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Overview
When you make a payment to the ATO (or receive a refund), or when you pay Super to your staff, there are some special categories that you should use.
ATO Payments/Refunds
1. Categorise the bank transaction (whether it is a payment or a refund) to the ATO Payments (BAS, IAT, GST) category. This is a special liability account used for this purpose.
2. Your accountant can then create a manual journal to create the offsetting entries against the relevant accounts (e.g. the GST account and the PAYG Withholding Tax Payable account).
Super Payments/Refunds
1. Categorise the bank transactions (whether it is a payment, or a refund) to the Superannuation Payable liability category.
Do not choose the Super Expense account for this. Make sure you choose the Superannuation Payable liability account.
Frequently Asked Questions (FAQs)
Q: I'm a bit confused by this. Do I need to understand what's going on?
A: If you're a business owner, no, not really. This is why you have an accountant! But to explain what's going on, let's look at what happens when you create sales invoices (with GST) and record expenses (with GST):
- Whenever you create an invoice line item in Easy Invoicing that attracts GST, we automatically create a credit entry in the special GST category for that invoice.
- Whenever you create an expense (or categorise an outgoing bank transaction) that has GST, we also automatically create a debit entry in the GST category.
- Imagine this GST category as like a tally of every sale and purchase you make. You can see exactly this if you run the GL Summary report and drill-down into the GST category (or you can just run the GL Detail report directly and select the GST category):
- When it's time to calculate the GST component of your BAS (you can use the BAS Report for this), the system sums up all the debits for the period, sums up all the credits and sees what the difference is. If the total of the credits is greater than the total of the debits, the ATO owe you a refund. If it's vice versa, you owe them a payment.
- Let's imagine that you owe the ATO money at BAS time (and purely for GST, let's ignore payroll in this scenario!). You will make a bank transfer for the amount of, say, $500. You will then categorise that $500 payment to the ATO Payments category... but what really needs to happen is that it needs to be offset against the $500 liability that is already in the GST account. Your accountant will then make a manual journal (which is a way of moving values between categories) to offset the payment against the GST account.
Q: Why can't I just categorise something straight to the GST account?
A: Because it would be very easy to make a mistake and get in a big mess. That's why you put it elsewhere and let your accountant journal it. Also, given many businesses have employees, there are the PAYG amounts to consider (some of what you paid the ATO was for GST, some was for PAYG withheld from your employees). Your accountant will work out the correct amounts and journal them accordingly. If you are on a payment plan with the ATO, there will be yet more journaling to do. This can clearly get very complicated, and this is why accountants exist. They're trained in making sure everything is correctly and legally accounted for.
Q: I'm a business owner, can I do this "journaling" myself?
A: Technically, yes. But it is not a good idea. It's very, very easy to make a mess, and accounting is extremely complicated. We would never recommend a business owner creates a manual journal. Ever. Even with good intentions, you'll likely get something wrong and your accountant will charge you for their time when they have to unravel it to correct it. It's best to just leave it to an expert in the first place: your accountant. Do the categorising step above to categorise the bank transaction into the right category, and then you can consider your part complete!