Australian Forums - A few questions

[Dynamic]

Hey guys,

I have had a few questions on my mind lately, and I am hoping there are some of you who will know the answers, or at least have an idea.

I have a medium-small sized forum. I am getting an addon built that allows members to purchase (via PayPal) points from the [bd]Bank addon. These points can then be used to purchase account upgrades and gift points to other members.

My site is a registered business and makes nowhere near enough to charge GST. So, here are my questions.

1) Do I need to provide a tax invoice to my members when they purchase points from the bank?
2) Is my paypal receipt good enough to be used as proof of income and expenses to my website?
3) Is the paypal receipt good enough to be used as an invoice to members if Q1 is a yes?

Thanks.

 

[Kim]

This all depends on what it is tbh.

Our Tax laws are pretty generous as to what you can earn on a "hobby" that is, it is not your principle source of business, it is not a business at all, but is a hobby, for which you make a few $.

If your site falls in that category, then you should be fine. But the best thing to do would be to speak to a Tax Accountant.

 

[speedway]

But the best thing to do would be to speak to a Tax Accountant.

Or ring the ATO directly and explain your situation

 

[Kim]

Or ring the ATO directly and explain your situation

Yes true, good call

Be sure to explain it is a HOBBY though, not your "business"

 

[Dynamic]

Thanks everyone.

I had to register it as a business in order to acquire a .com.au domain. So it is registered as a business now. I'll ask my accountant and see what he says.

Thanks.

 

[Anthony Parsons]

My site is a registered business and makes nowhere near enough to charge GST. So, here are my questions.

1) Do I need to provide a tax invoice to my members when they purchase points from the bank?
2) Is my paypal receipt good enough to be used as proof of income and expenses to my website?
3) Is the paypal receipt good enough to be used as an invoice to members if Q1 is a yes?

Thanks.

1. You must make available a tax invoice, yes.
2. Proof of income is proved by your debit and credits, then balanced against your business bank account.
3. No, because it doesn't provide the explicit breakdown of sale + GST, which it must do per law.

If you have such questions... please feel free to ask as my wife is in the financial market here. The above is just rough information based on what I know / remember from bits and pieces from her. She works with many top level accounting firms in Melbourne, and with the ATO to assist them... so she knows her stuff. I would have to ask her specific questions if you have them to obtain factual answers.

 

[Dynamic]

Thanks so much Anthony.

I do not charge GST as I do not make enough in order to charge it. I would have assumed a tax invoice is then not needed. If it is needed, what should be provided on it?
Also, I use my normal bank account for website transactions, does that mean I need to register a business account?

Thanks a bunch dude. I owe you a few beers.

 

[Anthony Parsons]

There are differences with GST, beyond not making enough money.

As a business you have an ABN, thus if under $75k you don't need to register for GST, correct, however; you also can't claim anything you pay GST upon for the business as you aren't submitting a BAS. Computer, software, all the goods you buy to run your business, you absorb the costs of having to pay GST from those businesses without the ability to get your money back.

If you sell anything as a business, it is in your best interest financially to register yourself for GST so you can claim such monies back. Charging GST doesn't affect your hourly rate as a service, because if you charge yourself out at $50 an hour, then later register for GST, it would simply still be $50 an hour + GST.

So in once instance, you don't have to submit a BAS, but the other you lose out claiming the GST on anything you buy business related.

Regardless of GST, you must make available a tax invoice for the purchaser. The tax invoice simply states you aren't registered for GST.

http://www.ato.gov.au/content/downloads/BUS50913n12358.pdf

Using your personal bank account with business means you are then submitting all your personal spending and income to the ATO, as you must submit those bank records at tax time with your business filings. Not an ideal solution, nor is it economical because you then have to fight through personal expenses to find business expenses for balancing the books.

A separate bank account is the simplest solution, even if you only earn a grand per annum... it keeps everything business together and away from your personal spending habits.

 

[speedway]

Quick question if I may. Is there a difference between registering as a Trading As versus a pty company aside from the massive cost difference? Which would be better for small sites running as hobby status?

 

[Anthony Parsons]

A business is still personal, which means if you owe money due to business, you owe money personally. A sole trader trading as, is 100% liable for everything and anything, even lawsuit if you failed to be insured correctly and someone entered what is your office or property and slipped.

Being a company isolates you as an individual, thus as the director you are still only an employee of the company. Everything stops at the company... because it is an actual entity. A sole trader business, you are the entity.

For GST, everything you need to know: http://www.ato.gov.au/businesses/pa...001/003/103&mfp=001/003&mnu=45028#001_003_103

 

[Dynamic]

Thanks for that Anthony. I will speak to my accountant next chance I get and see what would be best. The BAS seems like a PITA, and not being able to claim for GST I am cool with. Sucks that regardless I need to privide a tax invoice :/

How do you go about providing an invoice for purchases made from your website, if you have any?

 

[Anthony Parsons]

Whilst there are recommended standardisations for laying out a tax invoice, they are not compulsory. You can simply email a client a tax invoice in the form of an email / acknowledgement of transaction completion. You just have to create yourself an email template that contains the legally required information, edit for each send, then send.

If your customer is buying something from your website, then maybe get an email template made for the software so that when a customer buys x, the email sent contains the relevant information automatically.

A tax invoice can just be an email... it MUST simply contain specific information which you can get from the following: http://www.ato.gov.au/content/downloads/BUS50913n12358.pdf

 

[Dynamic]

Thanks heaps for the info Anthony.

 

[Sim]

If you sell anything as a business, it is in your best interest financially to register yourself for GST so you can claim such monies back. Charging GST doesn't affect your hourly rate as a service, because if you charge yourself out at $50 an hour, then later register for GST, it would simply still be $50 an hour + GST.

Yes, but if most of your inputs are actually sourced overseas (eg website hosting, domains, software, etc), it may not be worthwhile since none of these costs have GST to claim back. It really depends on individual circumstances.

However, if you do the sums and work out that the GST you can claim back is worth more than the time required to maintain GST records, then sure - it's worth registering.

Also consider that in some cases, it may reflect badly on you in the eyes of some of your customers if you are not registered for GST - it makes you look like a small operation. It depends on the nature of your clients and the work you do as to whether this might be an issue.

Personally, I never bothered registering - I run several businesses (Pty Ltd companies actually) with less than $75K turnover each, and I haven't registered for GST for any of them - can't be bothered doing the paperwork.

Regardless of GST, you must make available a tax invoice for the purchaser. The tax invoice simply states you aren't registered for GST.

http://www.ato.gov.au/content/downloads/BUS50913n12358.pdf

Sorry, this is simply incorrect - you may ONLY issue a tax invoice if you are registered for GST.

Indeed, the ATO specifically states that you must NOT issue tax invoices if you are not registered.

http://www.ato.gov.au/businesses/content.aspx?doc=/content/76494.htm&page=25&H25

If your business is not required to be registered for GST and you have chosen not to register, you don't collect GST on your sales or claim GST credits on your purchases. Your business issues normal invoices - it must not issue tax invoices. Normal invoices don't include the words 'tax invoice' or indicate that the invoiced amount includes GST

If you are not registered, you issue just plain invoices (not "tax invoices") or receipts in the case where payment has already been received - wording is not that important, but it must not contain the words "tax invoice" - that has special meaning in Australia and must only be used by businesses who have registered for GST.

A separate bank account is the simplest solution, even if you only earn a grand per annum... it keeps everything business together and away from your personal spending habits.

If you are truly running a business and not a hobby, then in my opinion you really must keep a separate bank account - it is the only way of making sure you can clearly identify which expenses are business related and which are personal. Otherwise you are setting yourself up for some serious auditing from the ATO who might think you are merely trying to get more tax deductions than you are entitled to.

It is okay to use your personal credit card for business expenses, but then you periodically submit an itemised expense claim to your business and have it reimburse you for those expenses - just so there is a clear paper trail of where the money comes from (ultimately from your business bank account).

If you never really make a profit - it may be worth while just writing everything off as a hobby and don't even bother declaring the income or claiming the expenses - less paperwork at tax time! If you are never likely to make a profit, then the ATO is likely to disallow your expense claims anyway.[/quote]

 

[Anthony Parsons]

Sorry, wording choice. As I also outlined, the word 'make available' which is the law for companies who buy things and can claim them for depreciation. Tax invoice was the wrong phrase, my apologies. You always issue an invoice / receipt, or you're supposed to, but you don't have to issue a tax invoice, though one should be made available upon request for business accounting purposes. Just like a service station will ask you whether you want a tax invoice or just give you the receipt for your fuel.

Whilst you raise servers and such being off-shore, you can still claim certain things if those things are for running your business. Claiming GST is one thing, claiming business expenses are another. You have to factor in both.

In relation to a hobby, the laws have changed significantly on this, being: http://www.ato.gov.au/corporate/content.aspx?doc=/content/00199712.htm

It is no longer simply up-to an assessable amount, and now the purpose and intent are more the varying factors. If you work full-time and make money from something you do for enjoyment, it's a hobby... yet if your purpose is to make a profit, you will fall under a business. Hobbies are meant for enjoyment, and can make or lose money. Business is all about profit and engaging with a customer / client for commercial purpose.

A business and a hobby are tricky beyond just taxation, because you have to look at who your customer is. Businesses don't often buy from hobbiest. Sure, some do... but the majority buy from businesses because there is a level of professionalism that says a person is committed to their product. A hobbiest may be committed, but they could just walk away tomorrow if they felt like it.

If you're talking to an accountant, then it is a business already because your intent is to make profit.

 

[Sim]

Sorry, wording choice. As I also outlined, the word 'make available' which is the law for companies who buy things and can claim them for depreciation. Tax invoice was the wrong phrase, my apologies. You always issue an invoice / receipt, or you're supposed to, but you don't have to issue a tax invoice, though one should be made available upon request for business accounting purposes. Just like a service station will ask you whether you want a tax invoice or just give you the receipt for your fuel.

No. Again, sorry - but you are wrong.

You cannot make a tax invoice available upon request if you are not registered for GST. You simply are NOT allowed to issue a "tax invoice" if you are not registered for GST. Yes, you should always issue a receipt or invoice, but never a "tax invoice".

The service station will offer you a "tax invoice" because they are going to be registered for GST - their turnover will be well in excess of $75K. They also have a large number of non-business customers who may not need a tax invoice, which is why they typically ask, rather than just assume that you will want one.

As a small business not registered for GST, you can never give a tax invoice - even if requested. You can only ever give a regular invoice (without the words "tax invoice" written on it) - even if your customer asks for a tax invoice, you cannot give them one because you are not registered for GST.

If you are unsure about any of this, perhaps pop over and ask some questions on my forum InvestEd - one of my business partners running this forum (and business) with me is an accountant and we have several dozen other accountants who regularly post too - great source of information.

 

[Anthony Parsons]

Didn't I just say the wording was wrong based on what was said? The tax invoice part in the above was in relation to gst.... Obviously my poor choice of wording once again.

Funnily I did that without advertising too!

I should let my wife write it.... But then it could be a short story as above.