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Setting up tax codes and linked accounts for portion of Private Use Expenses

Sarah623

Hello,

Can someone please help? I need to setup tax codes to handle the private use portion of business expenses such as those related to motor vehicle, telephone/internet and electricity. I know I have to set up different tax codes for each type of expense and have the %'s worked out with my accountant so that part is fine. However, when setting up a tax code it asks for a linked account for tax collected. What is the best name to call this account and which category in the Chart of Accounts should it go under and what type of account is it, i.e. Liability?

Please excuse my ignorance as I am new to MYOB and am not an accountant! Thank you in advance for your help.

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PaulBihet

If you intend to apportion the gst amount on a per transaction basis, although it is possible to create a consoildated tax code based on a % split between private and business use this

1. Does not split & allocate the expense to a private use account, (just the GST is split)

2. Is messy and complicated way of processing in MYOB

3. The ATO allows an annual adjustment if you are a small business see below from ATO website

When you can only claim a portion of a GST credit on a purchase, generally because the purchase is partly for business purposes and partly for private use, there are two ways of accounting for the GST credit:

calculate the portion of GST credit that you are entitled to and claim it on your monthly or quarterly activity statement
claim the entire GST amount as a credit on your monthly or quarterly activity statement and make a single adjustment annually.

This second option, with a single adjustment, is called annual private apportionment.

Your adjustment will either increase the amount of GST you are liable to pay or reduce your GST refund for the tax period you make the adjustment in.

If you still feel inclined to process on a per transaction basis, a better way is to split the expense

Example Telephone bill is $110 inc gst of which 50% is business & 50% Private

Enter as:

Telephone Expense $55 tax code GST

Owners Drawings or loan account $55 tax code FRE

Note also private use is longer entered on your BAS (The requirement to report has been removed)

All comments

Sarah623

Thank you Gavin for the information. Your suggestion sounds alot simpler but as someone else suggested could even do annually but will check with our accountant.

Thanks again.

Sarah:-)

Sarah623

Thank you Paul for the very helpful information. I will check with our accountant how he would prefer me to apportion private use expenses as annually sounds so much easier! Thanks again.

Sarah:-)

gavin12345

Hi @Sarah623

I suggest you look at how tax codes are setup in the Clearwater sample file and use that as a guide for linked accounts etc.

While creating new tax codes may have some short term benefits, I would not recommend it. This can cause problems later (for example if you later want to convert your file to a MYOB competitor, some only allow standard tax codes - 10% etc). You would be better off splitting the total and using 2 lines, one with GST and one without - as most do to Registration and Insurance.

For example if your total telephone expense is $100 (inc GST) and 60% is to have GST applied and 40% not, post $60 to Telephone Exp with Tax Code GST and $40 with Tax Code N-T.

Regards

Gavin

PaulBihet

If you intend to apportion the gst amount on a per transaction basis, although it is possible to create a consoildated tax code based on a % split between private and business use this

1. Does not split & allocate the expense to a private use account, (just the GST is split)

2. Is messy and complicated way of processing in MYOB

3. The ATO allows an annual adjustment if you are a small business see below from ATO website

calculate the portion of GST credit that you are entitled to and claim it on your monthly or quarterly activity statement
claim the entire GST amount as a credit on your monthly or quarterly activity statement and make a single adjustment annually.

This second option, with a single adjustment, is called annual private apportionment.

Your adjustment will either increase the amount of GST you are liable to pay or reduce your GST refund for the tax period you make the adjustment in.

If you still feel inclined to process on a per transaction basis, a better way is to split the expense

Example Telephone bill is $110 inc gst of which 50% is business & 50% Private

Enter as:

Telephone Expense $55 tax code GST

Owners Drawings or loan account $55 tax code FRE

Note also private use is longer entered on your BAS (The requirement to report has been removed)