GST basics. Norman Kochannek. Overview. What GST is and how the system works Types of sales Claiming GST credits. Overview cont. Registering for GST Accounting for GST Tax invoices Reporting and paying GST. What is GST and how the GST system works. The GST is.
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GST basics Norman Kochannek
Overview • What GST is and how the system works • Types of sales • Claiming GST credits
Overview cont. • Registering for GST • Accounting for GST • Tax invoices • Reporting and paying GST
The GST is • A tax on private consumption • A multi-stage tax • Borne by consumers not by business • Collected by all registered businesses
Key features • Rate of 10% • Advertised/displayed price includes GST • Amount of GST can be determined by dividing the price by 11
Manufacturer sells chocolate for $100 + $10 GST Price = $110 Activity statement GST on sales $10 Less GST credit 0 GST to pay $10 $10 GST to ATO Wholesaler sells chocolate for $200 + $20 GST Price = $220 Activity statement GST on sales $20 Less GST credit $10 GST to pay $10 $10 GST to ATO Retailer sells chocolate for $300 + $30 GST Price = $330 Activity statement GST on sales $30 Less GST credit $20 GST to pay $10 $10 GST to ATO $30 total GST Consumer pays $30 GST to retailer
Three types of sales • Taxable sales • GST-free sales • Input taxed sales
Taxable sales • Supply for consideration • Course of enterprise • Connected with Australia • Registered or required to be • Not GST-free or input taxed • Must satisfy all five criteria
GST-free sales • No GST on the sale, and the supplier is still entitled to GST credits for purchases relating to the sale • GST-free sales include: • basic food • exports • health, education, childcare • religious services, charitable activities.
Input taxed sales • No GST on the sale and the supplier is not entitled to GST credits for purchases relating to the sale • These sales include: • financial sales • residential rents • residential premises.
Entitlement to GST credits • These arise when: • you acquire the thing solely or partly for use in your enterprise • the sale of the thing to you is a taxable sale • you are registered or required to be registered • you hold a tax invoice if amount > $50 (GST-exclusive). • Must satisfy all four criteria
Income tax expenses and GST • Income tax legislation denies a deduction for GST if it can be claimed as a GST credit. If an entity: • is registered for GST, and • can claim a GST credit, then • that amount is not included in the calculation of the tax deduction made by the entity.
Registration • Key concepts for registration: • entity registers • entity must have an ABN • entity must be carrying on an enterprise. • You can have an ABN and not be registered for GST
Enterprise activities • In the form of a business • In the form of an adventure or concern in the nature of trade • On a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property • By a charitable or religious institution • By a government or government body
Enterprise • Enterprise does not include activities done: • by a person as an employee • as hobbies and private recreational pursuits • by individuals and partnerships mainly of individuals without a reasonable expectation of profit or gain • by members of local governing bodies. • NOTE: there is no such thing as a GST “exempt” organisation
Australian business number (ABN) • Must have an ABN for GST registration • Registration through: • business entry point at • www.business.gov.au • mail to Tax Office • electronic lodgment system.
GST registration • You MUST register if you carry on an enterprise, and: • your current annual turnover is 50,000 ($100,000 non-profit) or more, or • your projected annual turnover is $50,000 ($100,000 non-profit) or more.
Turnover • Current and projected annual turnover includes the sum of the GST-exclusive value of the sales made in a 12 month period • If current or projected turnover exceeds threshold you MUST register within 21 days
Tax periods • If your current or projected annual turnover is less than $20 million, your tax periods are generally quarterly unless you choose monthly tax periods • If your current or projected annual turnover is $20 million or more, your tax periods are the months in a year
Accounting rules • You can account on a cash basis in three situations: • current or projected annual turnover is $1 million or less • currently accounting for income tax on a cash basis, or • Commissioner’s determination.
Accounting rules for cash basis • If you account on a cash basis, you account for GST when: • you receive a payment for a sale (GST collected) • you make a payment for a purchase (GST paid).
Monthly and cash basis - GST charged to be sent in by 21 November Quarterly and cash basis - GST charged to be sent in by 28 February Cash basis of accounting July Aug Sept Oct Nov Dec Jan Feb Mar First Quarter Second Quarter Third Quarter 1 July - 1 October - Issued Invoice Received Payment
Accounting rules for non-cash basis • If non-cash basis, you account for the full amount of GST when: • you issue an invoice or receive any payment for a sale (GST collected), and • you receive an invoice or make any payment for your purchases/acquisitions(GST paid). WHICHEVER IS THE EARLIER
Monthly and non-cash basis - GST charged to be sent in by 21 August Quarterly and non-cash cash basis - GST charged to be sent in by 28 October Non-cash basis of accounting July Aug Sept Oct Nov Dec Jan Feb Mar First Quarter Second Quarter Third Quarter 1 July - 1 October - Issued Invoice Received Payment
Function of a tax invoice • No tax invoice = no GST credit (some exceptions) • Verifies amount of GST credits
Information requirements • A tax invoice must: • show the ABN of the entity that issues it • show the price for the sale • show such other information as the regulations specify, and • be in the approved form.
Information requirements • Extra information required varies depending on: • sales where the GST equals 1/11th of the price of the sale • sales where the GST is less than 1/11th of the price of the sale.
Information requirements • Extra information required varies depending on: • sales of less than $1,000 • sales of $1,000 or more • mixed sales.
GST equals 1/11th of price • Either: • a statement to the effect that the total amount payable includes GST, or • the total amount of GST payable.
GST less than 1/11th of price • Tax invoice should show: • GST-exclusive value of the sale, and • total amount of GST payable.
1 2 3 4 5 6 Tax invoice less than $1,000
1 2 3 4 5 6 7 8 9 10 Tax invoice $1000 or more
1 2 3 Mixed sales
Adjustment notes • Issued by the supplier (unless recipient created tax invoice rules apply) • Show the ABN of the entity that issues it • Show other information as the Commissioner determines, and • Must be in the approved form • Adjustment notes can also be debits
1 2 3 4 5 6 7 8 Adjustment note
Requesting a tax invoice • Suppliers don’t have to issue a tax invoice • However, you can request the supplier to issue you with a tax invoice • Supplier then has 28 days to supply you with a tax invoice
Reporting and paying GST – 3 options • Option 1 -report and pay actual GST monthly or quarterly. • Option 2 • pay actual GST quarterly • report less information • lodge an annual GST information report.
Reporting and paying GST – 3 options • Option 3 (if eligible) • pay Tax Office notified amount quarterly • lodge an annual GST return.
Good records = easy GST • You need to keep good records to ensure that you: • do not pay too much GST, and • claim all your GST credits. • Tax Office can assist