We’re in our 20th year of the Goods & Services Tax (GST) in Australia, so it’s only old timers like me who can remember the angst within the business community before it came into being! Largely, there have been very few changes to the system (helped I’m sure by any major changes needing to be approved by state governments) but I often get GST questions from people about to embark on their small business adventure. So, today is a refresher on some GST basics.
A 10% GST is charged on nearly everything bought in the Australian economy. It was implemented from 1 July 2000. Exemptions apply for some basic food for human consumption; many medical and health care services; most medicines; some childcare services; some education; religious and charitable activities; water, sewerage and drainage; residential rent; income; and some government services. Menstrual products were made exempt from 1 January 2019. Note the use of the words “some” and “most” – not all food is the same and not all childcare services are exempt. The devil as always is in the detail and what service is actually being provided.
All businesses must charge GST where applicable if they are registered for GST. Registration is required for all businesses where turnover (essentially sales) exceeds $75,000. Below this threshold, registration is optional. The GST is designed to be a tax on the end user only. Therefore businesses who are registered for GST are able to claim back the GST paid on goods and services they buy. The GST claimed back by businesses are known as “input tax credits”. A higher threshold is applicable for not for profit entities – registration is required when turnover exceeds $150,000 (below this amount, registration is optional)
GST is paid and claimed via a monthly or quarterly Business Activity Statement. If you are a large business (turnover exceeds $20 million) you are required to report monthly. Less than this amount you only need report quarterly, although you can choose to do monthly.
Reporting of GST can be done on an accruals or cash basis. If your business turnover is more than $10 million, you are required to report on an accruals basis. Below this, you can choose to report on a cash or an accruals basis. What’s the difference? If you report on a cash basis, you are only required to remit the GST (or claim input tax credits) when the cash is actually received (or spent). Under the accruals method, you are required to remit the GST (or claim the input tax credits) when there is a legal claim (such as an invoice has been issued) regardless of whether the amount has been received (or spent). The method you choose will depend on how you bill your clients and pay your suppliers.
GST is not applicable to the purchase of residential property unless it relates to the purchase of a new property. GST will apply to the purchase and sale of commercial property. However GST is not applicable to the purchase and sale of property that has been used for farming.
Where GST is not charged on items such as residential rent and interest, applicable input tax credits cannot be claimed on expenses used to produce that income, regardless of whether the entity is registered for GST. For example, if a registered business owns a rental property, it does not charge GST on the rent on the property. It also cannot claim input tax credits on goods and services it buys (eg repairs and maintenance).
GST must be charged on the purchase/sale of a business unless both purchaser and vendor are registered for GST and the sale is for a business that is a “going concern”.
All taxis and ride sharing services are required to charge GST regardless of the turnover of the business.
It is a requirement of all businesses to issue a tax invoice where tax has been charged. If you claim an input tax credit, you must keep tax invoices to substantiate the claim you make.
GST is not applicable if the goods or services are being supplied internationally. This includes goods purchased by Australian residents and taken out of the country (think Duty Free!). International residents can claim back the GST on large items they have purchased if they are taking them home.
Goods and services purchased overseas will still attract GST if consumed in Australia. Until recently, there was an exemption for low value items costing less than $1,000 but this was removed from 1 July 2018. Businesses supplying goods and services into Australia must be registered if they meet the turnover threshold, regardless of where they are located.
GST is a complicated area especially for businesses which supply goods and services in the exempt categories (food, health, medical, education etc) or where supplying internationally, so it always pays to talk to your professional advisor and not rely on general advice.
If you have further questions about how GST applies to your business, I’m more than happy to chat with you and offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your taxes!