IAS, which stands for Instalment Activity Statement, is a tax reporting document used in Australia by businesses and individuals like you who pay income tax in instalments.
You use this form to report the amount of tax you owe for a particular period and make payments on your income, as well as other taxes such as Goods and Services Tax (GST) or PAYG (Pay As You Go) withholding instalments.
You have the option to submit the IAS either quarterly or monthly, depending on your specific tax obligations. The determination of the submission frequency is made by the tax authorities.
The IAS is a bit different from the Business Activity Statement (BAS). While the BAS covers a range of taxes, the IAS focuses primarily on your income tax instalments and a few other tax types.
So, make sure to keep track of your tax responsibilities and use the IAS accordingly.
In this article
- What Taxes Do You Report in the IAS?
- Keeping Up with Your Obligations
- Determining If You Need to Lodge an IAS
- How to Lodge IAS and Fulfill Your Obligations
- Choosing Your Instalment Payment and Calculating Your Income for IAS
What Taxes Do You Report in the IAS?
Eligibility for Claiming Input Tax Credits
When you fill out the IAS, it includes details about your business’s income and expenses for the reporting period. Based on this information, the IAS calculates the amount of tax you owe.
Moreover, the IAS forms offer a summary of previous tax payments made towards your tax liability, along with any outstanding balance, if applicable.
Depending on your specific obligations and business structure, the IAS can encompass various taxes, such as:
- Income Tax Instalments: On the IAS, you will report payments made towards your expected tax liability for the current financial year. The tax authorities calculate the required amount based on your income and includes it in your IAS.
- Goods and Services Tax (GST): If you are registered for GST, you must report and pay your GST liability through the IAS. It applies to most goods and services in Australia.
- PAYG Instalments: You make these payments to employees, contractors, and other businesses, including ABN withholding. If you need to withhold PAYG, you report and pay these amounts on your IAS.
- Fringe Benefit Tax Instalments (FBT): If your business provides non-cash benefits to employees and their families, you may need to report and pay FBT using the IAS.
Keeping Up with Your Obligations
To avoid interest charges or penalties from the tax authorities, it’s important to understand which taxes you need to report and pay through the IAS. If you’re unsure about your obligations or need assistance, you can contact the tax authorities or seek advice from a registered tax agent.
Determining If You Need to Lodge an IAS
In most cases, the tax authorities will notify you (as an individual or business owner) if you need to pay income and other taxes in instalments.
As an individual or business in Australia, you may need to lodge an Instalment Activity Statement (IAS) if:
- You are a Business Owner: If you operate as a sole trader, partnership, company, trust, or superannuation fund and have a tax obligation based on your income, you will need to lodge an IAS.
- You Receive Income Not Subject to Withholding Tax: If you have income from investments, rental property, or business activities that is not subject to withholding tax, you are required to pay a PAYG instalment on that income.
- You Are a Self-Funded Retiree: If your income is subject to instalment deductions due to being a self-funded retiree, you must lodge an IAS.
- You Are Voluntarily Registered for GST: If you have voluntarily registered for GST and have chosen to pay the Goods and Services Tax (GST) in instalments, you will need to lodge an IAS.
How to Lodge IAS and Fulfill Your Obligations
Tax authorities will automatically issue you the required Instalment Activity Statement (IAS) form based on your previous tax liabilities. To lodge your new IAS form electronically, you have two options: use the Business Portal or the Tax Agent Portal.
If you haven’t received an IAS form but believe that you are required to lodge one, it’s essential to seek assistance from the tax authorities. They can provide guidance and support regarding your lodgment requirements.
Fulfilling Your IAS Obligations
When required to lodge an Instalment Activity Statement (IAS), there are essential obligations you need to fulfill to remain compliant.
- Lodging the IAS on Time: Ensure you submit your IAS on or before the due date to avoid any late lodgment penalties. The due date depends on your reporting cycle, which is typically quarterly but can be more frequent for certain businesses.
- Reporting Your Income and Expenses: Provide accurate information about your income and expenses for the reporting period. This data is used to calculate the amount of tax you owe.
- Paying the Correct Amount of Tax: Pay the correct amount of tax by the due date. The tax payable is calculated based on your income, expenses, and any instalments already paid. To avoid interest charges or penalties, it’s important to pay the correct amount of tax.
- Reporting and Paying Other Taxes: If you are registered for other taxes like GST, Pay-As-You-Go (PAYG) withholding, or PAYG instalments, ensure you report and pay these amounts on your IAS.
- Keeping Records: Maintain accurate records of your income, expenses, and tax payments to support your IAS lodgment and for potential tax audits or reviews.
By fulfilling these obligations, you can effectively lodge your IAS and meet your tax responsibilities on time, ensuring compliance with the tax regulations.
Choosing Your Instalment Payment and Calculating Your Income for IAS
To pay your Instalment Activity Statement (IAS), you have two options for calculating how much to pay each term.
The tax authorities offer a predetermined rate, and it’s the simplest option to pay the rate they calculate for you. Nevertheless, if you aim to save money over the long term, you may consider spending more time calculating your own rate for the IAS form.
Take the following factors into account when calculating your own rate:
- Consider changes in investments.
- Account for changes in legislation or product mix.
- Factor in consolidations.
- Account for any changes in your business structure.
- Stay updated on financial market changes.
- Consider internal business restructures.
- Account for significant changes in trading conditions.
- Consider the use of income tax losses.
Ensure you provide reasons for your result when calculating your rate.
Calculating Your Income
It is essential to know what counts as income and what doesn’t count. Do not include any amounts that are already considered as part of your GST. Your business income for instalment payments includes:
- Include all income from a foreign source.
- Take into account any foreign pensions that Australia can assess as income.
- Include income from trusts or partnerships.
- Account for interest earned on an account.
- Include dividends you either received or reinvested (excluding imputation credits).
- Consider gross rent, sales, and fees for services.
- Account for farm management withdrawals (any farm management deposits reduce your income for the current instalment period).
- Consider income you earn from selling a product or service.
- Include JobKeeper payments.
- Take into account royalties.
- Super funds or self-managed super funds are required to declare net capital gains or net losses.
- Account for tax credits for fuel.
Do not include these items when calculating your instalment income:
- Exclude any dividend amounts that fall under specific provisions of Australia’s income tax laws.
- Exclude any exempt income like family tax benefit payments and child care benefit payments.
- Do not include any payments or income provided to the National Rental Affordability Scheme.
- Exclude capital gains with the exception of superannuation funds and self-managed super funds.
- Do not include franking credits that appear on your dividend statement.
- Exclude grants that fall under the energy grants credits scheme.
- Do not account for GST amounts.
- Do not include income attributed to salary and wages if the amounts were withheld or should be withheld when following the PAYG system.
- Exclude luxury car tax (LCT) that you charge.
- Do not account for wine equalisation tax (WET) that you charge.
Calculating Your Total Tax Owed
After computing your income and determining the rate, combine these two figures to calculate the total amount owed for the IAS period.
It’s important to get an accurate income amount and rate, as wrong calculations in your favor may result in credits for the annual period.
Nevertheless, if you pay too little in taxes, it may lead to higher costs in future periods once the ATO processes your IAS.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.