Goods and Services Tax

Overview Implemented on 1 July 2000 the Goods and Services Tax (GST) is an indirect broad based consumption tax. Rate = 10% charged on the supply of most goods and services consumed in Australia The mechanism for the GST is such that the final consumer ultimately pays the GST.

Main Features of the GST You need to be carrying on an enterprise. GST of 10% is applied to a transaction that is a taxable supply or taxable importation. GST is designed ultimately to be paid by the consumer. GST is collected and remitted by business. GST has a credit mechanism that eliminates cascading (tax on tax).

The mechanics of the GST Entities registered for GST must charge and will be liable for GST when they sell or supply goods or services as part of their business. These are termed taxable supplies. Input Tax Credits Businesses claim a credit for the GST that has been included in the purchase price of goods or services used in the business. A credit on business inputs

Registering for the GST Without registration, GST cannot be charged and GST input credits cannot be claimed. If an entity is registered or required to be registered for GST it will be: Required to pay GST on a sale or supply. Able to claim input tax credits. Required to lodge Business Activity Statements.

Registering for the GST Registration is compulsory if carrying on an enterprise and: Annual turnover is $75,000 or more. Projected annual turnover over the next 12 months >than $75,000. The entity is a non-profit body and annual turnover is $150,000 or more. Taxi operator's must register regardless of turnover.

Who May Pay tax? An Enterprise Any business, trade or profession. Activities conducted on a regular or continuous basis in the form of a lease, licence or grant of an interest. Certain activities of religious institutions, charitable institutions and government corporations. A venture or concern in the nature of trade.

Excluded from registration Registration is not compulsory if carrying on an enterprise and: No reasonable expectation of making a profit Employee wages or PAYG taxpayer; or Conducting a hobby.

Consequences of not registering for GST You are not allowed to charge GST. You do not need to comply with any GST laws. You will not be able to claim any credits for any GST you pay to others.

The Australian Business Number (ABN) An entity has to have an ABN to register for GST.

How Much tax? The GST is 10% of the value of the taxable supply. The value of the taxable supply is the amount the enterprise would be the selling price of the product/service without GST.

There are three types of GST supplies: Taxable supplies. GST-free supplies. Input taxed supplies.

The supply must be connected with Australia 1.    Taxable supplies A supply can be a supply of practically anything, for example: Main type of taxable supplies: A supply of goods.  A supply of services.  A provision of advice or information.   A financial supply.  The supply must be connected with Australia

2. GST-Free Supplies No GST is payable on supplies that are GST-free, but suppliers are entitled to claim GST input tax credits on business inputs ( purchases ). The following are some categories of GST-free supplies: Some Food for human consumption. Health and medical care. Education. Child care. Exported goods and services.

3. Input taxed supplies provider cannot charge GST on the goods or service. provider cannot claim GST credits for the GST paid on acquisitions for the purpose of providing the input taxed goods or services. The following are categories of input taxed supplies: Financial supplies eg Bank Charges. Residential rent. Sale of residential premises. School canteens.

Input tax credits are used to offset an enterprises GST liability.

Creditable acquisition The purchase or acquisition of something to be used in carrying on a business or entity. The business/entity is entitled to a GST credit equal to the GST paid on any creditable acquisition. provided The acquisition is an allowable deduction under the Income Tax laws or an asset to be used in the business in the production of assessable income.

Creditable acquisition Elements to be satisfied to determine a creditable acquisition: The entity must acquire something. The acquisition is made for a creditable purpose, ( i.e. in carrying on an enterprise). Acquisitions of a private or domestic nature are not included. The supply must have been a taxable supply. ( i.e. GST applied to it ) The purchaser must provide or be liable to provide consideration for the supply, and The entity must be registered or required to be registered for GST.

Creditable acquisition The following do not qualify as a creditable acquisition Entertainment, unless the expense is a fringe benefit. Relative’s travel expenses. Recreational clubs and leisure facilities. Non-compulsory uniform expenses. Most non-tax deductible expenditure.

Tax Invoices – Critical Evidence To claim an input tax credit a Tax Invoice must be received * Suppliers ABN * GST Inclusive Price * Tax Invoice * Date Suppliers Name * Desc of each item I f > $1000 * Name, Address, ABN of the recipient * Qty of goods or extent of services supplied With supplies of $75 or less entities do not need to hold a tax invoice in order to claim an input tax credit.

Exercises Do questions 2(a) p108

When does GST liability arise? Two Methods A cash basis. An accruals (non cash) basis.

When does the GST liability arise? Accruals Basis Features: GST liability arises when invoice is issued or a payment is received. Input tax credits claimed supplier invoice is issued or when the payment is made.

When does the GST liability arise? Cash Basis Features: Annual turnover of < $2,000,000 may choose to account on a cash basis. The GST liability arises when payment is received Entitlements to an input tax credit only arises when payments are made to suppliers.