GST – In Simple Terms
Goods and services tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.
Generally, businesses and other organizations registered for GST will:
• include GST in the price they charge for their goods and services
• claim credits for the GST included in the price of goods and services they buy for their business.
Do you need to be registered for GST?
If you run a business or other enterprise and have a GST turnover of $75,000 or more ($150,000 or more for non-profit organizations) or you provide taxi travel – you need to register for GST.
GST registration is voluntary if your annual turnover is less than $75,000 in case of a business or less than $150,000 in case of non-profit organization.
You can register ABN (Australian Business Number) and GST via the Australian Business Register (ABR) website – www.abr.gov.au or please contact us to assist you in registering your ABN.
How GST works?
Current GST rate is 10%. This means that if you sell an item for $110.00 inclusive of GST, it includes $10 GST that needs to be remitted to Australia Taxation Office (ATO).
Similarly, when you buy items that will be used in your business you will pay GST in those items. GST that you pay in items purchased for business use can be claimed as a credit on your GST return. On every GST return, it could be monthly, quarterly or yearly – depending on your registration you will declare GST collected (from Gross Sales) and GST paid (from Gross Purchases). The difference is the amount payable (If GST collected is more than GST paid) or refundable (If GST paid is more than GST collected). GST returns are lodged by completing a business activity statement commonly referred to as BAS Statements.
Issuing Tax Invoices
When you make a taxable sale of more than $82.50 (including GST), your GST registered customers need a tax invoice from you to be able to claim a credit for the GST in the purchase price. If a customer asks you for a tax invoice, you must provide one within 28 days of their request.
A valid tax invoice must include at least seven pieces of information –
• that the document is intended to be a tax invoice
• the seller’s identity
• the seller’s Australian business number (ABN)
• the date the invoice was issued
• a brief description of the items sold, including the quantity (if applicable) and the price
• the GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement such as ‘Total price includes GST’
• the extent to which each sale on the invoice is a taxable sale (that is, the extent to which each sale includes GST). This applies if invoice is for more than 1 item. Each item needs to be mentioned separately on the invoice and invoice should also specify if the item is taxable supply or GST free.
Example – Invoice for a taxable supply
John (Carpenter) goes to local Bunnings store and buys a hammer for $110. The tax invoice will clearly specify the $10 GST included in the price i.e. 1/11th of the total invoice amount.
Example 2 – Invoice for mixed supplies
John buys following items from local Coles Supermarket –
o Bread (without icing)
o Ice cream
Milk and bread are considered to be GST free items and chocolate & ice cream are considered to be taxable supplies. Therefore, the tax invoice will have total amount of the invoice and the GST component will be less than 1/11th of the total invoice as there are some GST free items in the invoice.
GST and Deductions
If the item bought is for business purpose, you can only claim the net amount of the item i.e. Total amount less GST.
In example 1 above, John bought a hammer for $110 including GST and uses this item for his business. Assuming he is registered for GST, he can claim a deduction of $100 i.e. $110 less $10 (GST) on his tax return and $10 GST will offset his GST liability.
If John wasn’t registered for GST and he bought hammer for business use, then his deduction will be $110.
We are open 7 days and after hours, strictly by appointment. For further assistance on Tax and GST related matters, contact Expert Tax on 0449 952 855.