Just so you understand, @Matt, what that does is effectively reinvest the tax refund into the company as another contribution of capital.
Yes, the refund (boosted by the tax write-off) is the PAYG tax that has been overpaid to the ATO via the business bank account.
Accept, the ATO only deals via the business’s bank account so the taxpayer has no choice but receive it in the accounts of the business.
@tut - You may want to see it as a capital contribution, others just see it as refund of tax that has been overpaid. Who cares about the technicality, as long as it gets allocated to the right location within the financial accounts.
@Brucanna, the confusion is over the changing implications of this particular tax being business or personal. All @Matt said at one point was that it wasn’t GST. If it was PAYG, the issue is whether, under Australian law that is considered business or personal. I agree with your statement. The challenge is knowing which account is “right.”
I don’t see any confusion at all as it doesn’t matter if it is a business or a personal tax being paid on the profit of the business as the process within the business accounts is exactly the same when only the business’s bank account is being used.
Businesses lodge a quarterly tax notice which is a combination of GST and PAYG instalments and are generally paid together from the one business bank account. The PAYG is an estimate of the tax to be paid on current year earning based on the prior year.
At year end that PAYG estimate has either been understated or overstated. If understated, then an additional PAYG payment is made, if overstated, then a refund is made. As business funds were used to make the PAYG payments, then any refund is a re-imbursement of those business funds. The refund is not a capital contribution as it is not new money, just business money being returned from being overdrawn.
The same applies if a business owner takes extra drawings to go on holiday. Any money left over and re-banked into the business is a refund of the excess drawings, not a capital contribution as no new money is involved.
Now you are down to arguing semantics. If money is taken out of the business for a personal purpose, that is a withdrawal of capital. If it’s put back in, that is a contribution. It makes no difference if it is the “same” money. All money is fungible.
Thanks Brucanna…Finally someone who understands my predicament and Australian Tax. The issue for me me has been settled.
But thanks again Tut for your input. It has provided some good insight.
Perhaps that’s applicable for a very basic operation, however for the more sophisticated those transactions have to be more micro managed.
Interesting,
So what is the balance of this equity account? Is it the total of the tax you have paid for as long as you have use Manager? Or I suppose more importantly what did you want the balance of this account to mean?
An income tax provision account can be useful, particularly if your income is increasing rapidly (or decreasing) however that involves zeroing on the 30 june when you receive your actual tax assessment (so the different goes in personal drawings).