GST basics

The nitty-gritty |  The paperwork |  GST and tax deductions | The exemptions

Goods and services tax is a broad-based tax of a flat rate of 10% that is added to almost everything that Australians buy, use or consume. Sounds pretty straight-forward doesn't it.

Well, yes and no. It's true that the flat 10% goods and services tax (GST) will be included in the price of most items – but it is the exceptions to this rule, the allowances made and concessions written into the GST rules that make it much less straight-forward than it could be.

• Businesses add 10% to the price of most goods and services they supply to customers, and then pass this 10% on to the Tax Office.
• So businesses charge GST but don't keep it, and they pay GST but get a credit for it (so basically are working as collection agents for the Tax Office).
• The end consumer wears the ultimate burden as they pay the extra 10% and get no credit.
• The business must be registered to both charge GST and to get credits for it.
• Business activity statements account for GST charged and credits claimed, and a separate GST return is made for each tax period, which is monthly or quarterly.
• If the GST for a tax period is more than the credits, the business pays the balance to the Tax Office. If credits are more than GST, they get a refund.
• Some things are GST-free, mainly food, health services, education, exports and certain charity items. Others are 'input taxed', which means the supplier can't charge GST to their customers on the goods and services or claim a credit for the GST paid on the purchases made in relation to those goods and services. These are mainly residential rental and financial services. There are also special rules regarding second-hand goods, gambling, land development, imports, insurance and cars.

The nitty-gritty
Your business will need to register for GST if your annual turnover (that is, your turnover before any GST is added) is $75,000 or more. You have a choice to register or not if it's less than that (and the reason for this is explained just below).

The GST rate is set at 10%, so for example if you charge $90 for whatever your business supplies, the customer will be invoiced for $99. That extra $9 is the government's take.

Likewise, when you buy supplies for your business, you'll be charged that 10% but can claim it as a GST credit. At the end of each tax period, say each quarter, you need to send the Tax Office the GST you've collected minus any that you've paid (the credits).

This is the reason that businesses are given the choice of registering for GST at less than $75,000 turnover. If your business spends a reasonable amount of money on supplies that are subject to GST anyway, you would want to be able to claim these credits back.

Taxi drivers however need to charge GST no matter what their turnover is, and not-for-profit organisations can reach a turnover of $150,000 before needing to register.

Register for GST
You can apply online for GST registration at the Australian Business Register. This is also the central collection point for basic information about every business, so you can also register for an Australian business number (ABN), a tax file number (TFN), pay-as-you-go (PAYG) withholding and so on, and to register your business name.

If your business is approaching the level of turnover to have to register for GST, and you reach and pass the threshold, you'll need to register within 21 days. Every month counts, so you need to keep an eye on the figures, but if you go over the threshold one month and are likely to stay under the $75,000 after that, the Tax Office won't insist – you'll just have to show that forward projections for turnover will be below the threshold.

The paperwork
Your business activity statement is used to report all your periodic business tax obligations and entitlements, and it's here that all the GST information needs to be recorded. You will need to report on, and pay, all the GST on your sales, and claim credits for any GST included in the price of your business-related purchases.

If your turnover is more than $20 million, you'll be locked into making GST reports and payments monthly. Otherwise it will be quarterly, although you can choose to report monthly if that suits your cash flow better.

Due dates for reporting are either 21 days after the end of each month, or if quarterly by the 28th day of the month following the end of a financial quarter (September, December, March, June).

Invoices need to display specific information. For sales of $1,000 or more, invoices need to display the words 'tax invoice' prominently, the seller's name and ABN, date, buyer name and ABN or address, the items sold and how many, and the GST amount or that the total includes GST.

Invoices for less than $1,000 need to have all the above but not the buyer's details. See all the details about tax invoices here.

GST and tax deductions
If you are able to claim an income tax deduction for something you've bought for the business, you'll need to take off any GST credit you are entitled to claim – so you can't double-dip. But if there's no GST credit for that purchase (if it's an 'input taxed' item), the full amount is available as a deduction.

Small businesses (annual turnover of less than $2 million) get various tax concessions and part of these is being able to pay GST by instalments.

The exemptions
Then there are the items that are deemed to be 'GST-free', on which your business does not have to add GST to the price (although you can still claim credits for any GST included in the price of anything your business buys to make these GST-free sales, called 'business inputs').

The GST-free list includes most food, although some foods are taxable. Then there are precious metals, cars for the disabled, health and medical supplies, international travel, second-hand goods, farmland – the list goes on and is both exhaustive and exhausting, so it will pay to check with the Tax Office or your tax agent.

Sales of businesses as going concerns (that is, where everything that is necessary for the business to keep running after it changes hands is sold as one package) do not have GST added.

There are also supplies that are made outside the GST system. These include government departments supplying other government bodies, sales made by people who are not in business (a local garage sale for example), or gifts and transactions that do not have the requisite connection with Australia.

Lastly, there are supplies that are said to be 'input taxed'. These include rent on residential premises, financial items such as loans, ATM transactions, sale of existing residential premises (not new homes or commercial buildings) and certain charitable fund raising.

If any supply is input taxed, there is no GST component in the price, and the supplier won't be able to claim credits for the GST on the purchases (business inputs) that relate to this supply.

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