GST at a glance can seem quite simple, but dive in and very quickly you can get swallowed up like Alice in Wonderland or Alice in Taxland. In this blog I am going to attempt to explain the very basics so that those who may be pulling their hair out in frustration and confusion can have the foundations to build their GST knowledge.
What actually is GST?
The ATO defines GST as a “broad-based tax on most goods and services within Australia”. GST Stands for Goods and Services Tax and is levied at 10%. If you are a business that is registered for GST you must pay GST on supplies and collect GST on your sales. Changes to tax legislation was passed on 28 June 1999 as A New Tax System (Goods and Services Tax) Act 1999 and the 1st of July 2000, the Howard Government replaced “indirect tax” with a 10% charge on most sales by businesses, known as GST.
Types of Supplies & Exemptions
GST only applies to transactions that are considered a “taxable supply”. There are some cases in which goods and services are GST exempt, for example, salaries, wages and fresh food. For the purposes of GST there are four main types of supplies; Taxable Supplies, Input-taxed Supplies, GST-Free taxable supplies and Out-of-scope supplies.
Taxable Supplies are broad and can include the supply of almost anything i.e services, goods sold, parking, internet, food & drink (except those that are considered GST-Free food and drink) and so on. The business charging GST must be registered (or required to be registered) to charge GST. Taxable supplies are supplies of goods and services that are not considered GST-Free, Input-Taxed or Out-of-Scope. The basics of a Taxable supply are that they charge GST, report the GST to the ATO and claim GST credits.
Input-taxed supplies are different to taxable supplies as unlike taxable supplies GST is not put on the end consumer, rather it is the supplier that bears the cost of GST. Generally, Input-Taxed supplies are financial supplies i.e Life insurance, hire purchase agreements and securities. The basics of an Input-Taxed supplies is that the business does not charge GST on supply of their goods and services, they cannot claim GST credit however they must report the GST to the ATO.
GST-Free supplies are exactly that, supplies of goods and services that are free from GST. GST-Free supplies include most health & medical supplies i.e health insurance, services of a medical practitioner and so on. Most educational supplies are also GST-Free. Basic food for human consumption is GST Free (food that is not prepared, confectionary, alcohol, soft drinks, snacks). Examples of GST Free food include basic milk (non-flavoured) eggs, bread, vegetables, fruit. The basics of GST- Free supplies is that the business does not charge GST on supplies of goods and services, they can claim back GST and they do report GST to the ATO.
Out-of-Scope Supplies are supplies of goods and services that are not covered by the above. Examples of Out of Scope supplies include gifts or donations, fund transfers between accounts, salaries and wages, drawings by owner etc. The basics of Out-of-Scope supplies is that the supplier does not charge GST on its goods and services, they can claim back GST credit and they do not report GST to the ATO.
Why do I need to know this?
It is important for you to know the different types of taxable supplies when inputting information in your accounting software so they are reported accurately to the ATO. The types of taxable supplies are shown as “tax codes” in your software as seen in the picture below.
How is GST collected?
The way GST works is that the end consumer ultimately pays the GST, and the supplier (business) that collects that GST then remits it back to the ATO. GST is collected by businesses that are registered for GST and must charge and be liable for the GST collected when they sell their goods or services. GST is reported and remitted to the ATO through Business Activity Statements (BAS) periodically. Business Activity Statements are usually submitted quarterly, however there are some circumstances in which they may be submitted monthly or annually.
How is GST Tracked?
This is where accounting software & general bookkeeping is necessary, when registered for GST you must account for how much GST you ave paid and how much GST you have collected.
What happens if there is a difference to the GST Collected and GST Paid?
This is where business activity statements come into play. Business Activity Statements are where you record your GST collected and paid, and send this information to the ATO. If GST collected is more than GST paid, then you must pay the difference, if GST paid is more than GST collected then you can claim a refund.
Do I need to register?
If you have a turnover of less than $75,000 then registering for GST is optional. However, there are exceptions to this, for example if you are a business that intends on claiming tax-fuel credits, then you must register for GST. If you are a taxi driver, regardless of income, you will be required to register. For not-for-profit organisations, the turnover threshold is increased to $150,000 before being required to register for GST.
Need help? That’s okay, as a registered BAS Agent, McGregor Accounts has your back. Along with your basic bookkeeping requirements, we can complete & lodge your BAS so you can be GST worry free!
Contact us today to see what we can do for you.