3.1 What is GST?

GST Start-Up Assistance Office

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GST and your choices

GST is not a cost as long as it is well managed  

The GST is here. Will you let it sneak up on you or will you get ready to take control of it for your business?

If ignored, GST has the potential to disrupt cashflow, slow operations and ultimately affect the long-term success of a business - the business may even fail.

Building your confidence in using the technical jargon of the GST assists you to know the impact it has on your business.

No business is "GST-free"  

Whether your business is a charity, educational institution, small or medium enterprise it is affected by the GST. Some people hear the term GST-free and think (incorrectly) that, because of the nature of their business it is not affected by GST. The extent of this effect varies depending on the business and the type of transactions it has.

   2.3
Measuring your business transactions
 

No business is GST-free, only certain transactions may be classified as such. Every business has transactions and because the GST is a tax on transactions they must track and record these so that they can make the decisions about whether or not the transactions are affected.

Hint: Do not try to classify your business - you need to classify your transactions  

GST is part of the broader tax reform in Australia and replaces some indirect taxes. The ACCC assists businesses by ensuring that the tax cost savings which result from the abolition of these taxes is fully passed on from suppliers to buyers.

Who pays GST?

Suppliers must pay the GST to the ATO  

A common view is that when you buy things you pay GST. GST is in fact the responsibility of the seller. The seller is entitled to pass on the cost of GST in their prices.

When you buy things the following typically happens:

you, the buyer, pay the agreed fee for the goods and services you are buying
the seller provides the goods and services for the agreed fee

The seller then pays the GST out of that agreed price to the ATO.

Who pays GST?

GST applies to transactions

   2.3
Measuring your business transactions
 

GST is a tax on your business transactions. Transactions were defined earlier as an exchange of resources - goods, services, resources and work effort - resulting in inflows and outflows. Transactions under GST are also called supplies.

Supplies are classified into three categories:

taxable                                           
input taxed
GST-free

Taxable supplies

The majority of supplies will be taxable therefore it is important you first know how to identify them.

To help you remember what the elements of a taxable supply are, try the acronym SPAR.

 
Taxable supplies S.P.A.R.
         
SUPPLY of something
- goods, services, intangibles, obligations
         
PAYMENT
- this is called cash or non-cash consideration
         
Connected with AUSTRALIA
         
REGISTERED (or required to be registered) supplier
 

If a supply is GST-free or input taxed it is not a taxable supply.

Payment

No payment = No taxable supply = No GST payable  

If your business charges prices to others, or pays for anything, GST is an issue. The payment you make, or the price you charge for the supply may be:

Any kind of payment will do  
a small or nominal amount
the accepted market value
less than or greater than the market value

Consideration  

Payment includes cash transactions and non-cash transactions and is sometimes referred to as the consideration for the supply. Considerations can come from anyone - clients, customers, benefactors or another business - and for GST purposes they are still considered payments.

Connection with Australia

 

Generally anything done or made in Australia will be subject to GST. If you have transactions that are exports then the rules are more complex. The following diagram shows examples of types of transactions that are connected with Australia. To manage GST in your business, being aware of these types and differences is important. The ATO has further information and resources available on their website - www.ato.gov.au

Connection with Australia

   3.2
Registration


Registered supplier will show ABN (Australian Business Number) on the Tax Invoice

 

Registered suppliers

GST can only be charged on supplies provided to you by a supplier who is registered, or required to be registered, with the ATO for GST or intends to be registered within the transitional timeframe. You will find the information you need on the GST Tax Invoice.

Exceptions to taxable supplies

Input taxed supplies

GST is not payable on input taxed supplies.

The main types of input taxed supplies involve financial supplies, residential rent, residential premises and supplies of food made by school tuckshops and canteens.

In the case of input taxed supplies the supplier is not required to remit GST on amounts received on a transaction to the ATO, but neither is the supplier entitled to imput tax credits for GST included in the price of anything aquired or imported to make the supply

Consider this example  

A non-profit parents and citizens committee runs a school tuckshop. Only fresh food, pies and drinks are sold. The committee has elected that all its supplies of food through the canteen will be input taxed.

In this case the committee will buy food and then sell the food to students. The committee will not be registered for GST purposes and it does not receive or send money to the ATO because of GST.

GST-free supplies

GST-free supplies are numerous but basically they include supplies involving exports from Australia, supplies of food, education supplies, medical related supplies.

In the case of GST-free supplies the supplier is not required to remit GST on amounts received on a transaction to the ATO.

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