My GOV Master
Understanding Income Tax Account and Activity Statement Account for Creatives in Australia
Ever get those pesky emails saying there’s a message for you in MyGov?
And then ignore it?
Best not to do that…
If you haven’t linked your MyGov account to the ATO, there’s instructions here.
Your MyGov account is going to show you your tax lodgements coming up (or overdue) and debts you might owe to the ATO. Debts are usually split across two accounts. You can think of them like bank accounts that sit with the ATO.
In this blog post, we'll explore the differences between the Income Tax Account and the Activity Statement Account, understand what goes into each account, and discuss how debits and credits work within these accounts, helping you navigate your tax responsibilities more effectively.
From this dashboard you can click to view lodgements outstanding, or see payment options for fixing up any amounts owing to the ATO (usually the BPay option is the easiest). If you need a payment plan you can chat to the ATO directly, organise it yourself online, or ask your accountant (us!) for help.
Note: if you see an Instalment Activity Statement there on the dashboard please don’t ignore it… those are real tax obligations that you need to lodge and pay. You can read about pay as you go instalments (PAYG-I) here.
To understand the BALANCES of the accounts, you should click through to Accounts > Tax Accounts or Account Summary. There you will see the balances and an option to view more details (click the name of the account).
Income Tax Account
The Income Tax Account is specifically designed to handle income tax obligations. This is where the result (refund or payable) of your end of year tax bill will land. If a payable is not paid on time, then the ATO may add interest charges or fees and fines. If there is a refund owed to you, it will show up there. When you make payments, or when the ATO makes a refund to you, you will see that in the system too.
DR balance = you owe the ATO moneyCR balance = the ATO owes you money
In this example, there was an opening balance of $7k owing to the ATO. Then 2 tax returns lodged which had ‘refund’ amounts. Instead of the ATO paying those out to the person, they use them to reduce the amount owing back to the ATO instead. So now, there is just $2.8k owing to the ATO.
Activity Statement Account
The Activity Statement Account focuses on managing indirect taxes, particularly Goods and Services Tax (GST) and Pay As You Go (PAYG) obligations. As a creative business, you may be registered for GST. The Activity Statement Account is essential for reporting and paying your GST obligations accurately. It also helps you manage other indirect taxes like PAYG withholding and fringe benefits tax (FBT).
DR balance = you owe the ATO moneyCR balance = the ATO owes you money
New example: in this one we can see the amount owing to the ATO going up each time an Activity Statement was lodged, and then going back down when the payment was received.
The connections between the two
The ATO likes to make things tricky… some people/businesses are registered for PAYG-I. This is an instalment payment towards income tax payable. It is a prepayment of your year end tax bill. Instead of putting that through the Income Tax Account, and making the balance in that account go into CR (until year end when the tax return is lodged), they push it through the Activity Statement.
Example #1: If you had a tax bill this FY2023 of say $4,000, they will ask you to pay that now (Income Tax Account goes up to $4,000 DR). Then they sign you up for quarterly PAYG-I, asking you to pre-pay $1,000 each quarter. So at the end of September, the Activity Statement account has a $1,000 DR balance. Pay it (back to $0). End of December, it goes up to $1,000 again, then you pay it and back to $0. Do this each quarter. At the end of June 2024, ready to do your tax, we calculate the tax bill would have been $6,000, but you have prepaid $4,000 already. So the end result is $2,000 owing. The Income Tax Account will show a $2,000 DR balance owing to the ATO.
Example #2: Let’s say the same as above, but you don’t actually pay the instalments. So, throughout the year the ATO asks for $1,000 each quarter and you ignore them. We don’t recommend this, for the record. Then at the end of the year there is $4,000 DR in the Activity Statement account. We do the tax return and calculate the tax bill would have been $6,000. The instalments are still taken off this amount, because that debt is already registered with the ATO in the Activity Statement account and we don’t need to record it again. So the tax bill drops back to $2,000, recorded in the Income Tax Account. Now in MyGov you have 2 debts: the $2,000 in the Income Tax Account and the $4,000 in the Activity Statement account. The total is what the tax bill would have been anyway. You still owe the two amounts they are just recorded in different accounts for the ATO.
So, if you have a BAS or IAS to lodge, and it includes a line for PAYG-I, this amount owing to the ATO will register in the Activity Statement account. Whether it is paid or not by the end of the year, this amount will come off the Income Tax Return tax bill. But, if you haven’t actually paid it yet, then you end up with two balances in MyGov - the Activity Statement one, and whatever is left of the tax bill in the Income Tax Account.
The key messages?
- Don’t ignore MyGov messages
- Lodge your stuff on time
- Pre-pay the tax in instalments when you are asked to
- Set up payment plans if you need
- Keep in touch with us or your account if you need help
You might also like to check out our (free for clients) VIDEO on How To Save For Tax here.
