This is the second part in our accounting basics series. If you haven’t read the first part on Goods and Services Tax (GST) we recommend you read it first here.
So you’ve started private practice, you’ve got your ABN and the income is starting to flow in. The ATO requires you to report your income, as well as the GST you’ve collected and spent, every three months. This is in the form of a quarterly Business Activity Statement, or BAS. The next step is to get organised!
A BAS is a report that you submit to the ATO that lets the tax office know how much revenue (or “Total sales”) you’ve generated, the amount of GST you’ve collected and the amount of GST you’ve spent in the process of buying goods and services for your business. You are required to submit these every three months. There can be penalties for failing to submit them in a timely manner.
There are three amounts you need to report:
Total sales is the total value of the services you’ve provided, including sales where no GST has been collected.
There are different methods to work out the amount you need to report. The effective date for amounts you receive is the date that it hits your bank account, as opposed to when you invoice the amount. This is better known as the cash accounting method and is the simplest method (as opposed to the alternative accrual accounting method).
This makes BAS’s very easy to calculate and why we recommend you have a separate bank account. To calculate the total sales you need to report, simply login to your internet banking, download an excel spreadsheet for the quarter and auto calculate the deposits into your account for the BAS period. That way you are accurately reporting exactly how much money you’ve received. You should also use this method for your annual income tax return – that way you only pay tax on the amounts you receive, not what is reported by practice software (just in case a payment goes astray, or fees have been deducted from amounts shown on your practice report).
You’ll need to keep track of any GST you’ve collected during the quarter too, but this can simply be done by keeping remittances handy.
The final amount is any GST you’ve paid for goods and services that are required for you to provide your services. Examples of this might be:
You’ll need to keep receipts for any total amounts over $82.50 including GST for seven years.
There are three commonly used methods to lodge a BAS:
Once you have all your data ready to go, BASs can be lodged online through the myGov portal. To get setup, register for myGov and link the ATO to your account. When you’re ready to submit your BAS, login to myGov, click through to the ATO and you will find a link to submit your BAS on the welcome page. If there isn’t, go to the menubar and choose Tax, then Lodgements, then Activity statements. Here you will also find previous BASs you’ve lodged under the History tab, in case you need to revise any of them.
It’s always a good idea to have engaged an accountant – they’re extremely useful for tax advice and lodging your annual Income Tax Return. An accountant can also do your BAS for you too – they will probably charge you anywhere between $200 and $500 per quarter so best to ask upfront. Considering that once you know how to do it – it’s pretty quick and easy, many doctors opt to do it themselves. You effectively have to do the same amount of preparation work when using an accountant, so you may find it beneficial and more cost effective to do it yourself. It’s also not a bad way to keep track of how your practice is doing financially. But if you’d rather stay out of it, then using an accountant is the best way to go.
Another solution that automates almost all of these requirements is to use an online accounting platform such as Quickbooks. You can link your bank account and automatically import all your transactions, ensuring accurately reporting, and removing the need for you to manually calculate revenue and expenses. Many things can be automated, such as reconciling payments (the equivalent of sending all your information to an accountant) by setting “rules”, so that Quickbooks knows what to do with each transaction in your bank account. If any of your transactions have a GST component, you can annotate it as such, and it will automatically calculate the GST amount – for both income and expenses.
You can still pay for your expenses by any method, simply add the expense or take a photo of the receipt in the app. And the best bit – when it comes to submitting your quarterly BAS, you can electronically submit from Quickbooks in a few clicks. Done!
There are other benefits as well. When it comes to Income Tax Time, you can share your Quickbooks account with your accountant and they’ll do the rest. If you ever have to send invoices, such as for hospital on-calls or medicolegal work, that’s a cinch too.
For me, this is by far the most time- and cost-efficient method not just for submitting BASs, but all my accounting needs.
You can also use Xero to do most of the heavy lifting, but as far as we’re aware, it currently does not have the functionality to submit your BAS for you, so you’ll need to head to myGov to submit.
If you’re in private practice and registered for GST, you’ll need to submit a BAS every quarter. While an accountant can do it for you, you’ll still need to do the bulk of the work so doing it yourself or using Quickbooks can be simpler, more cost-efficient methods.
This advice is general in nature and does not consider your personal circumstances. Get professional advice if you’re in any doubt.
Dr. Simon McLaughlin is an anaesthetist who likes to keep his administration simple and cost-effective. Solo Practice Management is designed to be just that, so if we can help you, please contact us to find out more!