Many countries apply sales tax to goods when purchased and Australia is no different. Since July 2000 Goods and Services Tax (GST) has been applied on most goods and services sold or consumed in Australia. Quite simply, businesses that are GST registered must collect a 10% tax on the goods or services they sell and pay it to the government. It is a little more complex than that as you have to deduct off the GST you have paid when purchasing relevant goods and so you only pay the net sum. Further, not all good and services are eligible for GST and so you have to be sure that you are charging and paying correctly when calculating your liability.
Not all businesses will register for GST, for example they may be under the GST threshold in relation to their annual revenue but if you aren’t you must ensure that at least you have an ABN and provide it to your customers or they are required to deduct the equivalent of GST from your invoice before paying you.
There are three types of GST goods or services:
- Taxable Sales – These are your normal sales and services such as buying a car for the business or paying your accountant. You collect the 10% by adding it to your pre-GST prices and claim a credit for the GST you have paid for your supplies. The net sum is paid to the ATO.
- Input Tax Sales – This primarily relates to financial services such as money transactions or residential rental property. No GST is chargeable but neither can you claim a credit for purchases you make in relation to that transaction.
- GST Free Sales – These tend to relate to items or services which could be seen as a necessity such as certain foods e.g. fruit, bread, meat, dairy etc. but is not restricted to that. For example, the sale of a business as a going concern is a GST free item. In this instance, however, you are able to claim GST credits on the purchases you make in relation to the sale.
In order to pay the GST you will be required to prepare and lodge a Business Activity Statement (BAS) on either a monthly, quarterly or annual basis. This is prepared based upon a complete record of all your sales and purchases and if you are not comfortable with doing so, qualified bookkeepers are able to do this on your behalf for a fee.