If you operate a business in Australia, you will likely need to lodge a Business Activity Statement (BAS). This form tells the Australian Taxation Office (ATO) how much tax you’ve collected and paid.
The three main parts of the BAS are GST, PAYG Withholding (PAYGW), and PAYG Instalments (PAYGI). Here’s an easy guide to understand each one.
1. Goods and Services Tax (GST)
What is it?
GST is a 10% tax on most goods and services sold in Australia. If your business is registered for GST, you can add this tax to your sales and pass it to the ATO.
How is it calculated?
GST Collected (Sales): This is 10% of your sales. For example, if you sell goods for $11,000, $1,000 of that is GST.
GST Paid (Purchases): You can claim back the GST you paid on business expenses. If you spend $5,500 on supplies, you can claim $500 GST.
Net GST Payable or Refundable: Subtract the GST you paid from the GST you collected. That’s what you owe or get back.
Example:
GST on sales: $10,000 × 10% = $1,000
GST on purchases: $5,000 × 10% = $500
GST to pay: $1,000 - $500 = $500
2. PAYG Withholding (PAYGW)
What is it?
If you have employees, you need to withhold tax from their wages and send it to the ATO. This makes sure they don’t get a big tax bill at the end of the year.
How is it calculated?
Use the ATO tax tables to work out how much to withhold from each employee’s pay.
Report and pay this amount through the BAS.
Example:
Employee earns $1,500 per week.
Tax withheld: $200 (based on tax tables).
Employee gets $1,300 (after tax), and you report $200 PAYGW on the BAS.
3. PAYG Instalments (PAYGI)
What is it?
PAYG Instalments are like paying your income tax in advance. The ATO estimates your tax based on your last return and asks you to pay in instalments.
How is it calculated?
You can choose one of two ways:
ATO Instalment Amount: A fixed amount based on your last tax return.
Instalment Rate: A percentage of your income. This option works well if your income changes.
Example:
ATO sets your instalment rate at 10%.
Your income for the quarter is $50,000.
PAYG Instalment to pay: $50,000 × 10% = $5,000.
After Lodging Your Tax Return:
When you lodge your tax return, the ATO checks if you’ve paid enough. If you underpaid, you’ll need to pay more. If you overpaid, you’ll get a refund.
4. Varying Your PAYG Instalments
If your income is lower than expected, you can ask to reduce your PAYG Instalments. But be careful—reducing too much can lead to interest charges.
Tips for Varying:
Talk to Your Accountant: Always check with your accountant before making changes.
Avoid Penalties: If you underpay and the ATO decides the original amount was correct, you might be charged interest.
When to Vary: If your business income drops due to fewer sales or higher expenses, varying down might make sense.
Example of Incorrect Variation:
ATO expects your income to be $500,000, with PAYGI at $50,000 (10%).
You estimate income at $300,000 and reduce PAYGI to $30,000.
But your actual income ends up at $500,000, meaning you underpaid $20,000.
The ATO may charge interest on the shortfall.
5. BAS Summary Made Simple
Tax Type | What It's For | How It's Calculated | What You Report on BAS |
GST | Tax on sales and purchases | GST Collected - GST Paid | Net amount payable or refundable |
PAYGW | Tax withheld from wages | Based on ATO tax tables | Total tax withheld from employees |
PAYGI | Prepaid business income tax | % of income or fixed amount | Instalments paid towards tax |
Understanding your BAS helps you manage your business and avoid surprises. If you need help with GST, PAYGW, or PAYGI, Vivid Enterprise Solutions is here to support you.
Contact us today for strategic bookkeeping advice tailored to your business!
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