3.1 What is GST?

GST Start-Up Assistance Office

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Things you need to do

There are three things that your business needs to do:

recover GST
pay, track and claim
record and lodge

Things you need to do

Recovering GST

There are four main questions that businesses often ask about charging and recovering GST.

Who do you charge?

Where there is a taxable supply you are entitled to pass GST costs on to everyone

 

Where there is a taxable supply out - as described above, remember SPAR! - your business has to pay GST. You are entitled to pass this cost on to everyone. There are no exceptions.

Who do you charge?

Conversely, this diagram reinforces the point that no matter what kind of business you are in, GST may be passed on to you in the price of inputs you acquire for your business. Everyone and every business is affected by this tax.

How much do you recover and how do you show this?

The GST you need to recover in your pricing of goods and services is 1/11th of the money received for the transaction, or 1/11th of the market value if a non-cash payment is received.

 

You need to remember that you have to pass on any reductions in price that arise as a result of the tax reform that is taking place. Therefore often your prices will not just go up by 10%. The most prominent of these, which may have already impacted your business, is the reduction then abolishment of Wholesale Sales Tax.

   3.4
Selling Impact
  You have to show the price of your goods inclusive of GST.

When are you required to forward it to the ATO?

Requirement

 

Businesses such as yours, i.e. under $20 million in turnover, are required to forward GST liability quarterly to the ATO.

The due date for payment is 21 days after the end of the GST period. Quarterly payments will be due on: 21 October, 21 January, 21 April and 21 July each year.

Optional

Optional monthly lodgement if your business benefits from this

 

It is important if this produces a better result to note that your business can choose monthly lodgement. The greatest benefit to a business comes with the cashflow impact of monthly returns. Being able to claim credits and pay returns monthly may produce a better cashflow result for the business.

The cashflow issues are numerous. It will be worth your while to analyse this

 

Monthly returns will be due for example: 21 August for the July period, 21 September for the August period and 21 January for the December period.

What paperwork is needed?

   3.4
Recording Impact
 

If you are dealing with supplies to other registered businesses with a GST-exclusive value over $50, you will need to provide them with a Tax Invoice.

You need to provide your clients/customers with Tax Invoices

 

You do not need to give two invoices - there is an easy way to include all the necessary information on the one invoice or receipt for all of your clients/customers.

Pay, track and claim GST back

Has GST been charged and how do you know how much?

GST is included on most of the supplies that flow into your business.

GST-exclusive
excluding GST
GST-inclusive
including GST
How prices are shown
When an amount is GST-exclusive it means that the 10% GST will be added to the cost shown.
How prices are shown
When a price is GST-inclusive it means that GAT of 10% has already been included with the cost to determine the final price shown.
Example
The cost of a telephone before GST is added is $200

telephone
Example
The price of this telephone is '$220 including GST'

telephone
Basic calculation
The GST is 10% of $200 i.e. $20
The total purchase price is $220
To work out GST we add 1/10th to the price

graph

Basic calculation
To work out the GST we calculate 1/11th of the price, i.e. 1/11th x 220 = $20 GST

graph
= $200
each piece is $20
= $220
10 pieces = 200
1 piece = GST
= $20
  The reason we find 1/11th is because before GST was added we had 10 equal pieces of $20. To add GST we put another piece on. We now have 11 equal pieces.

The GST is represented as the 11th piece.


You should check your invoice for details of the GST amount that has been charged. Things to look for include the words:

Tax Invoice
Total price including GST
GST not included or cost before GST

Can you claim the GST back?

You may be able to get the GST back from the ATO

 

When the GST has been included in the price of your aquisitions you claim it back from the ATO. This is called an Input Tax Credit.

   3.2
Registration


   3.4
Recording Impact
 

To get an Input Tax Credit you must:

register your business
obtain valid Tax Invoices
be charged GST
claim only for aquisitions that are related to running your business

You cannot claim GST Input Tax Credits for GST included in the price of goods and services that are:

   2.4
Classifying your information
 
consumed for private or domestic purposes
used in making input taxed supplies
not tax deductible

When will you get the money back from the ATO?

You will get your refund, if entitled to one, within 14 days of lodging your return, otherwise the ATO must pay you interest on your refund.

What paperwork do you need?

You will need to obtain valid Tax Invoices from your suppliers

 

You will need to get valid Tax Invoices from your suppliers for GST exclusive values greater than $50 to be eligible to claim the GST back.

For aquistions under $55 you only need a receipt or other record of your purchase.

   3.4
Recording Impact
 

Having a system for ensuring you obtain the correct documentation in the first place and then having a system for maintaining order in these records is essential if your business wants to ensure it receives all the credits that it is entitled to.

Record and lodge GST returns

You need to lodge a GST return or Business Activity Statement within 21 days after the end of your tax period

 

All registered businesses will need to lodge a GST return or Business Activity Statement (BAS) within 21 days after the end of their tax period - either quarterly or monthly.

 

On the BAS, Input Tax Credits which you are entitled to and the amount of GST that you are liable to pay on your supplies will be offset against each other. Once this is done you will be in either a GST-payable or refund position. The BAS will also include a number of other regular tax payments on the one form and these are offset against each other and GST-payable/refundable.

Consider this example

 

Mel's Mowing has Input Tax Credits available to it from the purchase of a new catcher for a lawn mower (cost $550 so Input Tax Credit = $50) and 3 new starter cords (cost $440 so Input Tax Credit = $40). Total Input Tax Credits = $90.

Mel's mowing has also earned $440 in sales of supplies, thus owing $40 to the ATO on the outflows of the business.

The amount owing and the Input Tax Credits are offset to result in Mel's Mowing receiving a $50 ($90 - $40) refund from the ATO.

Consider this example

 

The Friendly Foundation charity group has Input Tax Credits available to it of $300 from the purchase of a number of blankets for the homeless during winter.

The Friendly Foundation's outflows are GST-free, so it does not have a liability to the ATO for tax payable.

The net result is that the Friendly Foundation has to lodge a return to claim its $300 Input Tax Credits from the ATO.

Consider this example

 

Ruby's Recreation center has $10 of Input Tax Credits available to it from the purchase of a number of tennis balls for the center. Ruby's has revenue of $660 for the period and as such a GST liability to the ATO of $60, i.e. 1/11th of $660.

Ruby's is able to offset this with the Input Tax Credits available and ends up in a GST payable situation, i.e. $60 - $10 = $50.

You need to lodge a BAS even if there is nothing to report and you can do this either on paper or electronically.

Technical help

Where do you get more technical help

 

The ATO will provide you with information about GST at their Internet site or by phone on their help line.

The following Internet sites contain information that may help you to acquire a better understanding of the complexities of GST. Some sites are better suited for use by advisers.

www.taxreform.ato.gov.au                       
www.ato.gov.au
www.accc.gov.au

Your accountant or lawyer, business association or commercial contacts may also help.

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