Despite the GST being introduced seven years ago, calculating and allowing for it in a business’s books can still be a challenge. Giftrap puts the Australian Tax Office under the pump to reveal what businesses should be doing
What is the general purpose of GST, and why was it introduced?
GST is charged on most goods and services within Australia and was introduced by the Federal Government with the A New Tax System (Goods and Services Tax) Act 1999, which took affect from 1 July 2000. It was introduced to broaden the tax base, which the government believed was heavily biased towards the provision of services.
Prior to the introduction of the GST, Australia operated a Wholesale Sales Tax (WST), which imposed a tax on the wholesale of goods. It was introduced in the 1930s when the Australian economy was dominated more by the supply of goods. The introduction of GST was based on the fact that Australia had evolved to become more service-based over the years. It served to more fairly balance the advantages that service-providing businesses had over the suppliers of goods.
What is the basic distinction between products and services that incur GST, and those that don’t?
Most goods and services will incur GST, however the following are examples of GST-free supplies:
• most health and medical care services;
• most educational services;
• most food for human consumption (other than prepared foods, confectionary, snacks, ice-cream, biscuits, alcohol, soft-drinks and certain other drinks);
• certain activities of charities and related bodies;
• international travel and transport;
• sales of ‘going concerns’;
• certain dealings with land;
• exports of goods or services or other things if certain requirements are met.
Some sales are GST-free sales, including:
• basic food for human consumption, for example, fruit, vegetables, plain milk and bread;
• exports;
• some health services and education courses;
• some activities of charitable institutions;
• childcare;
• religious services;
• water and sewerage services; and
• a sale of a going concern, for example, a business.
Exactly how much GST should be charged?
The GST is levied at a flat rate of 10 percent on most goods and services, apart from GST-exempt items, and input taxed goods and services.
When invoicing a client, how should GST appear on the invoice?
When issuing an invoice it needs to contain the following information:
• The Australian business number (ABN) of the business issuing it.
• The price.
• State the words ‘tax invoice’ prominently.
• The date of issue of the tax invoice.
• The name of the supplier.
• The name of the recipient.
• The address or ABN of the recipient.
• A brief description of each thing supplied and for each description the quantity of goods or the extent of the services.
• If the GST payable on the supply or supplies is exactly one-eleventh, the invoice must contain a statement to the effect that the total amount payable includes GST for the goods or service, or must set out the total amount of GST payable.
• If the GST payable on the goods or services is less than one-eleventh, the invoice must set out the amount, excluding GST payable, for the supply or supplies and separately show the amount of GST payable on the taxable supply or supplies.
(Note: if the total amount, including GST, payable for the tax invoice is less than $1,000, you do not need to show the name or address of the recipient, or the quantity of goods or the extent of the services.)
How do you suggest businesses keep track of the GST they have charged, and consequently need to pay the government?
Keep all paper-based invoices and use e-Record which is available from the ATO website.
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When/how often do businesses forward GST to the ATO?
Generally a tax period is quarterly—which tends to end on 31 March, 30 June, 30 September and 31 December—monthly, or businesses can elect to have annual tax periods and lodge a BAS and pay GST only once a year.
Tax periods are generally quarterly unless a business has elected to have monthly tax periods or annual tax periods (if they are entitled to do so). If a business’s annual turnover meets or exceeds $20 million then they are required to have monthly tax periods.
If possible, how can businesses claim back GST they’ve paid on goods and services they’ve acquired for the business?
If a business is registered for GST, they are liable to pay one-eleventh, of the price charged for taxable goods and services supplied as part of your business. This GST is paid to the ATO.
GST is included in the purchase price of many things acquired by business. A business is entitled to an input tax credit for GST included in the price of these things. Input tax credits can be offset against the amount of GST payable to the ATO.
If input tax credits are greater than the amount of GST payable, the business may be entitled to a refund. However, a tax invoice for the purchase is needed in order to claim input tax credits.
To claim input tax credits a business must be registered for GST. These businesses will also receive an ABN.
Businesses with an annual turnover of $50,000 or more, and non-profit organisations with an annual turnover of $100,000 or more must register. Businesses with a turnover that is less than these thresholds can still choose to register.
Small businesses that decide not to register, will not be able to include GST in the price of supplies they make, and they will not be able to claim input tax credits.
Where does the BAS come into it? How does this work?
GST and most other tax obligations are reported in a single form called a Business Activity Statement (BAS).
BAS monthly must be lodged monthly if the annual turnover of a business is greater than $20 million dollars. Otherwise, there is an option to lodge BAS either monthly or quarterly. Businesses that choose to change from quarterly to monthly periods may change back again after 12 months.
Activity statements can be lodged online, by phone, through a tax agent, or by mail.
Where can businesses go for more assistance?
For more information or assistance, phone the ATO Business Infoline on 132 866, visit the ATO website at www.ato.gov.au/businesses, write to the ATO at PO Box 9935 in your capital city, or if English is your second language, call the ATO Translating and Interpreting Service (TIS) on 131 450.
* Information supplied by the ATO is sourced from its website, www.ato.gov.au Special thanks to Rowena Bew for her assistance with this article.
The Price is Right
How should businesses calculate the best price of products and services to cover cost, GST and desired profit?
Herbert Moll, partner at accounting firm, RSM Bird Cameron, offers the following solution:
The most important point in calculating your product price is to understand your pricing calculation method. For instance, do you work on a cost plus mark-up method, do you use a standard mark-up for all products, do you use the recommended price suppliers provide, do you match competitors, or do you add an agreed amount to the cost of each product? Whichever method you choose, you must carefully analyse this to ensure all costs of running your business will be covered.
Once your pricing calculation method is confirmed, you can apply this calculation to your cost price to provide your required revenue. A further 10 percent mark-up should then be applied to cover GST expenses.
