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Common mistakes and/or issues associated with processing GST
Finance
It’s no wonder that John Hewson had trouble explaining the intricacies of GST to Mike Willesee in 1993 because there is still confusion today over the treatment of many items when it comes to recording GST in your accounts and preparing your BAS Activity Statements. For example, what is the difference between something that is ‘Tax Free’ and something that is ‘Input Taxed’? Not much as it turns out because GST doesn’t apply to both.
The following is a list of the items that cause the most confusion and are mistakenly treated when preparing the quarterly or monthly BAS Activity Statement.
Bank ChargesBank charges are classed as “input taxed” meaning the bank doesn’t charge GST to the customer. This is not to be confused with Credit Card Merchant Fees – GST is charged on these fees and therefore a GST credit can be claimed on these expenses.
Government and Semi-Government ChargesItems like council rates, water rates and ASIC filing fees, are GST free. However, whilst motor vehicle registration fees are GST free, the compulsory third party insurance that is normally paid at the same time includes a GST component and can be claimed.
InsurancesGeneral business type insurance premiums including professional indemnity include a GST component and can be claimed however the Stamp Duty component is not subject to GST and therefore can’t be claimed. Life and Sickness or Accident insurance are not subject to GST and therefore no GST credit can be claimed.
Staff Amenities Basic food items like milk, coffee, tea and sugar are GST Free.
Wages and SuperannuationThere is no GST associated with payments in respect of wages and/or superannuation.
Motor VehiclesGST can be claimed on the purchase of a motor vehicle but where the purchase price is inexcess of the luxury car limit then the maximum GST credit that can be claimed is limited tothe GST calculated on that limit.
Financed Assets via Commercial Hire Purchase (CHP)If a business is using the ‘Accrual’ method of accounting, an up-front GST credit can be claimed for the purchase of an asset (like a motor vehicle) using a Commercial Hire Purchase agreement. However, this is not available for businesses using a ‘Cash’ basis for accounting (speak with your accountant or bookkeeper to explain the difference). In this case, the GST credit to be claimed is calculated as 1/11th of the “principal” portion of the total CHP payments made during the relevant month or quarter. In order to claim the total GST credit upfront, the business would need to finance the asset by way of a chattel mortgage.
Entertainment CostsWhere the business has elected to use the 50/50 split method for fringe benefits tax purposes, only 50% of the GST credits can be claimed.
InterestNo GST applies to interest either as an expense or as income.
Sale of AssetsMotor Vehicles and Equipment – including the trade-in of motor vehicles. The sale of a business asset is subject to GST just like any ordinary business transaction unless the going concern exemption is claimed.
Other GST Free ExpensesThere are a number of other GST free expenses to be aware of e.g., donations, some first-aid supplies, some health services.
Other Expenses that are Non-TaxableOther types of expenses that do not attract GST include depreciation, drawings, fines, loan repayments, income tax.
Sole Traders and PartnershipsDue to partly private and partly business use of motor vehicles, small businesses often fail to apportion input tax credits correctly. To calculate their GST liability, small businesses are required to undertake this apportionment each time they prepare their BAS, though in practice the actual private use may not be accurately determined until the business is required to complete and lodge its annual income tax return. Sole traders and partnerships with an annual turnover of up to 2 million dollars that pay GST either on a monthly or quarterly basis can apportion the private portion of GST credits on an annual basis rather than each time their BAS is lodged.
As you can see, there are many pitfalls in the complex world of bookkeeping so if you are in doubt, please consult a professional.
Bank ChargesBank charges are classed as “input taxed” meaning the bank doesn’t charge GST to the customer. This is not to be confused with Credit Card Merchant Fees – GST is charged on these fees and therefore a GST credit can be claimed on these expenses.
Government and Semi-Government ChargesItems like council rates, water rates and ASIC filing fees, are GST free. However, whilst motor vehicle registration fees are GST free, the compulsory third party insurance that is normally paid at the same time includes a GST component and can be claimed.
InsurancesGeneral business type insurance premiums including professional indemnity include a GST component and can be claimed however the Stamp Duty component is not subject to GST and therefore can’t be claimed. Life and Sickness or Accident insurance are not subject to GST and therefore no GST credit can be claimed.
Staff Amenities Basic food items like milk, coffee, tea and sugar are GST Free.
Wages and SuperannuationThere is no GST associated with payments in respect of wages and/or superannuation.
Motor VehiclesGST can be claimed on the purchase of a motor vehicle but where the purchase price is inexcess of the luxury car limit then the maximum GST credit that can be claimed is limited tothe GST calculated on that limit.
Financed Assets via Commercial Hire Purchase (CHP)If a business is using the ‘Accrual’ method of accounting, an up-front GST credit can be claimed for the purchase of an asset (like a motor vehicle) using a Commercial Hire Purchase agreement. However, this is not available for businesses using a ‘Cash’ basis for accounting (speak with your accountant or bookkeeper to explain the difference). In this case, the GST credit to be claimed is calculated as 1/11th of the “principal” portion of the total CHP payments made during the relevant month or quarter. In order to claim the total GST credit upfront, the business would need to finance the asset by way of a chattel mortgage.
Entertainment CostsWhere the business has elected to use the 50/50 split method for fringe benefits tax purposes, only 50% of the GST credits can be claimed.
InterestNo GST applies to interest either as an expense or as income.
Sale of AssetsMotor Vehicles and Equipment – including the trade-in of motor vehicles. The sale of a business asset is subject to GST just like any ordinary business transaction unless the going concern exemption is claimed.
Other GST Free ExpensesThere are a number of other GST free expenses to be aware of e.g., donations, some first-aid supplies, some health services.
Other Expenses that are Non-TaxableOther types of expenses that do not attract GST include depreciation, drawings, fines, loan repayments, income tax.
Sole Traders and PartnershipsDue to partly private and partly business use of motor vehicles, small businesses often fail to apportion input tax credits correctly. To calculate their GST liability, small businesses are required to undertake this apportionment each time they prepare their BAS, though in practice the actual private use may not be accurately determined until the business is required to complete and lodge its annual income tax return. Sole traders and partnerships with an annual turnover of up to 2 million dollars that pay GST either on a monthly or quarterly basis can apportion the private portion of GST credits on an annual basis rather than each time their BAS is lodged.
As you can see, there are many pitfalls in the complex world of bookkeeping so if you are in doubt, please consult a professional.
China’s Smart Cities
Business
According to a report commissioned by the U.S.-China Economic and Security Review Commission (USCC), China is rapidly rising as the world leader in smart city design and construction. In fact, of the 1,000 or so smart cities planned worldwide, as many as half are being developed by the Chinese, who have invested about $74 billion in the research and development of these technological marvels.And it makes a good deal of sense that China is the place where this revolution is taking place.
Smart cities by design are uniquely capable of achieving two fundamental goals of the ChineseCommunist Party: efficiency and surveillance.
With millions of sensors hardwired into each of these cities’ streets, bridges, and buildings and feeding information into centralized mainframes, common problems inherent to densely populated urban centres will be directly addressed. Traffic will be optimized, both for street and foot traffic; problems like structural failures and common wear and tear issues for roads and bridges will be detected before they lead to catastrophes; and future outbreaks of viruses like COVID 19 will be tracked on previously unthinkable levels. And of course, with 5G stations positioned every couple hundred feet, citizens’ social and internet activities will be monitored with microscope-level precision. Seems like a win-win-win for a government that has held a boot over the throat of its citizenry for more than seven decades. Death, Taxes, and Communist Lies… However, the reality of the situation is that the smart city, much like the rest of the ChineseCommunist Party’s promises and claims, is little more than a concept.
The problem with achieving something as complex and intricate as a true smart city is that one of the most critical technological aspects remains elusive. And for China, this isn’t a problem that will soon be resolved. The issue goes to the heart of what makes a smart city, well, smart: its sensors. A WiFi-capable sensor, even the highly specialized variety that’s designed to detect icing on a city street, for example, is no different than any other internet-capable device. Like your phone or tablet, they absorb and transmit data. To do this, they require internal memory. As of today, internal memory storage requires a power source, either from a centralized power supply or from its internal battery. This already creates problems. While the battery in your phone can be charged daily, sensors buried deep inside building walls or in the structure of a bridge present problems with accessibility. Trillions of New Devices Across the Globe Multiply this charging requirement by 10 or 20 million, which is how many such sensors will be required to achieve anything approaching true smart city capability, and the goal of efficiency and automation goes right out the window. And this is only the start of the problem. The heat that is generated as electricity is consumed, even if a sensor is hardwired into the city’s power grid, is another problem. Going back to the example of your phone, a bit of heat emanating from your pocket is hardly an issue at all, but multiply this by a factor of a few million, and you start to run into major problems — the threat of fire being just one. Finally, and perhaps most important of all, is the cost of the energy it will take to power these mountains of newly internet-capable devices. It has been estimated that just to achieve China’s smart city goals alone, the country will need to double its total power output. There are other issues stemming from all this. The issue of network outages due to blackouts, for example, will make the whole system highly unstable. The manpower necessary to maintain such a complex, cumbersome mechanism will defeat the purpose from the get-go. Put all of these technical hurdles together and you come to one inevitable conclusion: It’s not going to work.
With millions of sensors hardwired into each of these cities’ streets, bridges, and buildings and feeding information into centralized mainframes, common problems inherent to densely populated urban centres will be directly addressed. Traffic will be optimized, both for street and foot traffic; problems like structural failures and common wear and tear issues for roads and bridges will be detected before they lead to catastrophes; and future outbreaks of viruses like COVID 19 will be tracked on previously unthinkable levels. And of course, with 5G stations positioned every couple hundred feet, citizens’ social and internet activities will be monitored with microscope-level precision. Seems like a win-win-win for a government that has held a boot over the throat of its citizenry for more than seven decades. Death, Taxes, and Communist Lies… However, the reality of the situation is that the smart city, much like the rest of the ChineseCommunist Party’s promises and claims, is little more than a concept.
The problem with achieving something as complex and intricate as a true smart city is that one of the most critical technological aspects remains elusive. And for China, this isn’t a problem that will soon be resolved. The issue goes to the heart of what makes a smart city, well, smart: its sensors. A WiFi-capable sensor, even the highly specialized variety that’s designed to detect icing on a city street, for example, is no different than any other internet-capable device. Like your phone or tablet, they absorb and transmit data. To do this, they require internal memory. As of today, internal memory storage requires a power source, either from a centralized power supply or from its internal battery. This already creates problems. While the battery in your phone can be charged daily, sensors buried deep inside building walls or in the structure of a bridge present problems with accessibility. Trillions of New Devices Across the Globe Multiply this charging requirement by 10 or 20 million, which is how many such sensors will be required to achieve anything approaching true smart city capability, and the goal of efficiency and automation goes right out the window. And this is only the start of the problem. The heat that is generated as electricity is consumed, even if a sensor is hardwired into the city’s power grid, is another problem. Going back to the example of your phone, a bit of heat emanating from your pocket is hardly an issue at all, but multiply this by a factor of a few million, and you start to run into major problems — the threat of fire being just one. Finally, and perhaps most important of all, is the cost of the energy it will take to power these mountains of newly internet-capable devices. It has been estimated that just to achieve China’s smart city goals alone, the country will need to double its total power output. There are other issues stemming from all this. The issue of network outages due to blackouts, for example, will make the whole system highly unstable. The manpower necessary to maintain such a complex, cumbersome mechanism will defeat the purpose from the get-go. Put all of these technical hurdles together and you come to one inevitable conclusion: It’s not going to work.
Xero unveils its AI vision to reimagine small business accounting
Previews GenAI powered business companion ‘Just Ask Xero’
Wellington — 29 February 2024 — At its inaugural Investor Day today, global small business platform Xero unveiled its AI vision which the business says has the potential to reimagine accounting and improve the lives of small businesses. This included previewing ‘Just Ask Xero’ — Xero’s new GenAI-powered smart business companion for small businesses and their advisors — that will help them complete accounting-related tasks and provide deep insights to enable them to run their business better.Xero outlined its approach to improve how small businesses and advisors can manage their accounting by integrating AI into business-facing tasks to automate them, help improve efficiency, and empower them with better insights to run their business. Xero is doing this by:
- Introducing conversational interfaces on the apps and surfaces (i.e. mobile, email and Whatsapp) where Xero customers need support
- Automating and streamlining important but repetitive and time-consuming accounting tasks
- Delivering the right insights at the right time
Diya Jolly, Chief Product Officer at Xero, said: “Technology has changed the lives of small businesses dramatically — first with cloud accounting, then automation, and now through GenAI. We’re embracing this new wave of tech innovation responsibly, with our customers at the heart of what we do, as we deliver on our vision to be the most trusted and insightful small business platform.”
Introducing GenAI smart business companion
Xero is developing a conversational interface - called Just Ask Xero (JAX) - using powerful GenAI technology.
JAX gives users a natural, approachable way to interact with Xero's product, right from within the apps and devices they already use everyday. When available, Xero’s customers will be able to Just Ask Xero to complete tasks like generating an invoice, editing a quote or paying a bill, either in Xero or other commonly used apps and surfaces such as mobile, WhatsApp and email. JAX will not only complete the task, but it will also anticipate other tasks that may follow, such as sending an email to follow up on an overdue payment. It will also provide rapid, personalised insights on demand, such as cash flow projections, to give customers the confidence they need to make business decisions.
Find out more about how JAX will work and see a video here. A JAX beta will go live later this calendar year.
Using GenAI to onboard customers and support next generation customer service
Xero has also rolled out an AI assistant to improve the customer onboarding experience.
Announced at Xerocon Sydney, the AI assistant provides new users with relevant answers and information as they set up their Xero dashboard and get started in the product. In the future Xero plans to integrate the AI assistant into the JAX experience to iteratively streamline the onboarding and troubleshooting experience.
Xero has also embedded a GenAI tool into Xero Central to provide answers customers need in conversational language. Results of the early testing performed have been promising. Xero has seen a 40% decrease in average customer search time, with search sessions requiring additional customer service support decreasing by about 20%.
Bolstering Xero’s AI talent and expertise
To help Xero achieve its AI vision and the rollout of new GenAI accounting features to customers, Xero recently appointed two senior US hires — Eitan Sharon as Senior Vice President of Data & Science and Akankshu Dhawan, Senior Vice President of Product - Direct, Growth, and AI products.
Eitan has spent the past four years as Director of Applied Science at Amazon, focused on developing strategies that disrupted the product development process. Akankshu most recently oversaw Uber’s Earner, AI & Data products.
“We’re putting the right global experience, strategy, data and partnerships in place to harness the power of AI, while making sure our tools remain grounded in truth,” said Jolly. “Eitan and Akankshu’s many years experience in accelerating digital commerce and empowering worldwide businesses through AI, supports our strategy as we continue to drive innovation and value for our customers.”
Building on Xero’s AI-powered tools and feature
Xero has a long and proven experience with AI underpinning many of its products, including bank reconciliation predictions, Hubdoc data capture, Xero Expenses, and cash flow forecasting in Xero Analytics Plus.
Xero unveils its AI vision to reimagine small business accounting
Previews GenAI powered business companion ‘Just Ask Xero’
Wellington — 29 February 2024 — At its inaugural Investor Day today, global small business platform Xero unveiled its AI vision which the business says has the potential to reimagine accounting and improve the lives of small businesses. This included previewing ‘Just Ask Xero’ — Xero’s new GenAI-powered smart business companion for small businesses and their advisors — that will help them complete accounting-related tasks and provide deep insights to enable them to run their business better.Xero outlined its approach to improve how small businesses and advisors can manage their accounting by integrating AI into business-facing tasks to automate them, help improve efficiency, and empower them with better insights to run their business. Xero is doing this by:
- Introducing conversational interfaces on the apps and surfaces (i.e. mobile, email and Whatsapp) where Xero customers need support
- Automating and streamlining important but repetitive and time-consuming accounting tasks
- Delivering the right insights at the right time
Diya Jolly, Chief Product Officer at Xero, said: “Technology has changed the lives of small businesses dramatically — first with cloud accounting, then automation, and now through GenAI. We’re embracing this new wave of tech innovation responsibly, with our customers at the heart of what we do, as we deliver on our vision to be the most trusted and insightful small business platform.”
Introducing GenAI smart business companion
Xero is developing a conversational interface - called Just Ask Xero (JAX) - using powerful GenAI technology.
JAX gives users a natural, approachable way to interact with Xero's product, right from within the apps and devices they already use everyday. When available, Xero’s customers will be able to Just Ask Xero to complete tasks like generating an invoice, editing a quote or paying a bill, either in Xero or other commonly used apps and surfaces such as mobile, WhatsApp and email. JAX will not only complete the task, but it will also anticipate other tasks that may follow, such as sending an email to follow up on an overdue payment. It will also provide rapid, personalised insights on demand, such as cash flow projections, to give customers the confidence they need to make business decisions.
Find out more about how JAX will work and see a video here. A JAX beta will go live later this calendar year.
Using GenAI to onboard customers and support next generation customer service
Xero has also rolled out an AI assistant to improve the customer onboarding experience.
Announced at Xerocon Sydney, the AI assistant provides new users with relevant answers and information as they set up their Xero dashboard and get started in the product. In the future Xero plans to integrate the AI assistant into the JAX experience to iteratively streamline the onboarding and troubleshooting experience.
Xero has also embedded a GenAI tool into Xero Central to provide answers customers need in conversational language. Results of the early testing performed have been promising. Xero has seen a 40% decrease in average customer search time, with search sessions requiring additional customer service support decreasing by about 20%.
Bolstering Xero’s AI talent and expertise
To help Xero achieve its AI vision and the rollout of new GenAI accounting features to customers, Xero recently appointed two senior US hires — Eitan Sharon as Senior Vice President of Data & Science and Akankshu Dhawan, Senior Vice President of Product - Direct, Growth, and AI products.
Eitan has spent the past four years as Director of Applied Science at Amazon, focused on developing strategies that disrupted the product development process. Akankshu most recently oversaw Uber’s Earner, AI & Data products.
“We’re putting the right global experience, strategy, data and partnerships in place to harness the power of AI, while making sure our tools remain grounded in truth,” said Jolly. “Eitan and Akankshu’s many years experience in accelerating digital commerce and empowering worldwide businesses through AI, supports our strategy as we continue to drive innovation and value for our customers.”
Building on Xero’s AI-powered tools and feature
Xero has a long and proven experience with AI underpinning many of its products, including bank reconciliation predictions, Hubdoc data capture, Xero Expenses, and cash flow forecasting in Xero Analytics Plus.
Ten Tips for Growing a Successful Business
To build a successful business, you have to be well organized, flexible, and creative, among other characteristics. You should also be prepared to make some personal sacrifices. These ten basic tips can help you get your business started and keep it growing, whatever idea you plan to launch.
Key Takeaways
- Starting and growing a business requires good organizational skills, creativity, and constant focus, among other essentials.
- It's important to be aware of your competition, particularly the things your competitors are doing that you might want to adopt or improve upon.
- You'll almost certainly end up working harder for yourself than you would for someone else, so be prepared to make some sacrifices in your personal life.
10 Tips For Growing A Successful Business
1. Get Organised
To achieve success as a business owner you first have to be well organised. That will help you complete tasks efficiently and stay on top of the many things that need to be done. A simple way to get and stay organised is to create a to-do list each day. As you complete each item, check it off your list. Since some tasks are more important than others, aim to tackle the high-priority ones first.
2. Keep Detailed RecordsNo matter how busy they are, successful businesses take the time to keep careful accounting records. By doing so, they know where their business stands financially and can often get a better (and earlier) grasp of any potential challenges they might be facing.
3. Analyze Your CompetitionTo be successful, you can't afford to ignore your competitors. Take the time to study and learn from them. Larger companies devote significant resources to obtaining this sort of competitive intelligence.
How you go about analyzing the competition can depend on the nature of your business. If you're a restaurant or store owner, you may simply be able to dine or shop at a competitor's place of business, ask customers what they like or don't like about it, and gain information that way.
If you're in a field with more limited access to your competitors' inner workings, such as manufacturing, try to keep up with the news in relevant trade publications, speak with any customers you share in common, and obtain and scrutinize whatever financial information a competitor makes publicly available.
4. Understand the Risks and RewardsAnother key to being successful is taking calculated risks. Besides contemplating the potential rewards if you succeed, a good question to ask is: "What's the downside if this doesn't work out?" If you can answer that question, you'll know what the worst-case scenario is. If you could live with that scenario and are prepared to take the necessary steps to manage the risks as much as possible, you might want to give it a go. Otherwise, this could be a good time to consider other opportunities.
Understanding risks and rewards includes being smart about the timing of starting a business or launching a new product. For example, certain products or services may be more popular during a particular period of the year. Technological change and fashions also impact what consumers buy and how they behave.
5. Be Creative and StrategicAlways look for ways to improve your business and make it stand out from the competition. Recognize that you don't know everything and be open to new ideas and different approaches.
Keep an eye out for opportunities to expand your current business or develop related enterprises that will lead to additional revenues and provide the benefit of diversification. The history of Amazon provides a good example. The company started out as an online bookseller and grew into an e-commerce giant, selling just about everything.
Besides a diversification strategy, you'll need one for market expansion that works best for your business, whether social media campaigns, direct sales outreach or another option. Also, does it make sense to partner with another small business to gain access to their audience? How might you capture an entirely new market share? These are things you should be thinking about even in the early days of your business.
6. Stay Focused on Your GoalsThe old saying "Rome wasn't built in a day" applies to building a business as well. Just because you open a business doesn't mean you're going to start making money immediately. It takes time to let people know who you are and what you have to offer, so stay focused on achieving your goals.
Even many small business owners who ultimately achieve success won't see a profit for a few years and will have to rely on borrowed money (if they can get it) or their own savings to support the business until it can become profitable. Fortunately, there are a variety of ways to finance a business.
That being said, if the business is not turning a profit after a reasonable period of time, it's worth looking into why that is and whether the business needs to go in another
7. Provide Great Customer ServiceToo many businesses forget the importance of providing great customer service. If you deliver better service for your customers, they'll be more inclined to come to you the next time they need something instead of going to your competition.
High-quality service is one key to obtaining a competitive advantage in the marketplace. Some businesses refer to this as taking a consumer-centric or client-centric approach.
In fact, in today's hyper-competitive business environment, service is often the major differentiating factor between successful and unsuccessful businesses. This is where the saying "undersell and overdeliver" comes in, and savvy business owners are wise to follow it.
8. Be ConsistentConsistency is a key component to success in business. You have to keep doing what is necessary to be successful, day in and day out. This will create long-term positive habits that will help you make money in the long run and create satisfied customers from day one. Customers value consistency, too.
9. Prepare to Make Some SacrificesHaving your own business often requires putting in more time than if you were working for someone else. That can mean spending less time with family and friends than you wish you could. The adage that there are no weekends and no vacations for business owners can ring true for anyone who's committed to making their business work.
Owning a business isn't for everyone. If, after an honest self-evaluation, you decide you aren't cut out for it, you'll save yourself a lot of grief, and probably a lot of money, by pursuing another career path.
If you want to be among that 25%, paying attention to these nine tips is a good start. To own and run a successful business, you'll want to be in a state of constant learning and adapting.
10. Don’t Forget your Exit StrategyThe true definition of a successful small business is one that just doesn’t pay the owner a salary but provides him with method to make himself prosperous. In many cases this occurs when he decides to exit the business – allbeit to retire or simply to move on to something else. So, build your business but also be aware of how you can successfully exit it.