The Goods and Services Tax (GST) taxes the final consumer of a good or service. There are many goods and services that are GST-free, including food, education, child care and medical services. The current rate of the GST is 10%.
Businesses act as tax collectors for the Australian Tax Office (ATO): they add the GST to their goods and services and give this tax to the ATO. Businesses with an annual turnover of $75,000 or more must participate in the GST system, which requires the businesses to have an Australian Business Number (ABN) and be registered for GST purposes.
What is the GST?
The Goods and Services Tax (GST) is a broad-based consumption tax that aims to tax “private final consumption expenditure”. For the most part, it is added to the price of goods and services and paid by their final consumers (i.e. the individuals who buy the final good or service). Businesses are responsible for administering the tax and remitting amounts to the ATO.
The principal legislation in relation to the GST is the A New Tax System (Goods and Services Tax) Act 1999 (Cth). More information on this and related Acts can be obtained from the ATO’s website or business infoline (13 28 66).
The GST is imposed on taxable supplies. You will have made a taxable supply where:
•you supplied goods, services, advice or information, including dealings with real property or rights;
•you made the supply in return for some payment or other form of consideration;
•you made the supply in the course of an enterprise you are carrying on;
•the supply has some connection with Australia;
•you are registered, or are required to be registered, for GST purposes.
The current rate of GST is 10 per cent.
As the GST taxes the final consumer of a good or service (not intermediate businesses), if you are carrying on an enterprise, you are entitled to be reimbursed for the GST you pay on your business inputs (e.g. trading stock). This reimbursement comes in the form of input tax credits. You must charge GST on the goods and services you supply to your customers. You are liable to remit the amount of GST you charged to the ATO. Effectively, you are the collecting tax on behalf of the ATO.
If your GST liability exceeds your input tax credit entitlements, you need only pay the difference of these amounts to the ATO. On the other hand, you are entitled to a refund from the ATO where your GST liability is less than your input tax credit entitlements.
The Australian Business Number (ABN) is intended to be the single identifier for businesses when dealing with government departments and agencies. It is also necessary for businesses to have an ABN in order to participate in the GST system.
You are entitled to an ABN if you are a company registered under the Corporations Act 2001 (Cth) or an entity carrying on an enterprise in Australia. This includes individuals running businesses, charities and religious institutions. You will not be entitled to an ABN as an employee, or if you are a hobbyist or conduct activities without reasonable expectation of profit.
To apply for an ABN, fill in a form (available from the ATO, post offices and banks). Alternatively, you can register online at www.abr.gov.au.
To make a taxable supply, and to be reimbursed for GST, you have paid on your business inputs, you need to be registered for GST purposes. You must be registered if:
•you are carrying on an enterprise (that is, you are not merely engaged in a hobby or are an employee of the enterprise); and
•your annual turnover is $75,000 or more (or $150,000 if your organisation is not-for-profit).
If your annual turnover is less than these amounts but you are carrying on an enterprise, you can choose whether to register for GST or not. You need an ABN to register for GST. You can register for GST online via the business portal, by phoning 13 28 66, or through your registered tax agent or BAS agent.
Two types of supplies do not attract GST.
1 GST-free supplies: Examples of GST-free supplies include the supply of food, medical services, education, child care and exports. GST is not payable on GST-free supplies. However, suppliers will be entitled to an input tax credit for acquisitions relating to those supplies.
2 Input taxed supplies: The two broad categories of input taxed supplies are financial services and supplies of residential premises. Where a supply is input taxed, no GST is payable on it. This means that landlords do not charge GST on rent of private houses or apartments (although rent may increase because of the GST imposed on other costs relating to the premises). Where you acquire goods or services that relate to the provision of input taxed supplies, you are generally not entitled to input tax credits on those acquisitions.