What is the GST system?
For Australia and many other countries, the Good and Services Tax (GST) is a value-added consumption tax charged on the supply of goods and services. It encompasses a list of goods and/or services that are manufactured or produced within Australia as well as most goods imported, with the exception of basic necessities, Eg.: Healthcare, fresh food and residential housing supplies. The GST does not apply to products that are utilised outside Australia, nor on the export of products/services outside of Australia.
The GST was introduced in the year 2000 by the Howard Government when it took government. The GST was designed to replace many of the Federal and State-based tax systems. The primary purpose of the introduction of GST was to eliminate some Federal taxes and many multiple State and Territory Government taxes, levies and duties including the stamp duty and miscellaneous banking taxes. Another core function of its introduction was to widen the tax base in Australia, which was formerly alleged to be immensely biased towards the provision of services. One of the benefits of GST was to unleash the unfair tax advantage that was enjoyed by the services industry in comparison to the good’s suppliers. The money collected by the government through GST is utilised for the amelioration of public services and infrastructure in cities and States: For the development of schools, hospitals, roads, recreational facilities, etc.
The GST is charged at an unchanging rate of ten percent (10%) on a large variety of goods and services, excluding those goods and services mentioned in the exempted items, as well as input taxed goods and services.
The GST is directed and managed by the Australian Tax Office on behalf of the Australian government, and it designed to supplement the revenues of the respective States and Territories.
A list of items that are not charged with GST include:
- Basic food items
- Basic health care services
- Basic medical appliances and aids
- Basic medicines
- Some educational courses and associated materials
- Limited services related to childcare
- Water, sewerage and drainage facilities
- Grants of land by the Australian government
- International transport and relevant issues
- Basic telecommunication supplies
- Religious Services
- Charitable activities
- International Mail
- Precious metals
- Sales of businesses that are an on-going concern
GST on Imports
GST in Australia is required to pay on imported goods. It is usually included in the price that the end-user (Consumer) pays on the goods or services, along with shipping costs. The individual is supposed to pay it earlier than the release of shipment by customs. However, the Goods and Services Tax can easily be claimed back when lodging a GST return, usually quarterly and occasionally, monthly.
GST on Exports
GST in Australia is not usually charged on exports, provided that the goods and services leave Australia within a period of sixty days (60) of issuing the invoice or receiving the payment.
Registration under GST
It is not compulsory for a business entity in Australia to be registered for the Goods and Services Tax if their turnover is less than $75,000 per annum. Business is, however, obligated to be registered for GST if both points discussed below are satisfied:
1. The business entity is currently carrying on its business activities within Australia, and
2. The yearly turnover of the business entity is likely to exceed $75,000. If the business entity is not registered under the Australian law, it is liable to 1/11th of its total income, in addition to harsh penalties.
A business entity registered under the GST regime in Australia is required to charge the tax if it makes a taxable supply. The criteria for making a taxable supply is as follows:
1. The business entity is registered for GST
2. The supply is for consideration
3. The supply is associated with Australia
4. The supply does not fall under the input-taxed or the GST-exempted category.
How to claim back GST?
GST can be claimed back on any creditable acquisition or a creditable importation if the business entity is registered. The concept is identical to claiming credit for the amount of GST paid.
A creditable procurement/importation/acquisition is deemed to be carried out if the business entity:
1. is registered;
2. takes up something for a creditable cause;
3. the thing in (2) is a taxable supply; and
4. gives consideration
How does the GST System work in Australia?
The following is a brief overview of how the GST system works in Australia, followed by a simplified explanation:
Goods and services tax (GST) is a broad-based consumption tax of 10% on most goods, services and other items sold or consumed in Australia. Generally, businesses and other organisations registered for GST will:
- include GST in the price they charge for their goods and services.
- claim credits for the GST included in the price of goods and services they buy for their business.
What you need to do for GST
If you run a business or other enterprise and have a GST turnover of $75,000 or more ($150,000 or more for non-profit organisations), or you provide taxi travel (including ride-sourcing) – you need to:
- register for GST
- work out whether your sales are taxable (that is, subject to GST, and not exempted because they are GST-free or input-taxed) and include GST in the price of your taxable sales
- issue tax invoices for your taxable sales and obtain tax invoices for your business purchases
- claim GST credits for GST included in the price of your business purchases
- account for GST on either a cash or non-cash basis and put aside the GST you collected so you can pay it to the ATO when due
- lodge activity statements or annual returns to report your sales and purchases and pay GST to the ATO or receive a GST refund.
The following example illustrates GST in action:
- Wholesaler manufactures goods and sells them to a distributor. Charges $110. GST collected $10. Remits $10 to ATO
- A distributor buys goods from a wholesaler and sells to supplier for $165. GST collected $15 less GST paid $10. Remits $5 to ATO
- Retailer buys from the supplier for $220. GST collected $20 lest GST paid $15. Remits $5.
- The supplier sells to the consumer for $330. GST collected $30 less GST paid $20. Remits to ATO $10.
- There the ATO collects $30 of the total consumer price of $330 or 1/11th regardless of how many people buy and sell the goods.
- Wholesaler $10
- Distributer $ 5
- Supplier $ 5, and
- Retailer $10
- Total GST remitted $30
Do I need to have a receipt to claim the GST?
To claim a GST credit for purchases that cost A$82.50 or less (including GST), you should have one of the following:
- a tax invoice
- a cash register docket
- a receipt
- an invoice.
If you can’t get one of these, keep a record of the purchase, such as a diary entry with:
- the name and ABN of the supplier
- the date of purchase
- a description of the items purchased
- the amount paid.
What can I do if I don’t have one?
You must have a tax invoice to claim a GST credit for purchases that cost more than A$82.50 (including GST).
Your supplier has 28 days to provide you with a tax invoice after you request one. Wait until you receive it before you claim the GST credit, even if this is in a later reporting period.
If your supplier does not respond to your request for a valid tax invoice within the 28 day period and you haven’t been able to find the missing information from other documents, you can seek the ATOs permission to treat a document as a valid tax invoice.
Where can I get assistance with my GST issues?
- email the ATO at GSTmail@ato.gov.au
- write to the ATO at
Australian Taxation Office
PO Box 3524
ALBURY NSW 2640
Australian Taxation Office (ATO)
ATO is the abbreviated form of the Australian Taxation Office, which essentially is a statutory agency of Australia and works as the chief revenue collection department for the government of Australia. The primary duties and responsibilities of the ATO include the administration and direction of the Australian federal taxation system, the superannuation legislation, and other issues relevant to these. The operational activities of the Australian Taxation Office fall under the range of the Treasury and the Treasurer of Australia. Working as the main revenue collection body in Australia, the office has the job to collect income tax and the Goods and Services Tax (GST).
Business Activity Statement (BAS)
It is a form that companies and businesses need to submit to the ATO so as to report and fulfil their tax liabilities. A major chunk of a business activity statement deals with the GST.
- If a business charges $100 for the goods or services it provides, so the customer will be asked to pay $110. The extra 10 dollars will be accumulated in the GST collection and sent to the ATO.
- If a business entity purchases supplies, it will be charged 10 percent for GST, which can be claimed later from the ATO as a credit.
When a business entity or a business in Australia fills in its respective Business Activity Statement, it is primarily mentioning the GST amount that it has collected on its subsequent sales, subtracted by any ‘credit’ that they have paid on their purchases of supplies. The different calculated with either be the business entity’s refund, or the amount that it owes to the Australian Taxation Office (ATO).