Goods and services tax

Contributed by AnnetteMorgan and current to 27 July 2018

Goods & Services Tax

The GST is a broad-based consumption tax which aims to tax “private final consumption expenditure”. For the most part, it is simply added onto the price of goods and services and paid ultimately by their final consumers, i.e. the individuals who ultimately buy any good or service. Businesses bear the responsibility for administering the tax and remitting amounts to the ATO. A detailed study of the working of the GST is, therefore, beyond the scope of this chapter. However, several comments are provided here with the aim of assisting those readers who are carrying on small businesses.

The principal legislation in relation to GST is the A New Tax System (Goods and Services Tax) Act 1999 (Cth). More information on this and related Acts can be obtained from the ATO website or the Business Tax Enquiries line on 13 28 66.

Mechanics of GST

The GST is imposed on taxable supplies. You will have made a taxable supply where:

• you supplied goods, services, advice or information, including dealings with real property or rights;
• you made the supply in return for some payment or other form of consideration;
• you made the supply in the course of an enterprise you are carrying on;
• the supply has some connection with Australia; and
• you are registered or required to be registered for GST purposes.

The current rate of GST is 10 per cent.

As mentioned, the GST taxes the final consumer of a good or service, not intermediate businesses. Therefore, if you are carrying on an enterprise, you will be entitled to be reimbursed for the GST you pay on your business inputs (such as trading stock). This reimbursement comes in the form of input tax credits. You must then charge GST on the goods and services you supply to your customers. You are liable to remit the amount of GST you charged to the ATO. Effectively, you are the collecting agent for the tax on behalf of the ATO. If your GST liability exceeds your input tax credit entitlements, you need only pay the difference of these amounts to the ATO. On the other hand, you will be entitled to a refund from the ATO where your GST liability is less than your input tax credit entitlements.

Australian Business Number

The Australian Business Number (ABN) is intended to be the single identifier for businesses when dealing with government departments and agencies. While it will eventually replace the Australian Company Number and Australian Registered Business Number, at this stage it is most useful for dealings with the ATO. It is also necessary to have an ABN in order for businesses to participate in the GST system. You are entitled to an ABN if you are a company registered under the Corporations Act 2001 (Cth) or an entity carrying on an enterprise in Australia. This includes individuals running businesses, charities and religious institutions. You will not be entitled to an ABN if you are an employee, a hobbyist or conducting activities without reasonable expectation of profit. You can apply for an ABN at the Business Entry Point atwww.abr.business.gov.au.

Registration for GST

To make a taxable supply, and to be reimbursed for GST you have paid on your business inputs, you will need to be registered for GST purposes. You must be registered if:

• you are carrying on an enterprise (that is, you are not merely engaged in a hobby or are an employee of the enterprise); and
• your annual turnover is $75,000 (or $150,000 if you are a non-profit organisation).

If your annual turnover is less than these amounts, you are able to choose whether to register for GST or not.

You can register for GST on the same form as the application for an ABN or you can register electronically at the Business Entry Point website at https://abr.business.gov.au/

Where GST does not apply

There are two types of supplies that do not attract GST – GST-free and input taxed supplies. Examples of GST-free supplies include the supply of food, medical services, education, child care and exports. GST is not payable on GST-free supplies; however, suppliers will be entitled to an input tax credit for acquisitions relating to those supplies. The two broad categories of input taxed supplies are financial services and supplies of residential premises. Where a supply is input taxed, no GST is payable on it. This means that landlords do not charge GST on rent of private houses or apartments (although rent may increase because of the GST imposed on other costs relating to the premises). Where you acquire goods or services that relate to the provision of input taxed supplies, you are generally not entitled to input tax credits on those acquisitions.