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Video transcript - Goods and services tax (GST)
Goods and services tax is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. Generally businesses registered for GST (goods and services tax) include GST in the price of sales to customers, and 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 our business doesn’t actually bear the cost of it. But we have to collect the tax, and send it to the ATO.
Businesses don’t bear the cost of the GST because they can claim credits. The cost is borne by the end customer.
So the ingredients for this cake were sold to the manufacturer for $11 including GST. The supplier pays $1 GST to the ATO. The Manufacturer sells the cake to me for $22 including GST. That’s $2 GST but he can claim a credit for the $1 he paid the supplier. So he pays $1 to the ATO. I sell the cake to my customer for $33 including GST. That’s $3 GST but I can claim the $2 I paid the manufacturer. So the customer pays the $3 GST and we pass it on to the ATO $1 each. Unless of course I eat it myself!
You must register for GST if your current or projected annual GST turnover is over the GST registration threshold, or if you provide taxi travel or you want to claim fuel tax credits. You must continually monitor your turnover and register for GST within 21 days of it reaching the GST registration threshold.
You report your GST on the activity statement the ATO sends you at the end of each tax period. As a small business, you‘ll normally have quarterly tax periods, but may choose to report monthly. Some may be eligible to report and pay GST annually.
Greg and Fiona didn’t initially register for GST. But when they realised their projected turnover was above the GST registration threshold, they were required to register. Of course, they could have chosen to register when their turnover was below the threshold. But whatever your turnover, if you’re registered you must include GST in the price of your taxable goods and services.
They must include GST in the price of their taxable sales, issue tax invoices, obtain tax invoices for purchases with GST in the price, report their sales and purchases and send any payable GST to the ATO. If your turnover falls below the threshold you can cancel your GST registration. You must also cancel your registration if you’re not carrying on an enterprise. You may also be required to cancel your GST registration if your business structure changes.
If you are registered for GST, you can generally claim a credit for any GST included in the price you pay, provided you hold a tax invoice. This is called a GST credit. If you purchase goods or services you use for both business and personal purposes, you can only claim a GST credit for the business portion.
If you make a taxable sale, then by law you must provide a tax invoice to your customer if they ask for one and if the sale is more than a minimum amount. The invoice must include the words ‘Tax Invoice’, the supplier’s name and ABN (Australian business number), a brief description of what is sold including quantity if applicable, the extent to which each sale is a taxable sale, the issue date and GST amount.
For larger amounts, the tax invoice must include the customer's name or ABN. As a buyer, you may need to ask the seller to give you a tax invoice if you don't get one at the time of the sale. The seller must then provide it to you within 28 days.
Most sales in Australia are subject to GST but some are GST free including, basic food, exports, some health and education services, certain goods and services from charitable institutions, childcare, religious services and water and sewage services. You also don’t collect or pay GST on certain goods and services that are financial supplies like bank loans and interest; as well as residential rent. These kinds of sales are called ‘input tax sales’.
Seems pretty straightforward to me.
It is, although there are special rules. These include special rules for food retailers, second hand goods, charities, real property, accommodation providers, imports and exports. For more information on these, visit the ATO’s website.
This video explains how GST works, indicates when you have to register and outlines what you have to do when you are registered for GST