GST basics

1. GST basics Norman Kochannek

2. Overview • What GST is and how the system works • Types of sales • Claiming GST credits

3. Overview cont. • Registering for GST • Accounting for GST • Tax invoices • Reporting and paying GST

4. What is GST and how the GST system works

5. The GST is • A tax on private consumption • A multi-stage tax • Borne by consumers not by business • Collected by all registered businesses

6. Key features • Rate of 10% • Advertised/displayed price includes GST • Amount of GST can be determined by dividing the price by 11

7. 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

8. Types of sales

9. Three types of sales • Taxable sales • GST-free sales • Input taxed sales

10. 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

11. 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.

12. 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.

13. Summary

14. Claiming GST credits

15. 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

16. 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.

17. Registering for GST

18. 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

19. 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

20. 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

21. 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.

22. 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.

23. 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

24. 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

25. Accounting for GST

26. 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.

27. 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).

28. 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

29. 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

30. 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

31. Tax invoices

32. Function of a tax invoice • No tax invoice = no GST credit (some exceptions) • Verifies amount of GST credits

33. 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.

34. 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.

35. Information requirements • Extra information required varies depending on: • sales of less than $1,000 • sales of $1,000 or more • mixed sales.

36. 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.

37. GST less than 1/11th of price • Tax invoice should show: • GST-exclusive value of the sale, and • total amount of GST payable.

38. 1 2 3 4 5 6 Tax invoice less than $1,000

39. 1 2 3 4 5 6 7 8 9 10 Tax invoice $1000 or more

40. 1 2 3 Mixed sales

41. 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

42. 1 2 3 4 5 6 7 8 Adjustment note

43. 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

44. Reporting and paying GST

45. 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.

46. Reporting and paying GST – 3 options • Option 3 (if eligible) • pay Tax Office notified amount quarterly • lodge an annual GST return.

47. 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

48. Tax Office’s legal database