Understanding Deferred GST: What You Need to Know and how to handle it in Business Central

 If you're a business owner in Australia, you've likely come across the term "Deferred GST" in your financial reporting. Deferred GST is an accounting concept that relates to Goods and Services Tax (GST) payments, and it can have a significant impact on your cash flow and financial statements. In this post, we'll take a closer look at Deferred GST, what it is, and how it works.

What is Deferred GST?

Deferred GST is the amount of GST that a business has collected on sales but has not yet paid to the Australian Taxation Office (ATO). The ATO requires businesses to report GST on a quarterly basis through a Business Activity Statement (BAS). However, there are situations where businesses are allowed to defer the payment of GST until a later date.

For example, if a business purchases goods or services on credit and doesn't pay for them until a later date, the GST on those purchases can be deferred until the payment is made. This is because the business hasn't received the input tax credit for the GST paid on those purchases yet, so it wouldn't be fair to require them to pay the GST on their sales before they've received the credit.

How does Deferred GST affect financial reporting?

Deferred GST can have a significant impact on a business's financial reporting. Let's take a look at an example:

Suppose a business has made sales of $30,000 and purchases of $35,000 for a particular quarter. The GST rate is 10%, so the GST on sales would be $3,000, and the GST on purchases would be $3,500. If the business paid for all its purchases in that quarter, the BAS would look like this:

Total Sales: $30,000

GST on Sales: $3,000

Total Purchases: $35,000

GST on Purchases: $3,500

Amount the ATO owes us: $500

However, let's say the business has deferred the payment of GST on $2,000 worth of purchases until the next quarter. In this case, the BAS would look like this:

Total Sales: $30,000

GST on Sales: $3,000

Total Purchases: $35,000

GST on Purchases: $1,500

Deferred GST: $500

Amounts owing to the ATO: $500

The Deferred GST amount is included in both the Total Purchases (Amount the ATO owes us) and Amounts owing to the ATO. This is done to adjust the payment for the fact that the deferred GST hasn't been paid yet. If the Deferred GST wasn't taken into account as owing, there would have been a $500 refund ($3,000 - $3,500). So, when you add the unpaid Deferred GST ($500), there will be a payment of $0.


How is Deferred GST accounted for in Business Central?

1. General Journal to process the Deferred GST recognition.

                      

After the above Journal is posted, below is the result for the relevant GL accounts in the Char of Accounts.




2. GST Statement Mapping: After the Deferred GST recognition journal is posted, the Deferred GST amount will be auto-calculated and included in the GST Statement based on this mapping. The Deferred GST amount will be included in the GST settlement calculation.



3. GST Settlement from GST Statement.



4. Make the bank payment to settle the GST liability. 



Hope you find it helpful.

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