Board fringe benefits;
Meal entertainment fringe benefits;
Tax-exempt body entertainment fringe benefits;
Car parking fringe benefits;
Property fringe benefits; and
Residual fringe benefits.
$10,000
$9,417
$40,583
EXEMPT BENEFITS
There are a number of categories of fringe benefits that are exempt. They include specified
benefits provided:
> To employees of public benevolent institutions;
> To employees of government bodies who perform duties exclusively in or in
connection with a public hospital that is a public benevolent institution;
> To certain categories of employees of religious institutions;
> To live-in residential care workers;
> To live-in domestic workers employed by religious institutions or by
religious practitioners;
> To live-in help for elderly and disadvantaged persons;
> In respect of certain work-related health issues (medicals, counselling, etc);
> In respect of certain work-related items; and
> In respect of compassionate travel.
This list is not exhaustive.

$60,000
$21,600

$38,400
70
6
VALUATION OF FRINGE BENEFITS
Example 2 - Rebatable Employer Fringe Benefit Tax Consequences of Salary Sacrifice
The FBT legislation contains the valuation rules to enable each category of fringe benefits to
be valued. Some of these are quite straightforward.
Example:
>
>
EMPLOYEE REMUNERATION
Total Remuneration
Less
Benefits
FBT $10,000 multiply 1.9417 multiply 48.5%
multiply 52%
The valuation of a debt waiver fringe benefit is the amount of the

debt waived; and
The valuation of an expense payment fringe benefit is the amount
of the expenditure paid or reimbursed.
In other cases the valuation rules are more complex. The valuation of car fringe benefits,
car parking fringe benefits and housing fringe benefits are good examples. They generally
involve the application of statutory formulae. The valuation rules for car fringe benefits are
generally seen as being concessional in nature, particularly the statutory formula method of
valuation. This is because the valuation rules assume a certain amount of business travel
and the percentage of assumed business travel increasing with the number of kilometres
travelled per year. For example, if a vehicle travels more than 25,000 kilometres in a FBT
year but is used primarily for private purposes, the valuation rules will allow a business
component higher than is actually the case.
Because of the reforms which took place from 1 April 1994 many employers ceased
providing fringe benefits other than motor vehicles, car parking, superannuation and work
related items. Any tax advantages that might have remained from sophisticated
remuneration planning strategies were seen to be offset by the costs of administration of
the salary sacrifice schemes. The new, lower income tax rates operative from 1 July 2000
have made salary sacrifice arrangements less attractive than before.
CASH SALARY
SALARY SACRIFICE
$60,000
$60,000

($10,000)

($4,897)
Adjusted salary (after packaging)

Less
Income tax and Medicare levy
School fees
$60,000
$45,103

($16,480)
($10,000)
($10,587)

Cash remaining
$33,520
$34,516

The employee is $996 better off by the salary sacrificing in this example.
RECENT AMENDMENTS TO FBT LEGISLATION

The government became concerned that many employers who provide exempt benefits
(e.g. public benevolent institutions such as hospitals) and rebatable employers were
overusing the exemption or rebate provided to them by providing excessive fringe benefits
to some of their employees. This resulted in the benefit of the exemption or the rebate
being passed on to those employees. The government considered that the concessions
were being overused.
As a consequence, legislation has very recently been passed to place a ceiling on the value
of fringe benefits that can be provided by exempt and rebatable employers.
REBATABLE EMPLOYERS
There are a number of categories of "rebatable" employers. They are listed in sub-section
65J(1) of the FBT legislation which is reproduced on page 104 of this manual at Schedule A.
By and large these are non-profit bodies. The effect of the rebate is to reduce their FBT
liability by 48%. In practical terms, the granting of the rebate is designed to recognise that
the non-profit employers do not pay income tax and therefore do not derive any benefit
from the reforms effective from 1 April 1994 that made FBT an income tax deductible
expense. However, the effect of providing this rebate so that the employer will not be
disadvantaged has been to make salary sacrifice arrangements very attractive for employees
of these employers. The following example illustrates this when compared with Example 1
on page 69.
Under this legislation, the ceiling for public and non-profit hospitals is fixed at $17,000 per
employee and applies from 1 April 2000. The ceiling that applies to public benevolent
institutions that are not a hospital and to rebatable employers is $30,000 per employee
and will apply from 1 April 2001.
It is important to note that these figures are the "grossed up" amounts so that the actual
value of the fringe benefits that will continue to receive exempt or rebatable treatment is
slightly over one-half of those respective amounts. In simple terms, it is a matter of
determining the aggregate taxable value of fringe benefits provided to a particular employee
after deducting any excluded fringe benefits, applying the appropriate gross up factor
and deducting $17,000 or $30,000 (as the case may be) from the grossed up figure.
The exemption or rebate will apply to the first $17,000 or $30,000. If there is a surplus,
the surplus amount will be subject to FBT at the normal FBT rate.
Similar procedures will apply to rebatable employers. The rebate will apply to the first
$30,000 grossed up value of fringe benefits. The surplus over and above that figure will
be subject to FBT at the normal rates.
Where an employer qualifies for both exempt and rebatable benefits (e.g. a religious
institution) the exempt calculation rules will apply in respect of benefits provided to
exempt employees and the rebatable calculation rules will apply in respect of all other
benefits provided.
71
72
6
Lodgment Of FBT Returns
Previously the FBT return was due for lodgment by 28 April or, where the notional FBT
liability was less than $3,000, by 28 May. However, from the FBT year ended 31 March 2001
onwards the FBT return is due for lodgment by 21 May.
F3
Varied Fringe Benefits Tax Instalment
If you do not wish to vary your FBT Instalment amount, you do not have to complete F3.
If you wish to vary your FBT Instalment amount, you work out the amount of your varied
FBT Instalment for the quarter using the following formula:
COMPLETING THE BAS FOR FRINGE BENEFITS TAX
(Estimated total FBT payable x relevant fraction) - (previous instalment liabilities less any
previous credits claimed).
You are required to complete the FBT Instalment section of your activity statement if your
previous year's FBT liability was $3,000 or more.
The estimated total FBT payable is the amount you have recorded at F2.
If you lodge monthly activity statements and pay FBT quarterly, you complete the FBT
instalment section only after the end of each quarter. You will report your FBT Instalments
on your activity statements that are due on 21 July, 21 October, 21 January and 21 April.
If your previous year's FBT liability was less than $3,000 you pay your FBT at the end of the
FBT year. If your previous year's FBT liability was $3,000 or more you pay your FBT
Instalments quarterly.
When you lodge your FBT return in respect of the year ended 31 March, you make a
balancing payment (if any is required) when your annual FBT liability exceeds the
instalments you have paid.
Lodging Your First Activity Statement
If you had a FBT liability of $3,000 or more in the previous year your FBT Instalment will be
preprinted at F1 on your activity statement.
Relevant fractions are:

>
>
>
>
.25 for the quarter ended 30 June;

.5 for the quarter ended 30 September;
.75 for the quarter ended 31 December;
1.0 for the quarter ended 31 March.
Previous instalment liabilities are the sum of the amounts you have recorded at 6A on your
previous activity statements for the FBT year.
Any previous credits claimed are the sum of the amounts you have recorded at 6B on your
If the varied FBT Instalment amount for the quarter is a positive amount, write it at F3.
If it is a zero or negative amount, write zero at F3.
Example:
F1
ATO - Calculated Fringe Benefits Tax Instalment
If you do not wish to vary your FBT Instalment amount transfer the amount preprinted at F1
to 6A on the front of your activity statement.
F2
Estimated Total Fringe Benefits Tax Payable
If you estimate that your total FBT payable for the FBT year ended 31 March will be different
from your previous year's FBT liability, you may pay varied instalments based on your
estimated liability. However if your estimate of the FBT payable by you is less than 85% of
the FBT ultimately assessed for the year, and you have paid instalments on the basis of your
estimate, you may be liable to pay the General Interest Charge.
Lucky Pty Limited has a notional tax amount of $40,000. The FBT Instalment
amount payable in both the first and second quarters is $10,000,
that is a total of $20,000.
In the third quarter, several executives resign and ABC Pty Limited estimates
that its FBT liability for this year will be reduced to $16,000.
This amount is recorded at F2.
The varied FBT Instalment amount for the third quarter is a negative
amount calculated as follows:
($16,000 x .75) - $20,000 = negative $8,000
You should write zero at F3.
Estimate your total FBT payable for the year ended 31 March. Write your estimated total FBT
that will be payable for the year at F2.
73
74
6
F4
Reason For Fringe Benefits Tax Variation
If you have varied your FBT Instalment amount, you must tell the ATO why you decided to
vary the amount. You should choose from the list below the code that best describes why
you have decided to vary your FBT Instalment amount.
6B
Credit Arising From Reduced Fringe Benefits Tax Instalments
If you have written a positive amount at F3 and transferred that amount to 6A, you do not
complete 6B.
If you have written zero at F3 and 6A, you may get an FBT Instalment credit using the
following formula:
CODE
REASON
(Previous instalment liabilities plus FBT Instalment for this quarter less any previous credits
claimed) - (estimated total FBT payable x relevant fraction)
01
Benefits ceased/reduced and salary increased
Previous instalment liabilities are the sum of the amounts you have recorded at 6A on your
02
Benefits ceased/reduced and no compensation to employees
03
Fewer employees
04
Increase in employee contribution
05
Rebate now claimed
06
Liquidation, receiver/manager appointed
07
None of the above
You should write the corresponding code at F4.

Now go to the front of your Activity Statement.
6A
Fringe Benefits Tax Instalment
If you are using the FBT Instalment amount preprinted at F1, transfer that amount to 6A.
If you have varied your FBT Instalment amount for the quarter, transfer the varied FBT
Instalment (even if that amount is zero) recorded at F3 to 6A.
FBT Instalment for this quarter is the amount you have recorded at 6A on this activity
statement.
Note: It should be zero.
Any previous credits claimed are the sum of the amounts you have recorded at 6B on your
previous activity statements for the FBT year. Estimated total FBT payable is the amount you
recorded at F2.
(Refer to relevant fractions on page 74.)
Example:
Lucky Pty Limited has a notional tax amount of $40,000. The FBT Instalment
amount payable in both the first and second quarters is $10,000, that is a total
of $20,000. This represents the previous instalment liabilities. In the third quarter
several executives resign and Lucky Pty Limited estimates that its FBT liability for
the entire year will now be reduced to $16,000. This amount represents the
estimated total FBT payable. It is the amount recorded at F2.
Lucky Pty Limited's FBT Instalment for this quarter will be zero, that is ($16,000 x .75) $20,000 because the calculation for F3 purposes has given a negative amount. Therefore,
zero is recorded at F3 and also at 6A. The fraction of .75 has been used in the calculation
because the calculation is being made for the third quarter ended 31 December. Lucky Pty
Limited has an instalment credit of $8,000. That is ($20,000 plus $0 - $0) - (16,000 x .75).
This amount is recorded at 6B.
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INCOME TAX EXEMPTION

FOR CHARITIES
WORKING OUT YOUR AMOUNT PAYABLE OR REFUNDABLE
INTRODUCTION
You will now have completed the required fields to enable you to determine your net
amount of tax payable/refundable for the tax period. Depending on whether you are filing an
IAS, monthly or quarterly BAS, you will make one of the following calculations.
Charities are not automatically exempt from income tax. A new system of
endorsing charities for income tax exemption commenced on 1 July 2000.
For a charity to become income tax exempt or continue to be income tax
exempt, endorsement from the ATO is compulsory. Endorsement replaces
current income tax exemption confirmation arrangements.
Go to the front of your activity statement.

Quarterly Business Activity Statement
2A Add the amounts at 1A + 1C + 1E
2B Add the amounts at 1B + 1D + 1F + 1G
8A Add the amounts at 2A + 4 + 5A + 6A + 7
This is the amount you owe the ATO for the current reporting period.
8B Add the amounts 2B + 5B + 6B
This is the amount the ATO owes you for the current reporting period.
9
Subtract 8B (amount the ATO owes you) from 8A (amount you owe the ATO)
Monthly Business Activity Statement

2A Add the amounts at 1A + 1C + 1E
2B Add the amounts at 1B + 1D + 1F + 1G
8A Add the amounts at 2A + 4
9
Subtract 2B (amount the ATO owes you) from 8A (amount you owe the ATO)
8A Add the amounts at 4 + 5A + 6A + 7
8B
Add the amounts at 5B + 6B
Subtract 8B (amount the ATO owes you) from 8A
If the result at 9 on your IAS, monthly or quarterly BAS is a positive, this is the amount you
must pay the ATO by the date shown at A6 in the top right-hand corner of the front of your
activity statement.
If the result at 9 is a negative amount, this is the amount the ATO owes you. The ATO will
credit this amount to your nominated financial institution account within 14 days of your
correctly completed activity statement being lodged if you do not have any other
outstanding tax debts or activity statements. Failure by the ATO to refund any amount
within 14 days will result in additional interest compensation.
WHAT IS A CHARITY?
A charity is an entity established for altruistic purposes that are regarded as charitable.
The criteria for working out whether you are conducting a charity is established by
Common Law, that is, case judgments. The characteristics of a charity are:
>
>
>
>
>
It is an entity which is also a trust fund or an institution;

It exists for the public benefit;
Its purposes are charitable within the legal sense of that term;
It is non-profit; and
Its sole or dominant purpose is charitable.
Charitable purposes are:

> The Relief Of Poverty
Including through public benevolent institutions, hospitals and nursing homes, relief
agencies, organisations that support disadvantaged indigenous people, youth and
womens refuges, drug rehabilitation services, disability services, refugee welfare centres,
soup kitchens, and organisations that supply furniture, clothing or low cost housing
to the poor.
> The Advancement Of Religion
Including religious congregations such as churches and synagogues, seminaries,
religious orders, organisations for building or repairing religious buildings, and
organisations for supporting clergy and for spreading religious doctrine and practice.
> The Advancement Of Education
Including through schools, colleges, universities, research and scientific institutes,
Scouts and similar organisations, scholarship trusts and school building funds.
> Other Purposes Beneficial To The Community
Including promoting health through educating the public about a particular disease,
providing community facilities such as museums, libraries, halls and community radio
stations, promoting art and culture etc.
This list is not exhaustive. Other purposes may be charitable where they are intended to
provide benefits of social value to the community or a section of the community. You
should refer to the ATOs "Charity Pack" for additional examples.
If you are not a charity, you may be a non-profit organisation that is entitled to income tax
exemption under other arrangements outlined in this manual. You could also refer to the
ATOs "Club Pack".
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THE EFFECT OF BEING ENDORSED AS AN INCOME
TAX EXEMPT CHARITY ("ITEC")

This test has two elements:
Being endorsed as an ITEC gives you important income tax concessions. An ITEC:
1. Does the charitable institution have a physical presence in Australia? and

2. To the extent the charitable institution has a physical presence in Australia, does it pursue
its objectives and incur its expenditure principally in Australia?
> Does not pay income tax; and

> Does not have to lodge income tax returns unless specifically requested to do so.
However, if an ITEC ceases to be entitled to endorsement it must inform the ATO in writing.
ITEC endorsement does not entitle you to receive income tax deductible gifts.
There is a separate endorsement process for deductible gift recipients (DGRs).
(Refer to the DGR section of this manual.)
How Do You Become Endorsed?
Endorsement is a two-step process. A charity seeking endorsement must first obtain an
ABN. Charities that indicate on their ABN application that they are, or consider themselves
entitled to be, an ITEC will be sent out applications for endorsement.
If a charitable institution has a physical presence in Australia, it must pursue its objectives
and incur its expenditure principally in Australia. Principally means mainly or chiefly.
Less than 50% is not mainly.
Once you have an ABN, the second step is receiving endorsement as an ITEC.
A separate endorsement form is required to be completed and lodged with the ATO.
A charitable institution may still meet the physical presence test even if it does not,
in fact, pursue its purposes and incur its expenditure mainly in Australia, to the extent
it has a physical presence in Australia. This will depend on its distributions of
disregarded amounts.
Are You A Charitable Fund Or A Charitable Institution?

There are different requirements for charitable funds and charitable institutions.
Disregarded Amounts
Disregarded amounts are amounts that the charitable institution receives as:
CHARITABLE INSTITUTIONS
> Gifts, including testamentary gifts;

> Proceeds from raffles, dinners, charity auctions, jumble sales and similar fund
raising activities; and
> Government grants.
You will be a charitable institution if you are an establishment, organisation or association

that is instituted to advance or promote charitable purposes. Types of organisations that
may be charitable institutions include welfare agencies, churches, public libraries, refuges
and research institutes.
It is assumed that any offshore distributions are made first from any disregarded amounts
that are able to be distributed offshore. If a disregarded amount cannot be distributed
offshore, the assumption does not apply to it.
Incorporation is not enough on its own, to show an organisation is an institution;

its activities are also relevant.
For example, government grants made only for use in Australia and gifts of land physically
in Australia are not assumed to be distributed offshore.
A charitable institution will be entitled to endorsement if it meets at least one of the

following three tests:
The effect of making this assumption is that offshore distributions can be made up to the
total of these amounts without jeopardizing entitlement to endorsement.
1. Physical presence in Australia; or

2. It is a deductible gift recipient; or
3. Prescribed by law.
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A charitable institution has a physical presence in Australia if it is wholly in Australia, or it

has a division, branch or sub-division in Australia. It does not have a physical presence in
Australia if it is present in Australia only through an agent, or it merely owns investment
property in Australia.
Example:
A corporation provides religious instruction in Australia and New Zealand.

The amount it uses for the New Zealand teaching are never more than the
disregarded amounts. Because the disregarded amounts are assumed to pay for
the New Zealand activities, the corporation can still meet the physical presence test.
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Deductible gift recipients are entities to which donors can make income tax deductible gifts.
A charitable institution is entitled to ITEC endorsement if it is a deductible gift recipient but
will still need to formally apply to the ATO for endorsement as an ITEC separately.
How to Determine Whether a Charitable Fund will be Entitled to Endorsement

NO
YES

Charitable institutions can be prescribed by name in the income tax legislation.
The government decides which institutions will be prescribed. The prescribed charitable
institutions do not need to be endorsed to retain their exemption from income tax as long
as they satisfy the requirements for exemption.
CHARITABLE FUNDS
Is the charitable fund applied for the

purposes for which it was established?
Was the charitable fund established by

will before 1 July 1997?
NO
NO
Was the charitable fund established

in Australia?
To be a charitable fund you must be established under an instrument of trust or a will.

Also to make distributions to other entities or persons you must mainly:
> Manage trust property; and/or
> Hold trust property.
To be entitled to endorsement, a charitable fund must be applied for the purposes for which
it was established. If it is not being applied for those purposes, it is not entitled to
endorsement.
If a charitable fund uses its property and income only and fully for its charitable purposes, it
will meet this requirement.
YES
On or after 1 July 1997, has one

or more assets:
> been given to the fund other than
for valuable consideration; or
> become part of the fund under a will?
NO
Charitable fund is deemed to be two

separate trusts.
THE "NEW TRUST"
THE "OLD TRUST"
Consists of assets
received on or after
1 July 1997
(under a will, or
given other than in
return for valuable
consideration)
and any
income from
them.
Consists of all
property not
included in the
"new trust".
The flowchart on the next page will assist you in determining whether a charitable fund will
be entitled to endorsement.
Does the charitable fund, or the
"new trust", meet at least
one of the four tests?
The charitable
fund or the
"new trust",
is not entitled to
be endorsed.
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NO
FOUR TESTS:
1. Australian Purposes
It incurs its expenditure principally in
Australia, and pursues its purposes solely
in Australia, and has done so at all
times since 1 July 1997.
2. Deductible Gift Recipient
It is a deductible gift recipient.
3. Australian distribution
It distributes solely, and has at all times
since 1 July 1997 distributed to charities
that, to the best of its knowledge, are
located in Australia, incur their
expenditure principally in Australia and
pursue their purposes solely in Australia.
4. Gift Distribution
It distributes solely, and has at all times
since 1 July 1997 distributed solely to
charities that, to the best of its knowledge,
are deductible gift recipients.
YES
The charitable
fund the "old
trust" or the
"new trust",
is not entitled to
be endorsed.
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Charitable Funds Not Established By Will Before 1 July 1997
To be endorsed, charitable funds that were not established by will before 1 July 1997 must be
established in Australia and must meet at least one of four additional tests. The tests are:
1.
2.
3.
4.
Australian purposes test;

Deductible gift recipient test;
Australian distribution test;
Gift distribution test.
Australian Purposes Test

This test has two elements. The fund must pursue its purposes solely in Australia and have
done so at all times since 1 July 1997 and secondly, it must incur its expenditure principally
in Australia and have done so at all times since 1 July 1997.
Activities carried on outside Australia can still be acceptable if those activities are only for
the sake of pursuing the purposes in Australia. For example, sending an employee to a
conference overseas would be acceptable if it was to improve the efficiency of the
Australian operations.
The incurring of expenditure must be principally in Australia. If a charitable fund does not
pursue its purposes solely and incur its expenditure principally in Australia, it may still meet
the Australian purposes test. This will depend on its distributions of disregarded amounts.
(See explanation of disregarded amounts above.)
If a charitable fund is a deductible gift recipient ("DGR") it meets this test.
DGRs are entities to which donors can make income tax deductible gifts. DGRs are listed by
name in the income tax legislation or have received a notice from the ATO stating they have
been endorsed as DGRs. (See chapter 8 of this manual for details.)
Australian Distribution Test
To meet this test the charitable fund must distribute solely, and at all times since 1 July 1997
have distributed solely, to charities that, to the best of the trustees knowledge:
> Are located in Australia;
> Pursue their purposes solely in Australia;
> Incur their expenditure principally in Australia.
All distributions must be made to charities. Distributions do not include reasonable
payments for goods and services received.
The charitable recipients must be located in Australia. They do not have to be located
exclusively in Australia, but must have an enduring and substantial presence. If they pursue
their purposes offshore they will not be acceptable recipients.
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Gift Distribution Test

To meet this test the charitable fund must distribute solely, and at all times since 1 July 1997
have distributed solely to charities that are to the best of the trustees knowledge,
deductible gift recipients.
From 1 July 2000, DGRs must be endorsed by the ATO. The only exceptions are those funds
listed by name in the income tax legislation.
If the charitable recipients of the distributions are not in fact DGRs, provided the trustee
has exercised reasonable care and was of the genuine belief that the recipient was a DGR,
the requirement will be satisfied. A charitable fund can satisfy itself of the recipients status:
> By checking the Australian Business Register to see if the recipient is a DGR;
> Through suitably worded questions in its application forms for funding; or
> By checking the status of recipients with the ATO by phoning 13 24 78.
Otherwise, if distributions are in fact made to non-acceptable recipients, the charitable fund
will only meet the gift distribution test through disregarded amounts.
Charitable Funds Established By Will Before 1 July 1997
If a charitable fund is established by will before 1 July 1997 its entitlement to endorsement
will depend on the assets it has received from 1 July 1997. If on or after 1 July 1997 a
charitable fund has paid real and substantial value for all new assets it received and has not
received any assets under a will it will be entitled to endorsement. This is provided it has an
ABN and the fund is being applied for the purposes for which it was established.
Other charitable funds are deemed to consist of two separate trusts, called an old trust and
a new trust. The new trust consists of the following property:
> Assets given to the charitable fund after 30 June 1997 for which it did not pay
valuable consideration;
> Assets becoming part of the charitable fund under a will after 30 June 1997;
> Assets received in substitution for those assets;
> Any income derived from these assets.
The old trust consists of the remainder of the charitable fund. Effectively this will be
all of the funds as at 30 June 1997 and property acquired from that date which:
> Is received in substitution for assets held before 1 July 1997;
> Was given in return for valuable consideration; or
> Is income derived from that property.
The charitable fund will need to prepare accounts for each of the old trust and the
new trust.
These requirements are to the best of the trustees knowledge. It will be sufficient if the
trustee received written confirmation from the recipient and the trustee does not have
reasonable grounds for doubt.
The old trust is entitled to endorsement, provided its charitable fund has an ABN and is
being applied for the purposes for which it was established.
If a charitable fund does not distribute solely in the required ways it might still meet the
test. This will depend on its distributions of disregarded amounts. (See explanation on
disregarded amounts above.)
The new trust must meet one of the four tests (outlined above). The charitable fund, of
which the new trust is a part, must have an ABN. The new trust does not need a separate
ABN. If the new trust meets the additional tests, the whole of the charitable fund will
effectively be entitled to endorsement.
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Certain Charitable Funds Cannot Be Endorsed
The charitable funds outlined below will only be exempt from income tax if they fall
into some other income tax exempt category and meet the requirements of that
particular exemption.
Charitable funds that cannot be endorsed are:
> Charitable funds established by will from 1 July 1997 which are not established in
Australia; and
> Charitable funds established by instrument of trust which are not established in Australia.
All other charities must be endorsed to be exempt from income tax.
Revoking Endorsement
The ATO can revoke an ITECs endorsement if:
> It is not entitled to be endorsed; or
> It has not provided information or documents within the specified time after a
request by the ATO.
The ATO will provide written notice of the revocation.
If an ITECs endorsement is revoked, it is taxable from the date the endorsement ceases.
Review Rights
If endorsement is refused or revoked, the ATO will provide you with a clear explanation of
its decision. The ATO will also review its decision if you request it to do so. You also have
the right to ask the ATO for a review by lodging an objection against the refusal. The ATO
will then conduct a review and advise you of their decision on your objection and provide
reasons for the decision.
If you are dissatisfied with the ATOs decision regarding your objection, you may have a
right to review by the Administrative Appeals Tribunal or by the Federal Court.
INCOME TAX EXEMPT STATUS FOR NON-PROFIT ORGANISATIONS THAT ARE

NOT CHARITIES
If you are a non-profit organisation but not a charity, you may be entitled to income tax
exemption under other arrangements. Some non-profit organisations may satisfy several
categories of tax exemption at once, however the law requires that if one of those categories
is a charitable institution, then it must be endorsed as such.
Non-Profit
Many of the categories outlined below require the organisation to be a non-profit club,
society or association. You will be non-profit if you are not carried on for the profit or gain
of your individual members. Organisations can satisfy this non-profit requirement if their
constituent or governing documents prevent them from distributing profits or assets for the
benefit of particular persons, both while they are operating and on winding up. The
organisations actions must of course be consistent with this requirement.
A non-profit organisation can still make a profit. However, any profits it makes must be
used to carry out its purposes. The profits must not be distributed to owners, members or
other private persons.
85
There are two important clauses which must appear in your constituent documents or
constitution for you to be classified as non-profit. Acceptable clauses to indicate non-profit
character are:
1. Non-Profit Clause
"The assets and income of the association shall be applied solely in furtherance of its
above-mentioned objects and no portion shall be distributed directly or indirectly to the
members of the association except as bona fide compensation for services rendered or
expenses incurred on behalf of the association."
2. Dissolution Clause
"In the event of the association being dissolved, the amount that remains after such
dissolution and the satisfaction of all debts and liabilities shall be transferred to
any association with similar purposes which is not carried on for the profit or gain
of its individual members."
3. Exemptions
Clubs, societies and associations that are not charities can self assess their income
tax status and do not need to apply to the ATO for income tax exemption.
Only some specified groups of organisations are exempt from income tax.
Types of clubs, societies and associations that can be exempt from income tax
are listed below:
>
>
>
>
>
>
>
>
>
>
Cultural organisations;
Community service organisations;
Educational organisations;
Employment organisations;
Friendly societies;
Health organisations;
Religious organisations;
Resource development organisations;
Scientific organisations;
Sporting organisations.
Many of these organisations will qualify for exemption as charities or charitable institutions.
The requirements for those that do not qualify as charitable are set out below.
Most of these categories have further requirements for income to be tax exempt.
The requirements for each category are set out below.
Cultural Organisation
You will be exempt from income tax if:
> You are a non-profit society, association or club;
> You are established for the encouragement of art, literature or music or musical purposes;
> You are not a charity; and
> You meet at least one of three additional tests outlined at the end of this section on page 92.
The main purpose of the organisation must be the encouragement of art, literature or
music or musical purposes. To work out your main purposes, you should look at your
constituent documents, activities, use of funds and your history. Any other purpose of the
organisation must be incidental, ancillary or secondary to the musical purposes or
encouragement of art, literature or music.
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The words art, literature and music are not defined in the legislation and take their
natural meaning. For this exemption, art includes drama and ballet as well as painting,
architecture and sculpture. Literature includes a wide range of written or printed works,
including works in different languages. Music includes the performance of vocal or
instrumental works and covers various styles.
The means of encouraging can include training, performing, displaying, providing
information, studying, judging and critiquing. Professional associations set up to advance
the common interests of their members do not have the required purpose.
There are further conditions these organisations must meet to be exempt from income tax.
They must meet at least one of the three tests explained at the end of this section.
Community Service Organisation
>
>
>
>
You are a non-profit society, association or club;

You are established for community service purposes (except political or lobbying purposes);
You are not a charity; and
You meet at least one of the three additional tests.
The main purpose of the organisation must be community service purposes. To work out
your main purpose, you should look at your constituent documents, activities, use of funds,
and your history. Any other purpose of the organisation must be incidental, ancillary or
secondary to the community service purposes.
Community service purposes are altruistic. That is, community service organisations are
established and operated with regard to well being and benefit of others.
Community service organisations promote, provide or carry out activities, facilities or
projects for the benefit or welfare of the community or any members who have a particular
need by reason of use, age, infirmity or disablement, poverty or social or economic
circumstances.
Examples of community service organisations are:
> Non-profit childcare centres, including those providing long day care facilities,
after school care, and day child care in activity caravans;
> Associations of justices of the peace;
> Associations of playgroups;
> Traditional service clubs;
> Community service clubs; and
> Pensioner or senior citizens associations.
Educational Organisation
> You are a public educational institution;
> You meet at least one of the three tests referred to at the end of this section on page 92.
A public educational institution is an institution that is available or open to the public or a
section of the public and whose dominant purpose is providing an education. Any other
purpose of the organisation must be incidental or ancillary to providing public education.
Education in this context does not extend to merely providing information or lobbying.
Examples of public educational institutions are:
>
>
>
>
Universities or colleges managed by public bodies;

Grammar schools;
Primary and secondary schools run by churches or religious bodies; and
Non-profit business colleges.
Many other organisations connected with education are not public educational institutions.
Examples are parents and friends committees and a scholarship provider.
Employment Organisation
Three types of employment organisations can be exempt:
1. Trade unions;
2. Employee associations that are registered under a commonwealth, state or territory
law relating to the settlement of industrial disputes; and
3. Employer associations that are registered under a commonwealth, state or territory
law relating to the settlement of industrial disputes. (An employer association that
is not registered cannot qualify as a trade union.)
To be exempt, these three types of organisations, must:
> Be located in Australia; and
> Pursue their objectives and incur their expenditure principally in Australia.
The exemption does not apply to investment income from superannuation, life assurance
and accident and disability insurance business of some registered trade unions and
employee associations.
Organisations that seek to advance the common interests of their members are not
altruistic and so cannot be community service organisations. If an organisation's main
purpose is lobbying or political, its income will not be exempt.
To be exempt from income tax, a community service organisation must also meet one of
the three tests outlined at the end of this section.
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7
Friendly Societies
An organisation is exempt on some of its income if:
Religious Organisations
>
>
>
>
> You are a religious institution;

> You meet at least one of four other conditions.
It is a friendly society;
It is not a friendly society dispensary;
It is non-profit; and
It meets at least one of the three tests referred to at the end of this section on page 92.
A friendly society is a body that:

> Is registered or incorporated as a friendly society under a law of a state or territory;
> Is a friendly society for the purposes of the Life Insurance Act 1995;
> Is permitted, by a law of a state or territory, to assume or use the expression
friendly society; and
> Immediately before the date that is the transfer date for the purposes of the
Financial Sector Reform (Amendments & Transitional Provisions) Act (No. 1) 1999,
was registered or incorporated as a friendly society under a law of a state or territory.
A friendly society dispensary is an approved pharmacist (within the meaning of Part VII of
the National Health Act 1953) that is a friendly society or a body carrying on a business for
the benefit of members of a friendly society.
To be exempt, the friendly society must meet at least one of the three tests outlined at the
end of this section.
The exemption does not apply to the friendly society's investment income from
superannuation, life assurance and accident and disability insurance business.
Health Organisations
A hospital can be exempt from income tax if:
>
>
>
>
It is a public hospital; or
It is carried on by a non-profit society or association; and
It is not a charity; and
It meets at least one of the three tests referred to at the end of this section on page 92.
A hospital is an institution in which patients are received for continuous medical care
and treatment for sickness, disease or injury. Providing accommodation is integral to a
hospital's care and treatment. Clinics that mainly treat ambulatory patients who return
to their homes after each visit are not hospitals. However, day surgeries that provide beds
for patients to recover after surgery may be hospitals. Homes to provide nursing care for
feeding, cleanliness and the like are not hospitals. However, nursing homes for persons
suffering from illness are accepted as hospitals. Hospices for the terminally ill will
generally be hospitals. Minor outpatient and nursing care will not prevent an institution
being a hospital. Examples of non-profit hospitals include those run by churches and
religious orders.
You will be a religious institution if you are an establishment, organisation or an association

that is instituted to advance or promote religious purposes.
An institution may have the legal structure of an unincorporated association or a
corporation. However, incorporation is not enough on its own for an organisation to be an
institution. Its activities, size, permanence and recognition will be relevant. An organisation
that is established, controlled and operated by family members and friends would not
normally be an institution.
An institution will be a religious institution if:
> Its objects and activities reflect its character as a body instituted for the promotion
of such religious object; and
> The beliefs and practices of the members constitute a religion.
The expression "religion" is not confined to major religions such as Christianity, Islam,
Judaism, but also extends to Buddhism, Taoism, Jehovah Witnesses, the Three Days to
Communion, Deist of Australia and Scientology. The categories of a religion are not closed.
Nonetheless, to be a religion there must be:
> Belief in a supernatural being, thing or principle; and
> Acceptance of canons of conduct which give effect to that belief, but which do not
offend against the ordinary laws.
There are further conditions a religious institution must meet to be exempt from income
tax. The religious institution must meet at least one of the three tests outlined at the end of
this section or it must be listed by name in the income tax regulations for these purposes,
and have a physical presence in Australia but pursue its objectives and incur its expenditure
principally outside Australia.
Resource Development Organisations
A range of resource development organisations can be exempt. The organisations must not
be charities but must be non-profit. They must also be established for the purpose of
promoting the development of:
>
>
>
>
>
>
>
>
>
>
Aviation;
Tourism;
Agricultural resources of Australia;
Aquacultural resources of Australia (for 1999/2000) and later years;
Fishing resources of Australia (for 1999/2000) and later years;
Horticultural resources of Australia;
Industrial resources of Australia;
Manufacturing resources of Australia;
Pastoral resources of Australia; or
Viticultural resources of Australia.
Aviation, tourism and the various resources have their ordinary meaning. Industrial
resources include building, mining, quarrying, shipping and transport, but do not include
business and commercial resources such as insurance and services such as surveying.
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Promoting development can be by various means, including research, providing facilities,
training, improving marketing methods, facilitating co-operation, and the like.
Sporting Organisation
The main purpose of the society, association or club must be promoting the development
of the relevant resources. To work out your main purpose, you should look at your
constituent documents, activities, use of funds, and your history. Any other purpose of the
organisation, must be incidental, ancillary or secondary to promoting the development of
the relevant resources.
>
>
>
>
If the organisation's main purpose is merely to provide services to its members,

it will not be exempt. This is the case even if the services result in better use of
resources by those members.
Scientific Organisation
Three types of association, society or club can be exempt from income tax:
> Scientific institutions;
> Non-profit societies, associations or clubs established for the encouragement of science; and
> Funds established to enable scientific research to be conducted by or a public
university or public hospital.
For these purposes, science has its ordinary meaning. It is not limited to the physical
sciences and includes the human and applied sciences.
Scientific institutions are set up and operated for the dominant purpose of advancing
science. Common ways of advancing science include research, exploration and teaching.
Disseminating information will often be involved. Scientific institutions do not include
organisations run for the profit of their individual owners or members and professional
associations primarily run for the professional or business interest of their members.
Scientific associations must have a main purpose of encouragement of science.
Recreational or hobby clubs do not qualify. The main purpose must not be promoting
the professional or business interest of members.
Where you are a scientific research fund you must be no more than a fund, and you must
have sufficient links with public universities or public hospitals. The fund itself does not
conduct the scientific research. It is conducted by the university or hospital or by other
bodies in conjunction with them. The fund may enable the research by various means
including providing money or facilities.
These organisations must meet at least one of the three tests outlined at the
end of this section.
If you are a scientific research fund, the fund must be applied for the purposes for which it
was established. If it is being applied for other purposes it will not be exempt. The scientific
research fund must also meet at least one of two conditions.
You are a non-profit society, association or club;

You are established for the encouragement of a game or sport or animal racing;
You are not a charity; and
You meet at least one of the three additional tests referred to at the end of this section.
The main purpose of the society, association or club must be the encouragement of a
game or sport or animal racing. If your main purpose is providing social and recreational
facilities and activities, you will not be exempt. This is the case even if you also give
money to encourage games, sports or animal racing.
The words "game" and "sport" are not defined and take their ordinary meaning.
Games and sports extend to athletic games or sports (such as football and swimming)
and non-athletic games (such as chess and bridge). They do not extend to stamp collecting,
keeping and showing pets, making modern railways, maintaining vintage cars and various
social and recreational pursuits. Encouragement of the games or sports extends to less
direct means, such as research or testing, developing referees and
providing sporting facilities.
The animal racing exemption covers horse racing and trotting, and greyhound racing but
also extends to the racing of other animals.
Three Tests
Some organisations will only be exempt from income tax if they meet at least one of three
tests. The three tests are:
1. Physical presence in Australia;
2. Deductible gift recipient; and
3. Prescribed by law.
This test has two elements:
> Do you have a physical presence in Australia?
> To the extent you have a physical presence in Australia, do you pursue your objectives
and incur your expenditure principally in Australia?
Physical Presence
An organisation has a physical presence in Australia if it is wholly in Australia, or it has a
division, branch or sub-division in Australia. It does not have a physical presence in
Australia if it is present in Australia only through an agent, or it merely owns investment
property in Australia.
One condition is that the fund is a deductible gift recipient. Deductible gift recipients are
entitled to receive income tax deductible gifts. To meet the other condition the fund must:
> Be established to enable the scientific research to be conducted principally in Australia by
or in conjunction with a public university or public hospital;
> Be located in Australia; and
> Incur its expenditure principally in Australia.
In working out whether expenditure is principally incurred in Australia the fund can
disregard any distributions it makes of amounts it received as gifts or government grants.
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92
DEDUCTIBLE GIFT
RECIPIENT ENDORSEMENT
Objectives And Expenditure Principally In Australia
If an organisation has a physical presence in Australia only, it must pursue its objectives
and incur its expenditure principally in Australia. Principally means mainly or chiefly.
Less than 50% is not principally.
The pursuit of objectives in Australia can include things done offshore if they are only a
means of pursuing those objectives. Minor offshore expenditure is acceptable. If the
organisation has a physical presence in Australia as well as another country, it is necessary
to work out the extent to which it is physically present in Australia. Then it is only to that
extent that the purposes and expenditure must be principally in Australia.
This means that an organisation which, when viewed as a whole, does not principally
have its purposes and expenditure in Australia can still meet the physical presence in
Australia test.
An organisation may still meet the physical presence in Australia test even if it does not, in
fact, pursue its purposes and incur its expenditure principally in Australia, to the extent it
has a physical presence in Australia. This will depend on its distributions of disregarded
amounts. (See the discussion on disregarded amounts referred to on page 80.)
The deductible gift recipient test requires that you are a deductible gift recipient.
Deductible gift recipients are entities to which donors can make income tax deductible gifts.
(See chapter 8 for details.)
Organisations can be prescribed by name in the income tax legislation. The government
decides which institutions will be prescribed. At the time of publication, only one
organisation has been prescribed for these purposes. Applications for prescription can be
sent to the ATO which will forward them to the government for consideration. If you are not
listed by name in the income tax regulations for exemption purposes, you do not meet this
test. If you are prescribed, to meet this test you must also be located outside Australia and
be exempt from income tax in your country of residence.
INTRODUCTION
Certain organisations can receive income tax deductible gifts. They are
called Deductible Gift Recipients (DGR). From 1 July 2000, a new system of
endorsing organisations as DGRs will commence. Specific endorsement of gift
deductible status will be required from that date. Organisations that qualify
under one or more of the categories set out in the gift provisions of the
income tax law are entitled to be endorsed. Endorsement replaces current
DGR confirmation arrangements.
Organisations that are specifically mentioned by name in the income tax law do not have
to apply for endorsement. Examples of such organisations are Amnesty International,
Landcare Australia Limited and the National Nurses Memorial Trust. (There are currently
fewer than 150 of these organisations and they are set out in the DGR table - listed by name.
You can find the DGR table on page 20 in the ATOs "Gift Pack".)
For other organisations to be DGRs, they must fall within a category set out in the income
tax law. These categories are listed in the DGR table - general categories. There are various
categories of DGRs within each group. The DGR groups are:
Health
Includes non-profit hospitals, public funds for public and non-profit hospitals, public
authorities for research and public institutions for research.
Education
Includes public universities, public funds for the establishment of a public university, higher
education institutions, residential educational institutions, Commonwealth residential
educational institutions, affiliated residential institutions, TAFE, public funds for religious
instruction in government schools, Roman Catholic public funds for religious instruction in
government schools, school building funds, public funds for rural school hostel buildings
and life education companies.
Research welfare and rights
Includes approved research institutes, the Commonwealth, public benevolent institutions,
public funds for public benevolent institutions, public funds for persons in necessitous
circumstances.
Defence
Includes the Commonwealth or a state and public institution or public funds for members
of the armed forces.
Environment
Includes public funds on the register of environmental organisations.
Industry, trade and design
Includes the Industrial Design Council of Australia, the Productivity Promotion Council of
Australia and the Work Skill Australia Foundation Incorporated.
The family
Includes public funds for an approved marriage guidance organisation.
International affairs
Includes overseas aid funds.
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8
Sports and recreation
Includes a Guides branch and a Scout branch.
Philanthropic trusts
There are no general DGR categories for this DGR group.
Cultural organisations
Includes public funds on the register of cultural organisations, public libraries, public
museums, public art galleries and institutions consisting of a public library, public museum
and public art gallery or any two of them.
Ancillary funds
This category covers funds with the following characteristics: the fund is a public fund;
it is established and maintained under a will or instrument of trust; it is allowed, by the
terms of the will or instrument of trust to invest gift money only in ways that an Australian
law allows trustees to invest trust money; and it is established and maintained solely for the
purpose of providing money, property or benefits to DGRs or the establishment of DGRs.
An ancillary fund must be established exclusively for these purposes. It must not carry
on any other activities.
Each category or sub-category is given an item number. You will use the item number for
the category that you fall into when filling out your application for deductible gift recipient
status. The instructions that come with your application form also provide item numbers
for each category.
Example:
>
>
a public hospital has item number 1.1. 1

a public benevolent institution has item number 4.1.1
As well as falling into a general DGR category, there are further conditions to be met for an
organisation to become a DGR. These are:
> The "in Australia" condition; and
> The need to be endorsed by the ATO.
The "in Australia condition" applies to all DGR categories (except ancillary funds).
If you are a public fund, you will be in Australia if your establishment, control, donors and
assets are predominantly in Australia and your purposes or beneficiaries are in Australia,
unless you are an overseas aid fund (item number 9.1.1) or a public fund on the register of
environmental organisations (item 6.1.1).
95
SPECIAL REQUIREMENTS OF PUBLIC BENEVOLENT INSTITUTIONS

A public benevolent institution (PBI) is a non-profit institution organised for the direct
relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness
(e.g. hostels for the homeless, disability support services, hospital and medical clinics,
disaster relief organisations and refugee relief centres).
The characteristics of a PBI are:
>
>
>
>
>
>
It is set up for needs that require benevolent relief;

It relieves those needs by directly providing services to the people suffering from them;
It is carried on for the public benefit;
It is non-profit;
It is an institution; and
Its dominant purpose is providing benevolent relief.
The condition or misfortune relieved by a PBI must be such poverty, sickness, suffering,
distress, misfortune, disability or helplessness as arouses pity or compassion in the
community. Not all degrees of distress or suffering would necessarily have such an effect.
SPECIAL REQUIREMENTS OF SCHOOL BUILDING FUNDS

The DGR category of school building fund covers funds with the following characteristics:
> The fund is a public fund;
> The public fund is established and maintained solely for the acquisition, construction or
maintenance of a building;
> The building is used, or to be used, as a school or a college; and
> The building is used for that purpose by a government, a public authority or a
non-profit society or association.
A school or college provides organised instruction or training on a regular and continuing
basis. The instruction is generally provided in class form. It includes people assembling for
regular study of some area of knowledge or activity and extends to religious as well as
secular instruction. Factors that are relevant in deciding whether there is a school or college
include:
>
>
>
>
>
Courses provided;
Subjects taught;
Methods of assessment used and certificates awarded;
Teaching qualifications required of the instructors; and
Number of pupils.
If you are not a public fund you will be in Australia if your establishment and operations and
your beneficiaries or purposes are predominantly in Australia.
If the dominant function is not instruction or training it is not a school or a college.
The exception to the rule is where the DGR is:
WHO CAN CLAIM DEDUCTIONS FOR GIFTS?
> An overseas aid fund;

> A public fund on the register of environmental organisations; or
> DGRs listed by name in the income tax law if the government approved overseas
purposes or beneficiaries.
Deductions for gifts are claimed by the person or organisation that makes the gift (the
donor). A donor can be an individual, company, trust or other type of taxpayer. Donors can
claim deductions for most gifts they make to a DGR. When a donor makes a tax deductible
gift, it reduces the donors taxable income but cannot create or add to a tax loss.
In any of these circumstances the purposes or beneficiaries of a fund do not have to be in

Australia. However it is still necessary for the fund itself to be established and operated in
Australia.
If a deductible gift recipient is not endorsed by the ATO, donors cannot claim tax
deductions for their gifts.
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8
WHAT TYPES OF GIFTS ARE DEDUCTIBLE?
GIFT TYPES
RECIPIENTS
VALUATIONS
$2 or more
money, including foreign currency
paid by cash, cheque, credit card or
electronically
Applies to all categories of DGRs

except gifts to the Commonwealth
for the purpose of Artbank
The value of the gift or money is the

amount of money the donor gives to
the DGR
Does not cover testamentary gifts
Property < 12 months

Property purchased during the 12
months before the gift was made

> It will be made voluntarily;

> It will not provide a material benefit to the donor; and
> It will essentially arise from benefaction, and proceed from detached and
disinterested generosity.
The amount of the gift deduction is

the lesser of:
> the market value of the property

on the day the gift is made, and
> the amount paid by the donor for

the property
Trading stock
Trading stock disposed of outside the
ordinary course of business

The value of the gift is the market

value of the trading stock on the day
the gift was made
Not all payments to DGRs will be a gift (e.g. purchase of raffle tickets, purchases of
chocolates and membership fees).
Cultural gifts
Property under the Cultural Gifts
program
Applies to DGRs which are public

libraries, public museums, public
art galleries, institutions consisting
of two or more of these, the
Australiana Fund and the
Commonwealth for the purpose
of Artbank
General rule is that the amount of

deduction is the average of two or
more written valuations made by
valuers approved by the DCITA.
There are exceptions to this general
rule. (For more information see the
ATOs "Gift Pack" page 65)
Cultural bequests
Property under the Cultural Bequests
Program
Applies to DGRs which are public

libraries, public museums, public art
galleries, institutions consisting of
two or more of these, and the
Australiana Fund
Value of the gift is the amount

specified in the certificate issued by
the Minister for Communications,
Information Technology and the Arts
National Estate
Places listed in the Register of the
National Estate
Applies to DGRs that are National

Trust bodies. The gift must be
accepted by the National Trust body
for the purpose of preserving it for
the benefit of the public
General rule is that the amount of

deduction is the average of two or
more written valuations made by
valuers approved by the DCITA.
There are exceptions to this general
rule. (For more information see the
ATOs "Gift Pack" page 65)
Most, but not all, types of gifts are tax deductible. There are various limits depending on the
type of DGR, valuation and other factors.
For a donor to claim a deduction for a gift, there are several requirements:
>
>
>
>
The payment must really be a gift;

The gift must be made to a DGR;
The gift is of money or property that is covered by one of the gift types; and
Any gift conditions are satisfied.
For the payment to "really be a gift" it will have the following characteristics:
An acknowledgment that a recipient makes in appreciation of a payment can be consistent

with the payment being a gift (e.g. mention in a newsletter or a plaque).

However, enlarging the acknowledgement into forms of advertising would prevent the
payment being a gift.
Gift Types
To be deductible, a gift must be of money or property that is covered by one of the gift types
and must meet the other conditions outlined. We have provided brief detail in the following
table. (More detail is available in the ATOs "Gift Pack" pages 61 to 68.)

Includes testamentary gifts of

property
Gift Conditions
For some DGRs, there are extra conditions affecting the sorts of deductible gifts they
can receive. The gift may only be tax deductible:
> Between certain dates; or
> For a specific use.
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98
8
HOW DO YOU OBTAIN ENDORSEMENT AS A DGR?
A DGR seeking endorsement must first obtain an ABN. DGRs that indicate on their ABN
application that they are, or consider themselves entitled to be, an income tax exempt
charity will be sent out applications for endorsement.
Where current DGR status has been confirmed by the ATO, the endorsement process is
streamlined where an organisation quotes its current DGR900/DGR number. If you are not
sure of your DGR number you can contact the ATO for this information. This number will
go into the endorsement form and will expedite your application.
There are two types of endorsement:
> Where an entity falls within a DGR category; and
> Where a fund, authority or institution that is operated by an entity falls within a
DGR category.
If an entity falls within a DGR category in its own right, it is the entity that is endorsed.
Entities for these purposes include corporations, unincorporated associations, trusts,
partnerships and government entities.
The second type of endorsement applies if a fund, authority or institution is part of an
entity. For this type of endorsement, it is the entity that must be endorsed, but it is only
endorsed for the particular fund, authority or institution. For this type of endorsement, the
endorsement does not make the entity into a DGR in its own right. Only gifts made to the
fund, authority or institution can be deductible.
If an entity operates more than one fund, authority or institution, it will need a separate
endorsement for each.
You can apply to the ATO for endorsement if you:
>
>
>
>
Have an ABN;
Fall in a DGR category or operate a fund, authority or institution that falls in a DGR category;
Maintain a gift fund; and
Are in Australia, or your fund, authority or institution, is in Australia.
These requirements are explained in more detail below.

Australian Business Number
For an entity to be endorsed as a DGR, it must have an ABN. If an entity does not have an
ABN it cannot be endorsed.
The requirement for an ABN only applies to DGR categories that need endorsement.
DGRs that are listed by name in the income tax legislation do not need an ABN for gift
deductibility, however most will have an ABN for other reasons.
Gift Funds
An organisation must have a gift fund to be endorsed as a DGR. It must maintain the gift
fund after endorsement in order to keep DGR status. A gift fund is a separate fund that a
DGR maintains to receive gifts of money and property made for its principal purpose. A gift
fund can act as a conduit for passing on gifts to beneficiaries of the DGR or as a means of
purchasing goods and services that the DGR uses in carrying out its principal purpose.
A gift fund has the following characteristics:
>
>
>
>
>
>
It is a fund;
It is maintained for the principal purpose of the entity or of the fund, authority or institution;
All gifts of money or property for that purpose are made to it;
Any money received by the entity because of such gifts is credited to it;
It does not receive any other money or property;
The fund is used only for the principal purpose of the entity or of the fund,
authority or institution; and
> The entity is required by a law, its constituent documents or governing rules to transfer
any surplus assets of the fund to another gift deductible fund, authority or institution
when the fund is wound up or the DGR endorsement revoked, whichever is earlier.
If an organisation seeks DGR endorsement in its own right it must establish a gift fund for
the organisation as a whole.
If an entity seeks endorsement for a fund, authority or institution that it operates, it must
establish the gift fund for that part of its organisation only.
DGR endorsement is separate from income tax exemption. DGRs that are charities will
need to apply separately for endorsement as an income exempt charity. DGRs that are not
charities should check whether they may be considered as another kind of income tax
exempt charity.
If an entity is not maintaining a gift fund, it cannot be endorsed as a DGR.
Receipts
All DGRs, whether they are endorsed or listed by name in the income tax law, must provide
specified information when they issue receipts for tax deductible gifts.
The receipt must state:
> The name of the fund, authority or institution to which the gift has been made;
> The DGRs ABN (if any);
> The fact that the receipt is for a gift.
The other information commonly included on receipts which will help donors make their
claims for income tax deduction includes:
> The amount of money donated;
> A description of any gifts or property;
> The date of the gift.
Endorsement can be revoked if a DGR fails to give specified information on receipts.
99
100
8
CHANGING YOUR PURPOSES OR ACTIVITIES
QUESTION
If your main purposes and activities, or those of your fund, authority or institution, change
substantially you will need to advise the ATO.

5. Was your organisation established for the encouragement of music, art,

literature or science?

6. Was your organisation established for the encouragement or promotion

of a game, sport or animal race?
If an entity changed its goal from "providing housing for impoverished persons" to "providing
accommodation for persons in needy circumstances", this is not a substantial change.

7. Was your organisation established for community service purposes?
If an entity changes its activities from mainly caring for young orphans to mainly providing
sporting facilities for all school-aged children in its district, this would be a substantial
change.

8. Was your organisation established for the purpose of promoting the

development of aviation, tourism, or the agricultural, pastoral,

horticultural, viticultural, manufacturing or industrial resources

of Australia?
A substantial change should be reported to the ATO and may result in your status as a DGR
being revoked.
CHECKLIST TO ASSIST YOU IN DETERMINING YOUR INCOME TAX STATUS

UNDER THE NEW TAX SYSTEM.

9. Was your organisation established for charitable purposes?

> If you did not answer Yes to one or more of the above questions, your organisation may
not have been established for an exempt purpose and therefore you may not get an
income tax exemption.
> If you answered Yes to Question 9, you may be a charity. If you are a charity you will
need to seek endorsement as an ITEC in order to get an income tax exemption.
You will need to undertake a thorough self-assessment if you wish to become endorsed as
an ITEC or DGR under the Endorsement of Gift Deductible Recipients and Income Tax
Exempt Charities legislation (ROGATE). On completion of the self-assessment task you
should have a clearer idea of which income tax exemptions may apply to your organisation
and which areas you will need further assistance with. If you do not know the answers to the
these questions you should seek further advice.
QUESTION
YES
NO
1. Do you have a written constitution?

2. Does your constitution have an appropriate non-profit clause?

3. Does you constitution have an appropriate dissolution clause?
NO
4. Is your organisation a religious, public educational, scientific or

charitable institution?
A substantial change is one that affects the things that qualify you to be a deductible gift
recipient. A substantial change will not arise merely because of a change of name or a
change in government funding arrangements.
The following checklist will assist you in determining your income tax status under The New
Tax System.
YES
QUESTION
YES
NO
10. Do the day-to-day activities of your organisation reflect the purposes for

which you were established?

11. Have you applied for or, are you planning on applying for, an ABN?
> If you answered No to Question 10, your organisation may not be judged to be operating
for an exempt purpose and will therefore not get a tax exemption.
> If you answered No to Question 11, you will not be eligible to be endorsed as an ITEC or
DGR. You may also not be eligible to claim an income tax exemption as a
non-profit organisation.
Specific Questions For ITECs
QUESTION
> If you have answered No to any of the above questions, you may not be entitled to claim
an income tax exemption. Furthermore you may not be classed as non-profit and will be
subject to the $50,000 threshold that applies to organisations that do not fall within the
non-profit category.
YES
NO
12. Are you a charitable institution?

13. Do you pursue your objectives and incur your expenditure in Australia?

14. Are you a prescribed institution mentioned in the legislation?

> If you answered No to both Questions 13 and 14 you may not be endorsed as an ITEC
unless you are able to be endorsed as a DGR.
101
102
ADDITIONAL
INFORMATION
8
Specific Questions for Charitable Funds
QUESTION
SCHEDULE A
YES
NO
15. Are you a charitable fund?

16. Was your fund established by will after 1 July 1997 or by instrument of trust?
SECTION 65J REBATE FOR CERTAIN NON PROFIT EMPLOYERS ETC.

65J(1) Rebatable employer. For the purposes of this section, an employer is a rebatable
employer for a year of tax if the employer is covered by any of the following paragraphs at
any time during the year of tax:
(a)

17. Was your fund established by will before 1 July 1997?
18. Have you received assets since 1 July 1997 for which you

did not give valuable consideration?
(i)
> If you answered No to both Questions 15 and 12, you may not be a charity and will
therefore not be eligible for ITEC or DGR status.
> If you answered Yes to Question 16 you will need to provide further evidence to be
endorsed as an ITEC.
> If you answered No to both Questions 17 and 18 you may be eligible to be
endorsed as an ITEC.
Specific Questions for DGRs
> If you do not want to receive tax deductible gifts, you do not need to be endorsed as a DGR.
YES
(ii)
(iii)
(b)

20. Do you have a 900 DGR number?

21. Have you previously received written confirmation from the ATO that

you are able to receive tax deductible gifts?

22. Are your purposes and activities the same as they were when you

received written confirmation from the ATO?

24. Are you listed by name in the legislation?
> If you answered Yes to Question 20 your status as a DGR has been reviewed recently and
there should be no problem receiving endorsement as DGR, however you will still need to
apply for endorsement.
> If you answered Yes to both Questions 21 and 22, you will still need to seek endorsement
but the process should be reasonably straight forward.
> If you answered Yes to Questions 23 to 25 it is likely that you will be eligible to be
endorsed as a DGR. Answering No to Questions 23 to 25 does not mean that you
cannot be endorsed as a DGR. (You should refer to the ATOs "Gift Pack" to
determine whether or not your particular organisation may be eligible.)
is not conducted for the purpose of profit or gain to the persons or body
of persons conducting it;
(c)
a public hospital (other than a hospital of the Commonwealth, a State or Territory);
(d)
a hospital which is carried on by a non-profit society or a non-profit association;
(e)
a trade union;
(f )
an association of employers or employees registered under a law of the Commonwealth

a State or a Territory relating to the settlement of industrial disputes;
(g)
a non-profit society, non-profit association, or non-profit club, established for musical

purposes, or for the encouragement of music, art, science or literature;
(h)
a non-profit society, non-profit association, or non-profit club, established for the

encouragement or promotion of a game or sport;
(i)

encouragement or promotion of animal races;
(j)

community service purposes (not being political purposes or lobbying purposes);
(k)
a non-profit society, or non-profit association, established for the purpose of promoting

the development of aviation or tourism ;
(l)
a non-profit society, or non-profit association, established for the purpose of promoting

the development of the agricultural, pastoral, horticultural, viticultural, manufacturing
or industrial resources of Australia.

25. Are you a fund established with the intention of receiving contributions

from the public, that receives contributions from the public and is

administered with the participation of the public?
a scientific, charitable or public educational institution (other than an institution of the

Commonwealth, a State or a Territory);
(ii)
23. Were you established for the direct relief of poverty, sickness, destitution,

suffering or misfortune and for the benefit of the community or part of it?

is engaged solely in research into the causes, prevention or cure of diseases in

humans: and
is established by a law of the Commonwealth, a State or a Territory; and
is not conducted by or on behalf of the Commonwealth, a State or a Territory;
(ba) a school (including a pre-school but not including a tertiary institution) that:
(i)
although established by or under a law of the Commonwealth, a State
or Territory, is not conducted for or on behalf of the Commonwealth, a State or
a Territory; and
NO
19. Do you wish to receive tax deductible gifts?
103
a religious institution;
(aa) a non profit scientific institution that:
QUESTION
104
9
GLOSSARY
"Acquisition"
Acquisition is a very broad term. It includes the things you buy (goods and services) for
your enterprise. It also includes many other transactions, such as when you obtain advice or
information, take out a lease of business premises or hire business equipment.
"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.
"Adjustment Period"
An adjustment period is the tax period in which you may need to make some adjustments
for acquisitions or importation. These are the adjustments to claim more or pay back some
input tax credits because your planned use of an acquisition or importation in your
enterprise has changed. The adjustment period for these adjustments is the tax period
which ends as close as possible to 30 June. All other adjustments are done in the tax period
in which you find out about the need to make the adjustment. This may not be the tax
period which ends on 30 June.
"Adjustments"
Adjustments are changes you may need to make on your activity statement to increase or
decrease your net GST amount payable or refundable for a tax period. The changes may be
needed to:
> Increase or decrease the GST payable on supplies you have made because something
has happened so that the amount of GST payable by you included on a previous
activity statement is no longer correct; or
> Increase or decrease the input tax credits for your acquisitions because something has
happened so that the amount of input tax credits you claimed on a previous activity
statement is no longer correct.
"Apportionment"
Pro-rata of input tax credits between creditable and non-creditable purposes.
"Attributions"
Attribution rules determine which tax period your GST payable and input tax credits belong
to, that is, which tax periods they are attributed to. The rules for attributing GST payable
and input tax credits to tax periods are different, depending on whether or not you account
on a cash basis.
"ATO"
Means the Australian Taxation Office.
"Australian Business Number (ABN)"
The Australian Business Number is the new identifier for your dealings with the ATO and
for future dealings with other departments and agencies.
"Base Assessment Instalment Income"
So much of your assessable income from the latest assessment of your most recent income
year as the Commissioner determines is instalment income.
105
"Benchmark Tax"
The tax attributable to your taxable income for the year, reduced by the tax attributable to
any capital gains included in assessable income and your credits for amounts withheld from
payments to you.
"Business Activity Statement"
A Business Activity Statement is the form you use to account for GST and some other tax
obligations. An activity statement must be lodged with the ATO for each tax period.
"Charity"
A charity is an institution or fund established for a charitable purpose. Charitable purposes
are those which the law regards as charitable. The term "charitable" has a technical legal
meaning which is different from its every day meaning. Charitable purposes are:
>
>
>
>
The relief of poverty;

The advancement of education;
The advancement of religion; and
Other purposes beneficial to the community.
"Charitable Fund"
A charitable fund is a fund established under an instrument of trust or a will for a charitable
purpose. Charitable funds mainly manage trust property, and/or hold trust property to make
distributions to other entities or persons.
"Charitable Institution"
A charitable institution is an institution that is established and run to advance or promote a
charitable purpose.
"Consideration"
Consideration for GST purposes has a wide meaning. Any payment (in money or anything
else) made in return for a supply is consideration. Consideration includes doing something
or not doing something in response to a supply, or to get someone to make a supply.
"Creditable Purpose"
You acquire a thing for a creditable purpose if you acquire it for carrying on your enterprise
except if it is for making input tax supplies. Something acquired for private use is not for a
creditable purpose.
"DCITA"
The Commonwealth Department of Communication, Information Technology and the Arts.
"Deductible Gift Recipient (DGR)"
A DGR is an entity that is entitled to receive income tax deductible gifts. All DGRs have to
be endorsed, unless they are named specifically in the income tax law. There are two types
of DGR endorsement, one for entities in their own right and the other for an entity that is
only a DGR in relation to a fund, authority or institution it operates. The second type, only
gifts to the fund, authority or institution are tax deductible.
"Enterprise"
An enterprise includes a business. It also includes other commercial activities but does not
include hobbies. It includes the activities of entities such as charities, deductible gift
recipients, religious and government organisations, and certain non-profit organisations.
"Entity"
An entity is an individual (e.g. a sole trader, a body corporate, a company), a sole
corporation (an ongoing paid office, e.g. a bishopric), a body politic, a partnership, an
unincorporated association or a body of persons, a trust, or a superannuation fund.
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"Fringe Benefits Tax (FBT)"
FBT is the tax payable by employers who provide fringe benefits to their employees or
associates of their employees.
"Goods and Services Tax (GST)"
GST is a broad based tax of 10% on the supply of most goods, services and anything else
consumed in Australia and the importation of goods into Australia.
"GST-Free"
If a supply is GST-free, you do not charge GST on the supply, but you are entitled to input
tax credits for anything acquired or imported for use in your activities.
"Income Tax Exempt Charity (ITEC)"
An ITEC is a charity that has been endorsed by the ATO as exempt from income tax.
"Input Tax Credits"
When you pay GST on any taxable supplies you purchase or acquire for use in your
activities, you can claim these amounts (called "input tax credits") back from the ATO.
"Notional Tax"
Generally, the equivalent of tax that would have been payable on your business and
investment income, excluding capital gains, for your most recent income tax for which an
assessment has been made. Capital gains are not excluded for approved deposit funds,
pooled superannuation trust, superannuation funds and life insurance entities. The ATO will
notify you of your notional tax amount.
"Parent Entity"
If an entity decides to register a branch for GST reporting purposes, the entity will be called
the parent entity.
"Input Taxed Supplies"

If a supply has input tax you do not charge GST on the supply, but neither are you entitled
to input tax credits for anything acquired or imported to make the supply.
"Pay As You Go (PAYG) Instalments "

PAYG Instalments replace provisional tax and company and superannuation fund
instalments tax. Under PAYG Instalments, taxpayers who are notified by the ATO of an
instalment rate will be required to pay their own tax by regular self-assessed instalments.
"Instalment Activity Statement"

A form similar to the Business Activity Statement but without GST and some other taxes.
From 1 July 2000, businesses that are not registered for GST, and individuals who are
required to pay PAYG Instalments or PAYG Withholding (such as self-funded retirees), use
this form to pay PAYG Instalments.
"Pay As You Go (PAYG) Withholding"

PAYG Withholding requires an entity to withhold an amount if it makes certain list of
payments including salary, wages, commission, bonuses or allowances to an employee,
directors fees, payments for a supply (goods or services) to another business which does
not quote an ABN and certain dividends, interest and royalty payments.
"Instalment Income"
Generally speaking, instalment income is your total ordinary income for the period for
which you are paying the instalment.
"Public Benevolent Institution (PBI)"

A PBI is an institution organised for the direct relief of poverty, sickness, suffering, distress,
misfortune, disability or helplessness. The characteristics of a PBI are:
"Instalment Rate"
A percentage figure worked out by the ATO based on the information in the most recent
assessment for your most recent income year for which an assessment has been made. It is
calculated by dividing your notional tax by your base assessment instalment income, then
multiplying the result by 100. Instalment rate is calculated to two decimal places.
>
>
>
>
>
>
"Net Amount Payable or Refundable"

The net amount payable or refundable is one of the amounts included on your activity
statement. At the end of each tax period you work out the total GST payable and the total
input tax credits that belong to the tax period. You off-set your total input tax credits against
the total GST payable. You may need to make some adjustments to this total amount to
work out your net amount payable or refundable for the tax period.
"Non-Profit"
An organisation is non-profit if it is not carried on for the profit or gain of its individual
members. This applies for direct and indirect gains, and both while the organisation is
being carried on and on its winding up. The ATO accepts an organisation as non-profit if its
constitution or governing documents prohibit distribution of profits or gains to individual
members and its actions are consistent with the prohibition.
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"Non-Profit Sub-Entity"
Certain non-profit organisations with independent branches (units) have the option of
treating their units as if they were separate entities for GST purposes and not part of the
main organisation. A non-profit sub-entity of a charity is not entitled to its own separate
ITEC endorsement.
It is set up for needs that require benevolent relief;

It relieves those needs by directly providing services to people suffering them;
It is carried on for the public benefit;
It is non-profit;
It is an institution; and
Its dominant purpose is providing benevolent relief.
"Statutory Income"
Income other than ordinary income included in an entity's assessable income. Examples
are: net capital gains, some royalties and dividend imputation credits.
"Supplies"
Supplies include the goods and services you sell as part of your activities. Not all supplies
are taxable supplies. Supplies include other transactions such as providing advice or
information, leasing out commercial premises or providing hire equipment.
"Taxable Supplies"
The term is widely defined to include most supplies (goods, services and anything else) you
make. A supply is not a taxable supply if it is GST-free or input taxed.
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"Tax Invoice"
A tax invoice is a document generally issued by the supplier. It shows the price of a supply,
indicating whether it includes GST, and may show the amount of GST. It must show other
information, including the Australian Business Number of the supplier. You must have a tax
invoice before you can claim an input tax credit on your activity statement (except for small
amounts). If you do not have a tax invoice you should delay in making a claim until you do.
"Tax Period"
A tax period is the length of time for accounting for GST on your activity statement. It may
be quarterly or monthly. Quarterly tax periods are periods of three months ending on 30
September, 31 December, 31 March and 30 June. Monthly tax periods end on the last day of
each calendar month. An activity statement must be lodged for each tax period.
GOVERNMENT ASSISTANCE INITIATIVES

The Role Of The ATO
The ATO has the role of providing guidance and assistance with technical changes that will
arise from the introduction of The New Tax System.
The assistance provided by the ATO includes a range of publications from general purpose
guides, to industry and sector specific publications directed at the specific issues to be
addressed by specific industries and community groups.
The ATO is also providing a wide range of seminars to assist with the introduction and
implementation of the changes.
To obtain details of publications, rulings, seminars and other assistance available from the
ATO the following options are available:
Community, Voluntary and Cultural Sector Infoline 13 30 88
The Business Tax Reform Infoline 13 24 78
Income Tax Exempt Charity, Gift Deductible Recipient Hotline 1300 130 903
A fax from tax 13 28 60
Email replyin5@ato.gov.au
By mail PO Box 9935 in capital cities
The GST Start-Up Assistance Office
To obtain further information visit the GST Start-Up Assistance Office website at
www.gststartup.gov.au or call their enquiry line on 13 30 88.
To enquire about, or register for, the Adviser Education Programme phone 1800 351 754.
Other Helpful Internet Sites
Australian Taxation Office www.taxreform.ato.gov.au
Australian Consumer & Competition Commission www.accc.gov.au
Treasury of Australia www.treasury.gov.au
Parliament House www.apg.gov.au
Business Entry Point www.business.gov.au
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NOTES
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GST &amp; BAS Detailed Handbook

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GST &amp; BAS Detailed Handbook

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contents

The BAS And Calculation Sheet Road Map

Business Activity Statement

Goods and Services Tax

Types Of Supply For GST Purposes

Input Taxed Supplies

Supplies Outside The Scope Of The GST Legislation

THE NEW TAX SYSTEM MANUAL

Other GST Issues

Completing The GST Calculation Sheet For Acquisitions Made By You 42

Other BAS Items

3 Completing The BAS - GST Calculation Sheet

Acquisitions You Have Made - Summary

THE NEW TAX SYSTEM MANUAL

PAYG Voluntary Agreements

W3 Amounts Withheld From Investments - No TFN

Other PAYG Withholding Obligations

THE NEW TAX SYSTEM MANUAL

6 Fringe Benefits Tax

Categories Of Fringe Benefits

Recent Amendments To FBT Legislation

Completing The BAS For Fringe Benefits Tax

Working Out Your Amount Payable Or Refundable

Income Tax Exempt Status For Non-Profit Organisations That Are

Certain Charitable Funds Cannot Be Endorsed

THE NEW TAX SYSTEM MANUAL

8 Deductible Gift Recipient Endorsement

Special Requirements For Public Benevolent Institutions

Australian Business Number

Changing Your Purposes Or Activities

How Do You Obtain Endorsement As A DGR?

7 Income Tax Exemption For Charities

THE NEW TAX SYSTEM MANUAL

WHAT IS THE NEW TAX SYSTEM?

The New Tax System commenced on 1 July 2000. It includes:

THE NEW TAX SYSTEM MANUAL

THE NEW TAX SYSTEM MANUAL

There are Two Types of BAS.

THE BAS AND CALCULATION SHEET ROAD MAP

THE NEW TAX SYSTEM MANUAL

Credit for Goods and Services Tax paid

PAGE TRANSACTION TYPE

Goods and Services Tax payable

Wine Equalisation Tax refundable

OVERVIEW OF THE BAS

Wine Equalisation Tax payable

Luxury Car Tax payable

THE NEW TAX SYSTEM MANUAL

BUSINESS ACTIVITY STATEMENT

PAGE TRANSACTION TYPE

Total sales & income & other supplies

Other GST free supplies

Input taxed sales & income & other

THE NEW TAX SYSTEM MANUAL

THE NEW TAX SYSTEM MANUAL

goods and services tax

OTHER ISSUES TO CONSIDER IN COMPLETING THE BAS

Direct credit payments;

THE NEW TAX SYSTEM MANUAL

THE NEW TAX SYSTEM MANUAL

Consequently, an entity for ABN purposes includes:

(For further information on PAYG Withholding, see page 51.)

(For further information on special registration options see pages 11 13.)

GST & BAS Detailed Handbook

GST & BAS Detailed Handbook