Budgeting to pay tax is one of the more serious issues businesses have had to address with the new tax system. The Australian Taxation Office today published the following guidelines to assist business.
Budgeting for your tax obligations is the same as budgeting for any other expense of the business. You will need to work out how much tax has to be paid and then put sufficient money aside to cover the tax bill when it falls due.
Because tax bills are often payable on a quarterly or yearly basis they may be overlooked when you budget for more frequent bills or expenses. When the time comes to pay your tax bill the money may not be there, or you may have to find extra money because your bill is larger than you anticipated.
The following suggestions will help you to budget for your tax:
- GST reporting: Even if you are eligible to report your GST quarterly, consider reporting monthly. Monthly tax periods may suit you if you are likely to claim a GST refund regularly, for example, if you have a large volume of exports compared to taxable supplies or you are likely to be making large outlays for capital equipment. You can claim input tax credits sooner if you have monthly tax periods.
- GST banking: Consider keeping GST you collect in a separate bank account. This is an easy way to set the money aside until you pay it with your activity statement.
- PAYG instalments: Choose to calculate your PAYG instalments using the instalment rate x instalment income formula (if are a company or superannuation fund who's turnover is greater than $1 million, you must calculate your instalments this way). Usingthis method, your PAYG instalments are based on your actual income for the instalment period, instead of a projection based on your previous tax position. This helps cash flow management because your tax obligations are more closely aligned with fluctuations in your income.
- Income tax: Estimate your income for the current financial year and your likely tax liability. Update your projection during the year as more information on sales and expenses becomes available.
- Record keeping: Save time and effort by using an electronic record keeping system. A basic electronic record keeping system called E-Record, is available free from the ATO on CD-ROM or downloadable via the ATOassist website at http://www.ato.gov.au/erecord, or there are a number of commercially available products.
- Voluntary payments: You can make a voluntary or early payment to offset a future liability. You can do this by direct credit or Bpay using your EFT code.