GST Basics
After reviewing these introductory questions, visit the Tax Office: www.ato.gov.au
- What is the GST?
- What is excluded?
- Who is Required to Register?
- What Records are Required?
- How does it Work?
- When?
1. What is GST?
The Goods and Services Tax replaced the wholesale sales tax regime in the year 2000; it is a multi-stage value added tax that is applied to goods and services provided in Australia. The end user bears the consumption tax.
The rate of 10 % is payable on each taxable sale.
Advertised or displayed prices should be inclusive of the GST.
2. What is excluded?
There are two categories where a supply is either partly or fully free of GST (advice should be sought here) :
- GST Free sales or activities and
- Input taxed sales
i. GST Free Items,includes :
Food -Basic unprocessed foods : (The Democrats proposed that )"the provision of food and drink in a form suitable for human consumption" be GST-free with a number of exceptions including beverages chargeable with any duty or excise, ice cream, ice lollipops, frozen yoghurts, chocolates, biscuits, bakery products (whether cooked or uncooked) excluding bread, and snack foods.
Most Health services including hospital, dental and medical, but with some transitional concessions for some non-conventional treatment,
Education, but texts, computers and fees for equipment (eg musical instruments) are taxed,
Government funded Child Care,
Exports and Duty Free purchases,
Religious Services,
Non-Commercial activities of Charitable Institutions
Water and Sewerage
Sale of Business as a Going Concern
International Transport
Other - including cars for disable people
ii. Input taxed sales
A concessional gst treatment is applied to certain goods and services including :
Financial Services - Including Home loan repayments, hire purchase agreements, acquisition of shares on stock exchange,
Note that (exception) items in this category that will bear full GST includes advice from lawyers, Accountants and insurance or investment advisors.
Residential Accommodation (contrast with Commercial) Tenants will not be charged, but the reciprocal is that landlords will not be able to claim credits relating to the premises let.
Precious Metals any supply other than the first supply after refinement. Suppliers cannot pass on GST to purchasers, because the price is internationally fixed.
3. Who is Required to Register?
Any business with an annual turnover of $ 75,000 or more is required to register for GST, within 21 days. If registration is not effected, pricing (ex GST) may be competitive but credits may not be claimed. All taxi drivers are required to register. Isolated transactions that have a business purpose will be included (eg commercial property owners); hobbies will be excluded. Note that the Commissioner will only provide an Australian Business Number ("ABN") if satisfied that the applicant is carrying on a business. This is a concern for some contractor entities where the income is derived principally (80 % or more) from your personal services for an income year from one client (including associates of the client).4. What Records are Required to be Kept?
Sufficient records are required to be kept, in English, and be accessible for a period of 5 years, to explain all relevant transactions and other relevant acts. Due to the need to self assess on a quarterly basis, business clients should ensure that their bookkeeping system factors in the input tax credits and tax collected and is kept up to date. Clients who are computerised, with software that will be GST compliant are in a better cash flow position than those who prepare their books manually or using spreadsheets; depending on volume and complexity of transactions. Note that for taxable GST supplies, your accounting system will need to split the GST component for each cost! For example if stationery costs you $ 111 including GST, then the amount allowable as a tax deduction will be $ 100 and the GST credit will be $ 11. Splitting staff amenities for an example may be coded with GST or without depending on whether it is eligible (GST free) food. Morning teas including milk and coffee will be GST exempt whereas light lunches provided on office premises although free of FBT, may be subject to GST. Accounting for Meal Entertainment is complicated by the decisions taken on accounting for fringe benefits; whether it is the 50/50 or actual method. This quite confusing for management accountants and its important that transactions are recorded properly to facilitate preparation of business activity statements, fringe benefits tax returns (if required) and Income Tax Returns for employers and reportable benefits for employees. Meal entertainment is not a reportable benefit whereas other entertainment may be. Please Call for assistance! To claim tax credits, valid invoices will be required to be kept. Valid tax invoices must show : the ABN (see above) of the issuing entity, the price for the sale, description of what was supplied and otherwise comply with GST regulations. It is crucial that taxpayers who are not registered for GST do not provide their customers or clients with an Invoice that may be construed as having charged GST.
5. How Does it Work?
Quarterly Returns Including other Taxes
Most registered businesses (turnover less than $ 20M pa) prepare quarterly Returns, and remit the net amount of tax due, inclusive of GST andother taxes for that enterprise.
Eg. Any (payg) tax instalments, which may be due for a particular quarter will be offset against GST tax credits for that quarter.
It may be appropriate for some taxpayers to register for monthly reporting and accruals. An example may be where a commercial property is being acquired and the going concern method is not adopted. The taxpayer may gain a substantial GST credit within a shorter space of time compared to quarterly registration.
Taxing Point - Cash Basis for Many Small Businesses
Where turnover is less than $ 2,000,000 per annum, the cash or receipts basis of accounting may be used.
Where turnover is greater than this threshold, the cash basis may still be preferable for cash flow reasons, and may be applied for if it may be demonstrated that it is the appropriate accounting basis for your business. Please seek guidance here.
If for example you invoice a customer $ x during a reporting period but you only receive half during that period, you only include half of GST of the $ xtotal invoice in that period to pay.
Similarly you may only claim the appropriate proportion of tax credits for what you have paid and have received a valid tax invoice.
6. When?
On commencement of trading!
