IAS vs BAS: Let’s Settle the Difference

It is undeniably essential for Australian business owners to learn the differences between an Instalment Activity Statement (IAS) and a Business Activity Statement (BAS). While both are needed for tax compliance, they serve different purposes and apply to various types of businesses. Today, let’s discuss IAS vs BAS and clarify the distinctions between the two to ensure you stay on top of your financial obligations.

What Is an Instalment Activity Statement (IAS)?

An IAS is primarily used by individuals and businesses that are required to settle Pay As You Go (PAYG) instalments. PAYG instalments are regular prepayments made towards your expected tax liability on income. The key features of an IAS include:

PAYG Instalments: This is the primary component of the IAS. It helps spread the tax liability over the year rather than facing a large tax bill.
Fringe Benefits Tax (FBT) Instalments: Businesses that provide fringe benefits to employees might also need to report FBT instalments through the IAS.
Other Taxes: Depending on your situation, the IAS may include other taxes, such as deferred company dividends or government grants.

Who Needs to Lodge an IAS?

Individuals or businesses not registered for the Goods and Services Tax (GST) and those only required to deal with PAYG instalments usually lodge an IAS. You might be required to submit an IAS if you have income outside your salary that requires tax to be withheld or if you run a business with non-GST obligations.

What Is a Business Activity Statement (BAS)?

A BAS is a comprehensive tax reporting document for GST-registered companies, trusts, partnerships, and sole traders. It encompasses a range of tax obligations, including:

Goods and Services Tax (GST): The primary function of the BAS is to report and pay GST collected on sales and claim GST credits on purchases.
PAYG Withholding: If you have employees, you will report the tax withheld from their wages on the BAS.
PAYG Instalments: Similar to the IAS, businesses can also report and settle PAYG instalments through the BAS.
Other Taxes: The BAS can include reporting for other taxes such as FBT instalments and wine equalisation tax.

Who Needs to Submit a BAS?

All GST-registered business entities must submit a BAS. These include sole traders, partnerships, companies, and trusts. The frequency of BAS lodgement (monthly, quarterly, or annually) depends on the size of the business and its GST turnover.

Key Differences Between IAS and BAS

1. GST Registration

The most significant difference between IAS and BAS is GST registration. Only GST-registered business entities are required to submit a BAS, while others must submit an IAS. For instance, if your business’s annual turnover exceeds the GST registration threshold (currently $75,000), you must register for GST and lodge a BAS.

2. Scope of Reporting

A BAS covers a broader range of tax obligations than an IAS. It includes reporting GST, PAYG withholding, PAYG instalments and other taxes. An IAS, on the other hand, is primarily concerned with PAYG instalments, FBT instalments and other relevant taxes.

3. Lodgement Frequency

Depending on your business circumstances, IAS and BAS can be lodged monthly or quarterly. However, the specific requirements can vary:

BAS often requires more frequent lodgement (usually quarterly) due to the inclusion of GST reporting. Businesses with higher turnovers might need to lodge monthly.
IAS is typically lodged each month unless specified otherwise by the Australian Taxation Office (ATO).

4. Purpose

The IAS is used to prepay tax liabilities and manage cash flow throughout the year. This method helps you avoid large tax bills during tax season. The BAS, however, is a comprehensive tax reporting tool for businesses, ensuring compliance with various tax obligations, including GST. It provides a detailed account of the business’s tax liabilities and credits, ensuring accurate and timely tax payments.

IAS vs BAS: Considerations

Record Keeping

Keeping detailed records of income, expenses, and tax-related transactions can simplify the process of completing these statements and help avoid errors.

Penalties for Non-Compliance

As a business owner in Australia, you must understand your obligations and meet all deadlines to avoid penalties and interest charges from the ATO.

Professional Assistance

Consulting a qualified business accountant or tax professional can ensure you meet all your obligations accurately and on time.

Conclusion

When discussing IAS vs BAS, knowing each option’s specific requirements and purposes can help your business achieve accurate reporting and avoid potential pitfalls. If you have more questions about IAS and BAS or need professional assistance with your IAS or BAS lodgements, the office of Denis Cummins Public Accountants is here to help.