Goods and Services Tax
On July 1st 2000 a taxation system was implemented in Australia featuring what we now know as the Goods and Service Tax (GST).
Goods and services tax is a broad-based tax at a flat rate of 10% that is slapped on almost everything that Australians buy, use or consume. Sounds pretty straight-forward -well, it is and it isn’t.
It’s true that the flat rate 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 straightforward than it could be.
Here is a snapshot of how GST works:
- Businesses add 10% to goods and services they supply to customers, and then pass this 10% on to the Tax Office.
- If the customer is also a business, it can generally claim a credit for the GST it has paid. This credit is taken away from any GST the business itself has charged out in working out whether the business owes net GST to the Tax Office or vice versa.
- So businesses charge GST but don’t keep it, and they pay GST but get a credit for it (it could be said that businesses are acting as collection agents for the Tax Office).
- The end consumer wears the ultimate burden as they pay the 10% and get no credit.
- The business must be registered to both charge GST and to get credits for it.
- Business activity statements (BASs) account for GST charged and credits claimed, and a separate GST return is made for each tax period, which is monthly or quarterly (or annually for some taxpayers).
- 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.
The GST rate is set at 10%, so for example if a business charges $90 for whatever it supplies, the customer will be invoiced for $99. That extra $9 is the amount paid to the government
GST 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.
Some things are GST-free, mainly food, health services, education, exports and certain charity items. The GST-free food list includes most food, although some are taxable (see here for the list of foods that are, and also this detailed searchable database of food items). 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.
Others items are ‘input taxed’, which means the supplier can’t charge GST or claim a credit. These are mainly residential rental and financial services. There are also special rules regarding second-hand goods, gambling, land development, imports, insurance and cars.
Items that are bought from overseas that are valued at $1,000 or less escape GST, and this includes anything bought online.
The Australian Taxation Office initially took a stance of light compliance, allowing tax payers and businesses time to become accustomed to the new system. However, since 2004 the ATO has stepped up its compliance program in regard to both GST and income tax reporting claiming that the Australian taxpayers and businesses should now be fully aware of their respective reporting obligations.
Any profit based business with a turnover of $75,000 or over is expected to report, in many cases quarterly (however some entities are required or choose to report monthly) their sales and expenses that include GST and make payment on their GST liability.
Failure to comply will incur heavy fines for non-lodgement and interest charges for non-payment.
Although the GST system has been part of our business culture for a quite a few years now, many small business owners still struggle to maintain the strict requirements placed on them. Time restraints, personnel limitations and outsourcing costs have made GST compliance a costly activity of which they have no choice but to participate in if they wish to trade.
At Astute Accountants & Associates we can help to turn this necessary obligation into a positive.
By completing your BAS statements we will be helping to complete your tax return over interim periods, thus making the end of June returns quicker and easier to finalise. This will also allow us to follow how your business is doing as the year unfolds allowing effective tax planning and business adjustments throughout the year, and not just at the end of the year, which may be too late – call us to discuss your needs and see how we can make BAS time a more relaxedtime.
