This article describes a way you can record business purchases which contain a private use component.
The example we'll use in this article is where a vehicle is used for 80% business purposes and 20% private. In this case the GST credit allowed is only 80% of the total GST paid. You will need to determine what amount is creditable in accordance with the ATO guidelines.
If a transaction is of a purely private nature (or directors' drawings), the N-T (no-tax) code would typically be used, as this expenditure is not reported on your Business Activity Statement (BAS). For non-tax deductible expenses such as speeding fines you need to create and use a new tax code called NTD (Non-Tax Deductible). In this way, you are then able to report these amounts in the G15 field on the BAS, which is where non-tax deductible expenses need to be reported.
This article is provided for guidance only and relates to Australian businesses. It might not be suitable for your business requirements. If you need clarification or additional information, check with your accounting advisor or post your question below.
Setting up the required tax codes
We need to create 3 new tax codes (Lists menu > Tax Codes > New).
- a tax code for private use
- a GST tax code for specificaly for use with the above tax code
- a consolidated tax code
Create a tax code for private use
You may need to create several of these because your private use percentage may differ depending on the type of private use being dealt with. This tax code will be used to create a consolidated tax code for use on transactions that involve a portion of private use.
Enter the Tax Code and Description and make sure the Tax Type is Sales Tax. Set the Rate according to the type of private use. For example, if our private use for vehicle expenses is set at 20%, then the rate in the tax code will be 2%. Select an account for the Linked Account for Tax Collected. You may want to set this as an account named 'Misallocated', because this tax code should never be used on a Sale or Deposit.
Here's our example:
Create a GST tax code specifically for use with the private use tax code
Again, you may need to create several of these because your private use percentage may differ depending on the type of private use being dealt with. This tax code will be consolidated with the code created above. This time, make the Tax Type as Goods & Services Tax, and set the Rate according to the type of private use. For example, if our private use tax code created above is set to 2%, we would set the GST tax code as 8%. This way both tax codes add up to the current GST prescribed rate of 10%. The linked accounts for tax collected and tax paid should be the same accounts you normally use to record these taxes, for example GST Collected and GST Paid.
Here's our example:
Create a consolidated tax code to use when entering your expenses
This time the Tax Type should be Consolidated. Enter the sub - taxes that comprise the consolidated tax code as the two tax codes created above. Make sure that the total tax rate for the consolidated code is 10%.
Here's our example:
Recording the purchase
Create a tax inclusive Spend Money transaction and enter the Date and Amount. In the Memo field, briefly describe the purpose of this transaction. Make the tax code the consolidated tax code (VEH) created above.
Go to the Edit menu and select Recap Transaction to see that only the business use proportion is allocated to the expense account, and the GST paid account is only debited for the amount of tax attributable to business use.
Here's our example transaction:
Preparing your BAS
Select both of the tax codes PRV and GSV at G11.
Select the PRV tax code at G15.
The Goods and Services tax code will show the full exclusive amount of the expense plus business proportion of the GST at G11, and the private use sales tax type code will show the private portion of the GST paid, but not the expense portion.
At G15, this last figure (GST applicable to private use) will be multiplied by 11 (this is purely a mathematical correction for BASlink) and then this figure will be deducted from creditable acquisitions at G17, leaving only the business proportion of the expense and GST at G19.
Here's our example:
At the end of the accounting period you or your accountant will need to enter an adjusting journal to reduce business expense accounts by the amount of the private use and transfer them to an account such as drawings.
