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GST and VAT

This section discusses GST and VAT, and is also applicable to HST and QST in Canada. For simplicity in this section, we will just refer to GST (but unless otherwise stated, this also means VAT, QST or HST).

Note: If you are in a country that uses VAT, MoneyWorks will display “VAT” instead of “GST”. In Canada, MoneyWorks will display “TAX” to indicate the combined GST and PST, or “HST” for provinces with HST.

What is GST

GST is a simple tax that is applied to the inputs and the outputs of business. Businesses themselves do not (in the normal course of events) pay GST—it is paid by the private citizen. But businesses do collect GST on behalf of the Government, and must remit this back to the Government on a regular basis1.

Thus almost every transaction that you make as a business will attract GST in some form or other. If you are registered for GST you will be required to send in a return to the Government on a regular basis—we term this the GST cycle. In Australia this return is called the Business Activity Statement (BAS) and is sent to the ATO; in New Zealand it is referred to as the GST Return and is sent to the IRD; in Canada you send your GST/HST Return to the CRA.

Fortunately MoneyWorks monitors your GST for you automatically whenever you enter a transaction. Provided your accounts are up to date, simply printing the GST Report will tell you how much GST you owe or are owed.

Basically whenever an item or service is sold, it is subject to a goods and services tax (the rate will vary by country, but it is normally 10% in Australia, 15% in New Zealand, and currently 5% in Canada). This GST is added to the price of the goods or service, and is collected by the supplier who will subsequently remit it to the Government.

Consider for example the case of a vehicle taken in for repair. For simplicity we’ll use the Australian GST rate of 10% in this example.

  • The vehicle is found to need a replacement back sprongle. The repair company orders the sprongle from the sprongle supplier, and is charged $100 plus GST (i.e. $110).
  • The company charges the vehicle owner $120 plus GST (i.e. $132) for the sprongle.
  • Fitting the sprongle takes 2 hours of mechanics’s time, which is charged at $20 plus GST (a total of $44).

The transactions are summarised in the following table:

    Net    GST    Gross
Purchase Sprongle $100 $10 $110
Total Payments $100 $10 $110
Sell Sprongle 120 12 132
Labour 40 4 44
Total Receipts $160 $16 $176
Incomings - Outgoings $60 $6 $66

At the completion of the job, an invoice will be made out to the customer for $160 plus GST (a total of $176).

For this job the repair company has paid out $10 in GST. Because the company is GST registered, it can claim this amount back. But it also collected $16 in GST, which must be paid. In practice the company will just pay the balance of the receipts and the payments (in this case $6).

The good news is that most businesses will make their returns only every few months2, meaning that the repair company has the use of the $6 for some time, which will help it with its cash flow.

And what of the person who had to pay for the sprongle repair? Well if the vehicle was owned by an organisation registered for GST, it would claim back the $16 it paid (so in effect there has been no GST paid). But if it is owned by Joe Bloggs private citizen, the Government get to keep the $16 (i.e. Joe cannot claim it back).

Overview of the GST Process

When you first set up MoneyWorks you should have set your GST structure and cycle in the Preferences — see GST/VAT/Tax.

MoneyWorks comes pre-supplied with a number of tax codes. These are assigned to accounts and customers, and are the basis on which the GST is calculated for a particular transaction. The GST Guide Form uses these tax codes.

Default Codes (most countries)
EGST/VAT exempt [not Australia]0%
ZZero-rated items [not Australia].0%
A100% GST/VAT (for customs)100%
*MoneyWorks System GST accounts (cannot be changed)0%
Default New Zealand Codes
GStandard GST15%
Default Canada GST Codes (Not including PST)
GStandard GST5%
HStandard HST (rate varies by province)13%
Default Australian Codes
GStandard GST10%
IInput taxed 0%
CCapital acquisitions10%
FGST-free0%
XExports0%
WSalary and Wage Payments0%
PAmounts withheld from wages0%
UAmounts withheld where no ABN quoted48.5%
Default VAT Code
VStandard VAT (rate varies depending on country)

You can add other GST tax codes if you need them. Tax codes that you add will appear when used on the GST Report, but you will need to alter the GST Form if they are to appear on this.

When you create a general ledger account, you will associate a tax code with it. When you enter a transaction and use that account, the tax code is used to calculate the GST component for that part of the transaction. You can if necessary override this tax code when you enter the transaction.

Transactions with suppliers or customers outside your country will not (normally) be subject to GST. When you export (or import) goods you will need to override the tax code in the transaction entry—this can be done automatically by setting an override code in the Name record — see Override Tax Code.

When you are due to prepare your return, you print the GST Report. Before this you must ensure that all transactions for the period have been entered and posted. It is a good idea to set up a reminder message to come up a week or so before the return is due so that MoneyWorks can warn you— see Reminder Messages3.

Having prepared your GST report, which provides a complete audit trail of how your GST has been calculated, you can then print off your GST form4—this shows how to fill out your return to your local tax authority.

Preparing Your GST Return

To prepare your return for a given GST cycle:

  • You should have all transactions that occurred in the cycle entered and posted into MoneyWorks. If you backdate transactions so they would have appeared in a previous cycle, they will automatically be accounted for in the current cycle.
  • Print the GST Report. This summarises the GST paid out by you and the GST collected—the Canadian report may also list the PST (but you should use the Sales Tax report to determine the PST payable unless your PST cycle matches your GST cycle). The difference in the GST column is payable to, or refunded by, the Government.
  • When (and only when) you are satisfied that your GST report is correct, it should be finalised. This tags all the transactions in the report as having been processed for GST. They will not appear in future GST reports (and hence cannot be double counted). It also updates your GST cycle date ready for your next GST return.
  • Print off your GST Guide Form (optionally). This shows what to put where on your GST return.
  • If you need to pay money to the Government, you will need to write out a cheque. This (or any refund you might receive) will need to be specially coded — see Paying your GST.

1  Strictly speaking, it is the balance of GST collected and GST paid that is remitted.

2  Normally quarterly in Australia, two-monthly in New Zealand, quarterly or annually in Canada

3  The reminder messages will only show when MoneyWorks is running. If you do not use MoneyWorks regularly the reminder message may not show in time.

4  Not available in all countries.