18.104.22.168 Business Requirements & Fringe Benefits
This topic contains information on:
- the Australian Business Number (ABN),
- Business Activity Statements (BAS),
- permissible business deductions,
- GST refunds,
- how to assess income from a GST registered business,
- how to assess income from a business not GST registered, and
- changes to the Fringe Benefits reporting arrangements.
GST is a broad-based tax of 10% on the supply of most goods and services consumed in Australia. It applies from 1 July 2000. For social security purposes, GST is not assessed as income. While the GST paid to the ATO is not a business deduction, any amount forwarded to the ATO is not included in the income support recipient's gross income for social security purposes. A detailed explanation on the assessment of GST for social security purposes is contained at the end of this topic in the paragraphs 'How to assess income from a GST registered business' and 'How to assess income from a business not GST registered'.
Detailed information on these topics can be obtained from the Australian Taxation Office website.
Australian Business Number
An ABN is a new single identifier for all business dealings with the ATO and for future dealings with other government departments and agencies.
An ABN can only be issued to an entity (1.1.E.129) that can be classed (by the ATO) as an 'enterprise', that is an entity carrying on a business or trade with the expectation of profit. An ABN is necessary for people to be part of the GST and other elements of ANTS.
All businesses with an annual turnover of $75,000 or more must register for the GST and will need an ABN to do this. Organisations with a lower annual turnover may choose not to register for the GST.
People who do not wish to register for the GST may still apply for an ABN. This is because, under the PAYG tax system, businesses that are part of the GST system who receive an invoice are required to withhold tax (at 46.5%) from their payments for goods or services if an ABN is not quoted.
Example: Paul is self-employed and mows lawns for a living. His annual turnover is less than $75,000 so he does not have to register for the GST. However, he invoices Big Brother Enterprises who are part of the GST system.
- If Paul can provide an ABN number on his invoice he will be paid the full amount of the account.
- If Paul cannot provide an ABN number on his invoice, Big Brother Enterprises must withhold tax at 46.5% from any payment made to Paul. Paul is able to claim back the withheld amount when he lodges his annual income tax return.
A person may have an ABN but not be carrying on as a business for taxation or social security purposes. However, it is likely that they are self-employed.
Example: A person who is a consultant for Nutrimetics or Amway may have an ABN to avoid having withholding tax taken from their payments but may not be operating as a business.
Someone who is carrying out activities as a hobby or personal pursuit does not have to register for an ABN.
Example: A person who is a sales consultant for Nutrimetics or Amway with a small turnover for personal use does not have to register for an ABN.
Business Activity Statement
Entities that are part of the GST system are required to submit a BAS to the ATO. These statements are usually required on a quarterly basis. However, they can be submitted annually by individuals with a low tax liability or monthly for businesses with turnovers greater than $20 million per year.
A BAS is used to record a number of things, including:
- income tax withholdings from all sources, including employees' salaries,
- instalments of tax liabilities on business income,
- tax liability on fringe benefits, and
- GST credits and debits.
A BAS replaces a number of other returns, but DOES NOT contain any actual reconciliations or details of expenses. It DOES NOT replace the annual income tax return for businesses or individuals.
Permissible business deductions
Where annual tax returns are used to assess social security income support payments, they will CONTINUE to be used. A BAS WILL NOT replace income tax returns for social security purposes as they do not contain the necessary information.
Example: An annual tax return is used to check permissible business deductions for self-employed people.
For social security purposes any GST refunds from the ATO ARE NOT treated as income, as they are merely reimbursements of monies already paid to the ATO by the entity and already assessed for social security purposes as part of the business income.
The following table explains how GST charges and refunds interact with business entities.
|Category of Entity
|Relation to GST & ANTS
|Is GST a deductible business expense for social security purposes?
|Entity has an ABN and IS registered for the GST.
|Entity has an ABN and is NOT registered for the GST.
|Entity DOES NOT have an ABN, so therefore cannot register for the GST.
Where GST costs cannot be claimed back as input tax credits from the ATO they will be allowed as business deductions for social security purposes. This is similar to the previous treatment of the former wholesale sales tax component of goods purchased for use by the business.
How to assess income for GST registered businesses
Centrelink should seek verification from the income support recipient that they ARE registered for the GST before applying this policy.
While the GST paid to the ATO is not a business deduction, any amount forwarded to the ATO is not included in the recipient's gross income for social security purposes.
In addition, allowable business deductions should not include amounts for which the recipient receives an input tax credit or refund from the ATO.
Example: Fred operates a lawn mowing business and IS GST registered.
- Fred has an annual gross income of $11,000. Over a year, he remits $1,000 in GST to the ATO.
- His adjusted gross income is $10,000 (gross less GST remitted to ATO).
- His allowable deductions are $2,320 (e.g. petrol, blades, spark plugs, depreciation) LESS the input tax credits of $853 he receives from the ATO.
- His allowable business deductions are ($2,320 - $853) = $1,467.
- Fred's annual income for social security purposes is ($10,000 - $1,467) = $8,533.
How to assess income from a business not GST registered
When an income support recipient is not registered in the GST system, they DO NOT remit GST to the ATO and do not receive input tax credits. This group of income support recipients will generally be assessed in the same way they were before the introduction of the GST.
Example: Fred's brother Greg also operates a lawn mowing business but has elected not to register for the GST.
- Greg has an annual gross income of $11,000 (he has increased his prices to match Fred). He does not remit any GST to the ATO.
- His allowable deductions are $2,320 (includes GST component paid in goods etc).
- He receives NO input tax credits on goods or services used in the business.
- Greg's annual income for social security purposes is ($11,000 - $2,320) = $8,680.
Policy reference: SS Guide 22.214.171.124 General Provisions for Sole Traders & Partnerships, 126.96.36.199 Assessment of income for sole traders & partnershipsAssessment of business deductions & losses for sole traders & partnerships
Changes to the fringe benefits reporting arrangements
Income tax is not paid by employees on the fringe benefits they receive. The taxation liability is met by the employer.
After 1 April 2007, if the non-grossed up value of the fringe benefits received in an FBT year (1 April to 31 March) exceeds $2,000, they become reportable to the ATO. They are then 'grossed up' and recorded as a separate item on the income support recipient's payment summary for the corresponding income year (1 July to 30 June).
Further information on this topic and the assessment of fringe benefits for income support purposes can be found at 188.8.131.52.