You can't take tax invoices for granted: forget or omit them and the Australian Taxation Office will be far from forgiving, writes John Corias of m.a.s. accountants.
Whilst we have only recently celebrated the tenth anniversary of the implementation of the GST regime, it is important to highlight some core elements that can often catch out new players to the adventurous world of small business ownership.One core aspect is that GST is reported and paid to the ATO based purely on the flow of tax invoices between business entities.
Of course, all small business, in fact our whole economy, is based on the flow of money into and out of your business but it is the tax invoices that dictate your ability to fully satisfy the ATO requirements when preparing and lodging your BAS statements each quarter.
The first requirement of tax invoices is that a tax invoice is required for any transaction that exceeds $82.50 including GST. Without a valid tax invoice you are in breach of ATO laws if you claim that expense as part of your business’s financial accounts.
You must issue and must be issued a valid tax invoice for any such business transactions within 28 days of the transaction. The form that a tax invoice must take to be valid in the eyes of the ATO is also part of the GST laws and without the following information a tax invoice can still be ruled as invalid.
A valid tax invoice must:
- be issued to you by the supplier,
- clearly identify the supplier's business name and ABN,
- describe, and preferably quantify, the goods or services being sold,
- have the date the invoice was issued to you and the amount of GST included in the total of the invoice.
If the invoice does not specify the amount of GST included in the total, then a sentence such as “total price includes GST” will also suffice.
If you are in any doubt about the validity of the tax invoices you are issuing then I urge you to contact your small business accounting specialist before the ATO contacts you. By doing so, you will avoid any potential dramas in dealing with the ATO.
Now, for those of you in small business, you may have never given up much time to ensuring that your tax invoices are issued in a valid format and you may see the above paragraph as menial. However, having the experience of acting on behalf of our small business clients in dealing with the ATO, I can assure you that the ATO does review lodged BAS forms on a regular basis and in doing so they will request copies of tax invoices and do check that they are issued in the proper format.
Small businesses that are unable to produce valid tax invoices can be denied the input tax credit claimed on lodged BAS forms. Another way that the ATO may end up requesting a valid tax invoice from you, is to verify the tax invoices supplied to them when they are reviewing another entity.
One such example of this that we have dealt with, is for the claim of GST on the purchase of a business or commercial real estate. Even if you are the seller you can still expect a phone call from the ATO case officer reviewing the purchaser’s claim to get the input tax credit back.
If you cannot prove that you issued a valid tax invoice when making your sale you can still leave yourself open to investigations from the ATO.
John Corias is a senior partner at m.a.s. accountants.
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