4.7.5.10 Goods & Services Tax (GST)

Summary

ANTS has been in effect since 1 July 2000 and comprises several elements, one of which is the GST. This topic provides general information on the GST.

More detailed information on this topic can be obtained from the Australian Taxation Office.

Introduction

The GST is a broad-based tax of 10% on the supply of most goods, services and anything else consumed in Australia. GST has applied on and from 1 July 2000.

How does the GST work?

GST is paid at each step in the supply chain, with business charging GST in the price of goods, services or anything else they supply. If an entity (1.1.E.129) is registered for GST, it can claim input tax credits from the ATO, for any GST included in the price paid for goods, services or anything else bought for the business. This means that the GST liability flows along the supply chain and is actually included in the price paid by the consumer, who cannot claim input tax credits.

However, for GST registered enterprises the liability to pay GST rests on the supplier of goods and services, not on the consumer. In other words, even if the business does not include the GST in the price of goods and services supplied, it is still liable to pay it to the ATO.

Business example

Taken from ATO publication - 'Guide to GST'.

Supply of goods GST flows GST collected
Lawrie, a timber merchant sells timber to Trish, a furniture manufacturer, for $220 (including $20 GST). Lawrie pays the $20 GST to the ATO. $20
Trish uses the timber to make a table and sells it to Gus, a furniture retailer, for $440 (including $40 GST). Trish is entitled to an input tax credit for the $20 GST included in the price paid to Lawrie. She offsets this $20 against the $40 payable on the supply of the table to Gus and pays $20 to the ATO. $20
Gus sells the table to Owen, a consumer, for $550 (including $50 GST). Gus is entitled to an input tax credit for the $40 GST included in the price paid to Trish. He offsets this $40 against the $50 GST payable on the supply of the table to Owen and pays $10 to the ATO. $10
Owen purchased the table for $550. Owen bears the full costs of the $50 GST as consumers cannot claim input tax credits. Total: $50

Example: Goods:

Tom buys a watch for $110. This price includes 10% GST. If Tom wants to work out how much GST was included in the price of the watch, he divides $110 by 11. This means the amount of GST Tom paid was $10.

Example: Services:

Sue has her hair cut by a professional hairdresser for $33. This price includes 10% GST. If Sue wants to work out how much GST was included in the price of the haircut service, she divides $33 by 11. This means the amount of GST Sue paid was $3.

GST exemptions

There are some types of supplies that are not subject to GST. These are called GST-free supplies and input taxed supplies.

GST-free supplies

Some supplies are not taxable and are called GST-free supplies.

If a supply is GST-free, GST cannot be charged on the supply, but input tax credits may be available for anything acquired or imported for use in the enterprise.

GST-free supplies include, but are not limited to:

  • most food,
  • exports,
  • most health services,
  • most educational supplies,
  • most child care services, and
  • non-commercial activities of charities.

Input taxed supplies

If a supply is input taxed:

  • GST is not charged on the supply, AND
  • input tax credit entitlements are not accrued for anything acquired or imported to make the supply.

Input taxed supplies include:

  • financial supplies which include most transactions relating to money,
  • supplies of residential rents,
  • supplies of residential supplies (except for the sale of a new house),
  • supplies of precious metals, and
  • supplies of food by school tuckshops.

Input tax credits

An input tax credit is an amount allowed to offset GST included in the price paid for an acquisition or the GST paid on the importation of an item for its use by an enterprise.

Registration for the GST

An entity, which may be an individual, carrying on an enterprise can register for the GST.

All businesses with an annual turnover of $75,000 or more ($150,000 or more for non-profit organisations) MUST register for the GST and will need an ABN to do this. Organisations with a lower annual turnover may choose not to register for the GST.

Entities may choose to register if they have an annual turnover of less than $75,000 (less than $150,000 for non-profit organisations).

By registering for GST, entities are entitled to claim input tax credits for GST included in the price paid for things acquired.

If an entity is not registered it is not part of the GST system and cannot:

  • collect GST, nor
  • claim GST credits.

When an employee, such as a taxi driver, has takings including GST, the amount of GST is not considered income if the amount is remitted to the ATO. This is similar to the treatment of business income where GST collected is forwarded to the ATO.

Policy reference: SS Guide 4.7.5.30 Business Requirements & Fringe Benefits

Last reviewed: 3 January 2017