GST Obligations

 

GST is a tax of 10% on most goods, services and other items sold or consumed in Australia.

GST registered businesses:

 

  • include GST in the price of sales to their customers. E.g. Assume you sell a widget for $150. The GST charged to the consumer and remitted to ATO is $15.

     

  • claim credits for the GST included in the price of their business purchases. E.g. Assume you initially purchased the widget for $100. GST claimed from ATO is $10.

 

As a consequence, the cost to a business is only the GST tax of 10% calculated on the profit margin of the goods and services supplied to the customer. i.e. $50 x 10% = $5. The final consumer in the supply chain who is not GST registered bears the full GST element on their purchase i.e. $15. The consumer pays you $15, you pay the ATO $5 and your widget supplier the remaining $10. In some countries (UK) the tax is described as a value added tax (VAT) as it is only on the value increment at each step in the chain that a tax becomes attributable to the government.

 

You need to register for GST if your business has a GST turnover of > $74,999 or you provide taxi travel. You may also voluntarily register for GST. Doing so may be beneficial and this should be discussed with your accountant.

 

Two or more related businesses may apply to form a GST group to be managed by a single representative, provided they satisfy certain membership requirements.Transactions between group members do not attract GST.

 

Once registered for GST you need to :

1. Allocate all sales between taxable, GST-free or input taxed.

 

  • Taxable sales: business sales for ultimate payment, including the sales of business assets, connected with Australia

     

  • GST-free sales:e.g. basic foods, some exports

     

  • input taxed sales:e.g. financial supplies, residential rent

 

Some sales (mixed supplies) may be partly taxable and partly GST-free or input taxed and need to be apportioned accordingly.

 

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2. Include GST in the price of your taxable sales

 

You only charge GST on your taxable supplies. Supplies could cover services or goods. Under the GST act there needs to be 4 conditions present for an entity to make a taxable supply and collect the GST and remit to the ATO.

 

3. Issue tax invoices for your taxable sales.

 

For taxable sales < $1,000, the invoice must include:

 

  • the words ‘tax invoice’ stated prominently,
  • seller’s name,
  • seller’s ABN,
  • date of issue,
  • description of the items sold,
  • GST-inclusive price of the taxable sale,
  • the GST amount.

 

For sales > $1,000 the invoice should also include the buyers name, buyers address/ABN and the quantity of goods/services sold.

 

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4. Obtain tax invoices for your business purchases,

 

Only purchases of > $82.5 inclusive, that have GST included in their price (except for purchases used for input taxed sales or private purposes – no GST credits may be claimed) need a formal tax invoice. For purchases < $82.5 you will need proof of purchase (e.g invoice) but not a formal tax invoice.

 

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Common GST free sales

  • Selected:
    • Exports
    • Childcare
    • Medical services that qualify for Medicare benefit
    • Educational courses
    • Food (e.g Fruit, vegetables, bread, dairy)
  • Religious services
  • Services provided by Travel agents
  • sales of a business as a going concern
  • Farmland
  • Water/Sewerage services
  • Precious metals

5. Work out whether you have any adjustments

 

Examples include private use apportionments, credit notes, refunds etc. One of the small business concessions allows small business to make an annual apportionment between purchases that were made for private and business purchases instead of having to make the apportionment each time the BAS is submitted.

 

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6. Account for GST on a cash or non-cash basis, and

 

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7. Report your sales and purchases by lodging activity statements

 

This is required even if the amount to be reported is zero. By lodging the activity statement you will need to pay GST to the ATO or claim GST credits for GST included in the price of most business purchases.

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