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

IMPOSITION OF TAX Act A New Tax System (Goods and Services Tax) Act 1999 Section 7.1 GST is payable on taxable supplies and taxable importations.

GOODS AND SERVICES TAX Reason For Introduction Move away from reliance on direct taxes Goods were always taxed – to add equity by taxing services as well Introduced ABN Introduced with PAYG System

GST -OVERVIEW Rate of 10% Is a tax on supply of taxable goods and services Input Tax Credits prevent escalating cost of GST Exemptions introduce equity Seller liable to tax – section 9.40

Registration for 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.

Consequences of Registration 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.

GST is charged on the supply of all goods and services where: - the supply is made by a business; the supplier is a person registered with the ATO; Except where :- (1) goods or services which are "GST-free" or (2) "input taxed".

GENERAL SCHEME GST IS PAYABLE ON TAXABLE SUPPLIES INPUT TAX CREDITS ARISE ON CREDITABLE ACQUISITIONS S.11-5 states that an acquisition by an entity is creditable if that acquisition is for a creditable purpose (as explained in slide 21)

TAXABLE SUPPLY There must be a supply Section 9.5 defines taxable supply 5 criteria make up the definition namely : It make a supply The supply is for consideration The supply is made in the course of the entity’s enterprise The supply is connected with the indirect tax zone The entity is registered (or required to be registered) for GST

TAXABLE SUPPLY Section 9.10 defines supply as: Supply of goods Supply of services Provision of advice or information Grant, assignment or surrender of real property A creation of a grant, transfer, assignment or surrender of any right A financial supply

Taxable Supply There must be consideration for the supply Section 9.15 defines consideration It covers payment or any act or forbearance, thus it is a very wide definition. Contractual term applies. Section 9.17 identifies what will not be consideration. Pls see : http://www.austlii.edu.au/au/legis/cth/consol_act/ants asta1999402/s9.17.html

In the course or furtherance of an enterprise The supplier must be by an enterprise Section 9.20 defines enterprise Covers both commercial and non commercial activities

An enterprise is an activity, or series of activities, done: (a) in the form of a * business; or (b) in the form of an adventure or concern in the nature of trade; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or (d) by the trustee of a fund that is covered by, or by an authority or institution that is covered by, Subdivision 30-B of the * ITAA 1997 and to which deductible gifts can be made; or (da) by a trustee of a * complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund; or (e) by a charity; or (g) by the Commonwealth, a State or a Territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a State or a Territory; or (h) by a trustee of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN.

Connection to an indirect tax zone Connection with Australia Section 9.25 Supply is made in Australia Supplier imports into or assembles supply in Australia Exports Services done in Australia or supplies through an enterprise carried on in Australia. Supply of real property in Australia

Taxable Supply Supplier must be registered. Registration is required for all profit enterprises with gross turnover of $75,000** Non profit enterprises with a gross turnover of $150,000 No taxable supply if enterprise is not and need not be registered Division 23 – section 23.5 ** used to be $ 50,000

Consequences of making a taxable supply An entity that makes a taxable supply is liable to pay GST on that taxable supply : section 9-40. In reality it is the ultimate consumer who bears the cost of this tax. 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 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.

INPUT TAX CREDITS Input Tax credits are a refund of GST paid 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. Input tax credits are available on creditable acquisitions Creditable Acquisition (s 11-5) Four criteria must be satisfied. Supply was a taxable supply Consideration given Purchaser was or should be registered Supply was for a creditable purpose

Creditable Acquisition (s 11-5) Four criteria must be satisfied :- Supply was a taxable supply Consideration was given Purchaser was or should be registered Supply was for a “creditable purpose”

When registered persons furnish their periodic returns they may deduct input tax for that period from the GST on sales for that period. For example: Total sales $110, 000 (including GST), GST on sales $10, 000, Total purchases $33, 000 (including GST), GST Input tax $ 3, 000 Net GST payable to ATO $ 7, 000

The effect of this is that consumers; unregistered businesses; or registered persons who acquire goods or services for non-business or input taxed purposes, bear the cost of GST.

Creditable Purpose Where the supply acquired is for the carrying on of the entity’s enterprise. (s11-15(1)). Eg : shoe polish purchased by an entity that provides shoe cleaning services. Also see : Comm of Tax Ruling GSTR2008/1. Exceptions (s. 11-15(2)) Input Taxed supply (see : Div. 40) Goods of a private or domestic nature

GST FREE & INPUT TAXED GST Free - No GST payable by the purchaser; the supplier can claim an input tax credit on any GST paid on the goods supplied. Input Taxed No GST payable by the purchaser, but the supplier cannot claim any GST paid on the goods supplied.

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 GST-free supplies include, but are not limited to: • most food, except prepared foods, takeaways, snacks, alcohol and soft drinks • exports, • most health services, • most educational supplies, • most child care services, and • non-commercial activities of charities.

Input taxed supplies Some goods and services supplied by a registered person may be input taxed, i.e. no GST is charged on the supply of those goods and services. However, NO credit can be claimed for input tax paid on purchases. 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.

Taxable Importation Liability for GST is imposed an any entity that makes a taxable importation regardless of whether that goods are being imported for business / private purposes. Under Section 13.5 an entity makes a taxable importation where : Goods are imported for home consumption (i.e. for consumption or use in Australia)

GST AND FBT Fringe Benefits - Generally the supply of fringe benefits to employees is a taxable supply of the goods or services that comprise the benefit, and GST is payable by the employer based upon the price paid for the benefit by the employee. Where the fringe benefit is itself of a type that is GST-free or input taxed, no GST will be charged on the supply to the employee but the higher rate of FBT will apply. The consequence is that, the system will penalise employers who provide GST-free or input taxed goods or services to employees as fringe benefits.

GST AND INCOME TAX GST is charged by a registered person on the supply of goods and services, collected from the customers and remitted to the ATO. Generally, a registered person will be entitled to a credit or refund of any GST paid on his or her own business purchases. Accordingly, it is expected that assessable income and allowable deductions for income tax purposes exclude GST.

GST AND INCOME TAX Similarly, for registered persons the GST exclusive price is taken into account for tax depreciation and capital gains tax purposes. If a person is not entitled to an input tax credit for any particular purchase the tax inclusive price is adopted in calculating allowable deductions for income tax purposes.