How is gst credit calculated

how is gst credit calculated

GST-VAT Calculations

Abstract

This knowledgebase article explains how to calculate an office's GST liability for any BAS period.

Underlying challenge

The GST payable on any transaction is determined by the product or service sold. Some items are GST-Free (eg Spinal Adjustments, and other services). Some items are not GST-Free (eg some products). So, the GST value can only be calculated from the invoice.

However, the GST does not become payable until the patient actually pays the invoice.

If a patient pays on the day (or after the visit), it is calculable - by cross-mapping the payment back to the visit.

If the patient pre-pays, it is not calculable. The patient may intend to use the pre-payment for adjustments, but that may not actually happen.

Resolution

There are two ways to approach the overall problem.

  1. Calculate the amounts on a patient-by-patient, invoice-by-invoice basis. This gives a very precise result, but involves a lot of very precise accounting work by your CAs. Every payment needs to be precisely assigned to an invoice or things start going pear-shaped.
  2. Calculate the overall figures once per BAS period. This is not so precise, but actually yields better results in terms of GST liability.

Capable Software Pty Ltd recommends the second option. The remainder of this knowledgebase article discusses how to calculate BAS based on the second option.

To calculate the GST liability, follow these steps:

  1. At the end of the BAS period, print out statistical reports.
  2. At the bottom of the report you will see figures for patients in credit (and debit) as at the start of the report and the end of the report. These figures are very important. All patients that have prepaid for care plans will be 'patients in credit'. This money should be considered to be 'held in escrow' for the patients. It is an important distinction, as 'escrow money' is not considered income.
  3. There would have been some escrow money at the start of the BAS period, so its important to subtract one from the other to see how your escrow has changed during the BAS period. If the escrow has dropped, it means some escrow money has been consumed (as income). If the escrow has increased, it means that some of your collections can be deducted from your declarable income figure.
  4. Once you have the actual income figure, you can apply it against the products and services rendered to determine your GST liability.
  5. Deduct the value of all GST-free services and products from the income value first.
  6. If any GST-free services and products have been brought forward from previous BAS periods, deduct them too. See step 9 (below) for more information about this.
  7. Deduct the value of the GST-payable services and products with the lowest GST-rate. Also, deduct the value of GST-payable services and products at the same rate that have been brought forward from previous BAS periods. Make a note of the GST amount on these services and products.
  8. Repeat step 7, progressively until there is no income left.
  9. Record any remaining amounts, adding them to any figures brought forward from previous periods, and not consumed in steps 6, 7 and 8.
  10. Tally all the GST liabilities recorded in step 7. This is the overal GST liability.

Detailed Information

Example 1: Escrow increases during BAS Period.

In this example, we assume $100000 of collections, $105000 of services rendered, and an escrow figure that increases from $20000 to $21000 during the BAS period.

  1. At the end of the BAS period, print a statistical report for the three month window.
  2. Look at the escrow figures. For this purpose, lets assume that the patients in credit at the start of the period was $20000, and at the end of the period, they were $21000.
  3. Deduct the starting escrow figure from the ending escrow figure (in this case, the result is $1000).
  4. Now examine the collections total for the period. For this exercise, lets assume that the revenue was $100000.
  5. Deduct the escrow variation from the revenue. This leaves us with $99000 declarable income.
  6. Now examine the list of services. For the purpose of the exercise, lets say that there was $90000 worth of GST-Free items and $15000 worth of GST-payable items. This suggests that your staff are not collecting all the debts - which is a problem - but is irrelevant for the purpose of the calculations.
  7. Now, group together the GST amounts based on the GST percentage. If the $15000 worth of chargeable items is all at the same rate, this is easy, but if the there was $5000 worth of products at 5%, $5000 worth of products at 7% and $5000 worth of products at 10%, you would need to tally:
  • $90000 at 0% (GST-free)
  • $5000 at 5%
  • $5000 at 7%
  • $5000 at 10%
    Add any figures brought forward from the previous BAS period to those calculated in step 7. More information on this appears below in step 12. To simplify this example, we will assume that no figures are brought forward from the previous BAS period.
  1. Deduct the GST-Free total from the declarable income. This leaves $9000.
  2. Deduct the GST-payable amounts starting with the one at the lowest rate. In this case, tally $250 for the first $5000. This leaves $4000.
  3. Repeat step 10 for the next lowest rate until no declarable income remains. In this example, that would be $280 for the remaining $4000 - giving a total of $530.
  4. The remaining $6000 worth of GST-payable items should be recorded so it can be used in subsequent BAS periods. The

    figure should be broken down into the various GST-rates applicable. In this example, record $1000 worth of products leftover at 7% and $5000 worth of products leftover at 10%.

Example 2: Escrow decreases during BAS Period.

In this example, we assume $100000 of collections, $105000 of services rendered, and an escrow figure that drops from $20000 to $19000 during the BAS period.

  1. At the end of the BAS period, print a statistical report for the three month window.
  2. Look at the escrow figures. For this purpose, lets assume that the patients in credit at the start of the period was $20000, and at the end of the period, they were $19000.
  3. Deduct the starting escrow figure from the ending escrow figure (in this case, the result is -$1000).
  4. Now examine the collections total for the period. For this exercise, lets assume that the revenue was $100000.
  5. Deduct the escrow variation from the revenue. Because the escrow variation was a negative amount, this leaves us with $101000 declarable income.
  6. Now examine the list of services. For the purpose of the exercise, lets say that there was $90000 worth of GST-Free items and $15000 worth of GST-payable items.
  7. Now, group together the GST amounts based on the GST percentage. If the $15000 worth of chargeable items is all at the same rate, this is easy, but if the there was $5000 worth of products at 5%, $5000 worth of products at 7% and $5000 worth of products at 10%, you would need to tally:
  • $90000 at 0% (GST-free)
  • $5000 at 5%
  • $5000 at 7%
  • $5000 at 10%
    Add any figures brought forward from the previous BAS period to those calculated in step 7. More information on this appears below in step 12. To simplify this example, we will assume that no figures are brought forward from the previous BAS period.
  1. Deduct the GST-Free total from the declarable income. This leaves $11000.
  2. Deduct the GST-payable amounts starting with the one at the lowest rate. In this case, tally $250 for the first $5000. This leaves $6000.
  3. Repeat step 10 for the next lowest rate until no declarable income remains. In this example, that would be $350 for the next $5000, and $100 for the remaining $1000 - giving a total of $700.
  4. The remaining $4000 worth of GST-payable items should be recorded so it can be used in subsequent BAS periods. The figure should be broken down into the various GST-rates applicable. In this example, record $4 worth of products leftover at 10%.

Example 3: How to apply amounts brought forward from previous BAS periods

In this example, we assume $100000 of collections, $95000 of services rendered, and an escrow figure that increases from $20000 to $21000 during the BAS period. In this case, we will also assume that there is $1000 worth of GST-free amounts, and $4000 worth of GST-payable amounts (at 10%) brought forward from the previous period.

  1. At the end of the BAS period, print a statistical report for the three month window.
  2. Look at the escrow figures. For this purpose, lets assume that the patients in credit at the start of the period was $20000, and at the end of the period, they were $21000.
  3. Deduct the starting escrow figure from the ending escrow figure (in this case, the result is $1000).
  4. Now examine the collections total for the period. For this exercise, lets assume that the revenue was $100000.
  5. Deduct the escrow variation from the revenue. This leaves us with $99000 declarable income.
  6. Now examine the list of services. For the purpose of the exercise, lets say that there was $90000 worth of GST-Free items and $15000 worth of GST-payable items. This suggests that your CAs are not collecting all the debts - which is a problem - but its irrelevant for the purpose of the example.
  7. Now, group together the GST amounts based on the GST percentage. If the $15000 worth of chargeable items is all at the same rate, this is easy, but if the there was $5000 worth of products at 5%, $5000 worth of products at 7% and $5000 worth of products at 10%, you would need to tally:
  • $90000 at 0% (GST-free)
  • $5000 at 5%
  • $5000 at 7%
  • $5000 at 10%
    Add any figures brought forward from the previous BAS period to those calculated in step 7. More information on this appears below in step 12. In this case, it changes the figures to:
  • $91000 at 0% (GST-free)
  • $5000 at 5%
  • $5000 at 7%
  • $9000 at 10%
    Deduct the GST-Free total from the declarable income. This leaves $8000.
  1. Deduct the GST-payable amounts starting with the one at the lowest rate. In this case, tally $250 for the first $5000. This leaves $3000.
  2. Repeat step 10 for the next lowest rate until no declarable income remains. In this example, that would be $210 for the remaining $3000 - giving a total of $460.
  3. The remaining $11000 worth of GST-payable items should be recorded so it can be used in subsequent BAS periods. The figure should be broken down into the various GST-rates applicable. In this example, record $2000 worth of products leftover at 7% and $9000 worth of products leftover at 10%.

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Copyright 2008 Capable Software Pty Ltd

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Source: www.capablesoftware.com.au

Category: Credit

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