GST for small business

Getting started

What is GST?

Goods and services tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.

How does the GST system work?

Generally, registered businesses:

• include GST in the price of sales to their customers
• claim credits for the GST included in the price of their business purchases.

So while GST is paid at each step in the supply chain, businesses do not actually bear the economic cost of the tax. The cost of GST is borne by the final consumer who cannot claim GST credits.

Example: Collecting and paying GST on the sale of goods

A timber merchant sells timber to a furniture manufacturer for $110 (including $10 GST). The manufacturer uses the timber to make a table, which he sells to a furniture retailer for $220 (including $20 GST). The retailer then sells the table to a consumer for $330 (including $30 GST).

Raw materials	Net GST to pay
A. Timber merchant sells timber for $110, including $10 GST	GST on sale	$10
	Assume no GST credit	$0
	Net GST to pay	$10	Timber merchant pays $10 GST to us

A. The timber merchant needs to make $100 on the sale of the timber. So he sells the timber for $110, keeps $100 and pays $10 GST to us.

Production	Net GST to pay
B. Furniture manufacturer sells table for $220, including $20 GST	GST on sale	$20
	less GST credit	$10
	Net GST to pay	$10	Manufacturer pays $10 GST to us

B. The furniture manufacturer can claim a credit for the $10 GST included in the price paid to the timber merchant. The manufacturer offsets that $10 against the $20 collected on the sale of the table to the retailer, and pays $10 GST to us.

Distribution	Net GST to pay
C. Retailer sells table for $330, including $30 GST	GST on sale	$30
	less GST credit	$20
	Net GST to pay	$10	Retailer pays $10 GST to us

C. The furniture retailer can claim a credit for the $20 GST included in the price paid to the furniture manufacturer. The retailer offsets that $20 against the $30 GST collected on the sale of the table to the consumer, and pays $10 GST to us.

Retail	GST to pay
D. Consumer pays $330 (including $30 GST) to the retailer	$30 total GST paid to us

D. The consumer who buys the table bears the $30 GST included in the price, as consumers cannot register for GST and cannot claim GST credits.

Example: Offsetting GST credits

You are registered for GST and charge three customers a total of $20,790 (including $1,890 GST) for services provided in the March quarter (January, February and March).

For the same quarter, you can claim a GST credit of $500 for the GST included in the $5,500 you paid for business purchases (including paper, electricity, postage and phone services).

Rather than paying $1,890 GST to us, you offset the $500 GST credit (that is, the GST included in the prices you paid for your business expenses in the quarter) against the $1,890 GST to be paid on your sales for the quarter. You then pay a net amount of $1,390 to us.

Sales	Sale price	GST to be paid
A. Printing services to ZPB Pty Ltd	$550 (including $50 GST)	$50
B. Printing services to PXF Pty Ltd	$19,800 (including $1,800 GST)	$1,800
C. Photocopying services to Mr and Mrs Smith	$440 (including $40 GST).	$40
	GST on sales	$1,890
Purchases	Purchase price	GST credit
Paper, electricity, postage, phone	$5,500 (including $500 GST)	$500
	Net GST you pay to us	$1,390

A. and B. Both ZPB Pty Ltd and PXF Pty Ltd are registered for GST and can claim a credit of $50 and $1,800 respectively for the GST included in the price they pay for your services.

C. As consumers, Mr and Mrs Smith cannot claim a GST credit for the GST included in the $440 they pay you.