A withholding tax is a tax withheld from wages and paid directly to the government by an employer.
In the case where a business purchases goods and services from a supplier that does not quote an ABN, the business is required to withhold a percentage of the total payment of the tax invoice.
To withhold these monies, you must be registered for Withholding. Please refer to this ATO website for full details of the requirements and if need be, contact either the ATO or your tax advisor for more information.
Activate Withholding Tax
Before you record this type of transaction in the cashbook, you will need to ensure that the Withholding Tax has been activated.
To activate Withholding Tax:
- From the Home page, click Setup & Tools
- Click Cashbook Setup
- Click Tax
- Click Setup Tax Withholding
- The Tax Withholding Setup screen will display
- Enter the Withholding Tax Rate (currently 49%)
- Select the relevant Allocation Codes (for BAS Reporting purposes) i.e. Withholding Tax Deducted and Withhold Tax Remitted
- Select the Transaction Code i.e. Withholding Tax
- Check that the Withholding Tax activate tick is present
Creating Cashbook Transactions using the Withholding Tax format
- At the Home, go to Cashbook > Transactions
- The Enter Cashbook Transaction window will be displayed. Add a new transaction by clicking the Add New button
- The Enter Cashbook Transactions window will display
- Format: When you start a new transaction, by default transaction Format is set at POST GST transaction. Select the Withholding tax – no ABN from the dropdown list
Choosing this format will activate a new blank record ready for you to enter the transaction details.
In the example below, we have used the code for Repairs Plant/Mach for $500. Using the “Withholding tax – no ABN” Format, Agrimaster automatically:
- Adds a second Split line with the code Withholding Tax and
- Deducts 49% of the total invoice amount.
The results from the transaction are reported on the Withholding Tax Deductions (Details) Report and are included in the BAS.