Claire’s Column – Why is an invoice so important?

17 Oct, 2019

Claire’s Column – Why is an invoice so important?

The humble invoice is arguably one of the most important operational elements of a business but is often overlooked. It not only provides proof of purchase, especially in the event of needing a refund or exercising a warranty claim, but it is the evidence the ATO requires in relation to identifying assessable income and allowing tax deductions.

Without a proper tax invoice any claims for tax deductibility may go out the window and you could forfeit any GST you might have paid on the transaction.

OK, so what details must a “proper tax invoice” include?

It must say “Tax Invoice” or, if the supplier is not registered to collect GST, “Invoice”.
It must state the Supplier’s Business Name and Contact Details.
The Supplier’s ABN or ACN must also be on the invoice. What you might not realise is that as a buyer, the ATO requires you to check that the ABN is valid and that the supplier is registered for GST. However, this is easy to check by heading to the ABN Lookup – https://abr.business.gov.au and typing in the ABN they have supplied. If they are not registered for GST they must not charge you GST. Similarly, if you are not registered for GST you must not charge GST on your invoices either. This applies even if you have an ABN. Registration to collect and pay GST is additional.
The date on which the invoice was raised. The date is very important as it identifies the period in which the income is taxable or the expense is deductible. The date also determines the particular Business Activity Statement in which to include the GST.
If the transaction is for an amount of $1000 or more, the tax invoice must include the Buyer’s Name and/or their ABN. This is not essential where the transaction is for smaller amounts.
A description of the product or service provided, the quantity supplied and the price. It must also show whether an item’s price includes GST and the amount of the GST.

So what happens if you receive an invoice without a valid ABN? The ATO is very strict on this and requires you to withhold 47.5% of the payment amount and report it to the ATO. If you fail to do so the ATO disallows you the tax deduction for that purchase.

As you can see the humble invoice can cause a lot of grief if it isn’t prepared correctly! Good luck and, as always, give us a call or send us a message if we can help.

☑ Tax invoice
☑ Supplier’s name
☑ ABN
☑ Date
☑ Description of purchase
☑ Amount & GST

See you next time for another instalment of Claire’s Column!

Claire

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