Clarification on Accounting Treatment for Rejected BAS amendment outside of period of review

Question

 · Accepted Answer

Matt1207 · Answer

Scenario 1: ATO Forgiving a Tax Debt - Balance Sheet Adjustment - If the tax liability was previously recorded as a payable on your balance sheet, you should reverse it since you are no longer required to pay it. - Debit Tax Payable (Liability Account) to remove the obligation. - Credit Other Income (or a specific 'Forgiven Tax Liability' account) to reflect the write-off. - Accounting Treatment - The forgiven tax debt is generally considered statutory remission of liability and should be recorded as other income in your profit and loss statement. - It is not considered a bad debt since it was a liability, not an asset. - Tax Implications - The forgiven amount may be assessable income, depending on the nature of the tax. - If it relates to GST, there are typically no income tax consequences. - If it relates to income tax, the ATO generally does not treat it as assessable income. - If it impacts prior-period tax deductions or losses, you may need to adjust your carried-forward losses. Scenario 2: ATO Owing Me a Refund - Balance Sheet Adjustment - If you previously recorded an expected refund as an asset (e.g., under 'Tax Receivable'), you should remove it from your books. - Debit Retained Earnings or an appropriate expense account to offset the reversal. - Credit Tax Receivable (Asset Account) to eliminate the expected refund. - Accounting Treatment - The lost refund is generally an expense rather than income. - It is not a bad debt because it was a receivable from the ATO, not an amount due from a customer. - You may classify it as an adjustment to prior-period tax expense. - Tax Implications - If you initially claimed the overpaid GST or tax as an expense or deduction, you may need to revise prior-period financials for compliance. - The non-receipt of a refund is not taxable but may impact your future tax position if it relates to carry-forward deductions. In both cases, consult with a tax professional or accountant to ensure compliance with ATO reporting standards and the correct financial treatment of these adjustments.

Explore tax & super topicsExplore tax & super topics

About usAbout us