• Examples

    Working out your GST turnover

    Example: Projected GST turnover

    Nguyen is a qualified electrician. He works part-time as a salesman at an electrical wholesaler, earning $40,000 per year. The rest of the time he runs his own business as an electrician, which brings in another $40,000. Up to now he has not registered his business for GST and has not needed to.

    Nguyen decides to quit his salesman job so he can put more time into his business. He estimates that his business sales will increase to $90,000 per year.

    Nguyen's projected GST turnover is now more than $75,000, so he must register for GST within 21 days of when he starts putting more time into his business. Nguyen will then charge GST on his sales, and will be entitled to claim GST credits for any business purchases that include GST. (Refer GST definitions: GST credits).

    End of example

     

    Example: Sales connected with Australia

    For three years Alex has been running an internet business, selling mobile phone parts through his website. About half his sales are to Australian customers and half to overseas customers. He is not registered for GST.

    Recently Alex took on a new line of accessories and his sales have increased. His total sales for the past 12 months are now $50,000 for his Australian customers and another $50,000 for his overseas customers.

    Alex's sales to Australian customers are included in his GST turnover.

    His sales to overseas customers are also included in his GST turnover because they are 'connected with Australia'. It doesn't matter that these sales, as exports, are GST-free. (See GST definitions: GST-free).

    Alex's GST turnover is his total sales of $100,000, so he must register for GST.

    Once registered, Alex must include GST in his sales to Australian customers, but his sales to overseas customers are GST-free. He can claim GST credits for any of his business purchases that include GST.

    End of example

    Exports

    Example: GST-free export of goods

    Vino, an Australian wine merchant, supplies wine to Epicure in France. Vino exports the consignment of wine from Australia 20 days after giving Epicure an invoice for the supply. The supply is GST-free because Vino (the supplier) exports the wine from Australia within 60 days of giving Epicure an invoice for the supply.

    Example: Service used outside Australia

    Tom, an Australian freelance writer, is engaged by an English company to write a chapter of a book that will be published in England. He writes the chapter in Australia and sends it to the publisher. His service has been exported for use outside Australia so he does not include GST in his invoice to the publisher.

    Example: Service used in Australia

    A school in Australia provides tuition to overseas students in Australia. However, it bills the overseas parents of the students directly. As the supply is being made to students in Australia the supply is not GST-free.

    End of example

    Sale of a business as a going concern

    Example: Selling a business

    Magda is registered for GST and sells her florist business. The sale includes the shop, delivery vehicle, stock, equipment and all the other things necessary to continue operating the business. Magda continues to operate the business until the buyer takes over, the buyer is registered for GST, and both Magda and the buyer have agreed in writing that the sale is of a going concern. This is a GST-free sale.

    End of example

    Financial supplies

    Example: GST and financial supplies

    Bill's Department Store sells a fridge to Louise for $1,100 (including $100 GST) on credit and charges interest on the credit.

    As providing credit is a financial supply, the store doesn't include GST on the amount of interest it charges to Louise.

    In total, Louise pays the store $1,165, made up of:

    • the purchase price of $1,100
    • interest of $65.

    Bill's Department Store must pay $100 to the ATO, as this was the amount of GST included in the price of the goods.

    The store can only claim GST credits for purchases it used to provide the credit if either of the following apply:

    • the store's turnover does not exceed the financial acquisitions threshold
    • purchases for which credit was provided are reduced credit acquisitions – in which case a reduced input tax credit may arise.
    End of example

    GST and purchases for private use

    Example: Business and private use

    Raj buys a computer for $3,300 (this price includes $300 GST). He intends to use the computer 60% of the time for business and 40% for private purposes. Raj can claim a GST credit for the portion of the purchase that relates to his intended business use. This means he can claim $180 (60% of $300) as a GST credit.

    If Raj later finds that his actual use of the computer differs from his intended use – for example, his business use was higher than he estimated – he can make an adjustment in his activity statement. In this case, he would get more GST credits. If his private use was higher than he estimated, he would also make an adjustment, and in this case his GST credits would be reduced.

    End of example

    Choosing an accounting method

    Example: Accounting for GST on a cash basis

    Joe's Wholesale Books and Bill's Bookshop are both GST-registered businesses that use the cash accounting method.

    Joe's Wholesale Books sells books to Bill's Bookshop and issues a tax invoice on 17 December. Bill's Bookshop pays the invoice on 14 January.

    If Joe's Wholesale Books reports GST:

    • monthly, it would account for the GST in the month the GST is collected, that is, on its January activity statement (due 21 February)
    • quarterly, it would account for the GST in the quarter the GST is collected, that is, on its March quarter activity statement (due 28 April).

    If Bill's Bookshop reports GST:

    • monthly, it would claim a GST credit in the month it paid for the books, that is, on its January activity statement (due 21 February)
    • quarterly, it would claim a GST credit in the quarter it paid for the books, that is, on its March quarter activity statement (due 28 April).
    End of example

    Making changes to your GST liability

    Example: Adjustments

    An adjustment event that discounts the payment for the original sale of the goods or services by $660 results in a decreasing adjustment of $60. As this is below the $75 threshold there is no need to issue an adjustment note. It is not required for attribution purposes either.

    End of example

     

      Last modified: 23 Jun 2015QC 45629