GST BASICS Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE LEGAL PRACTITIONERS MARCH 2005PROFESSIONAL GST basics Norman Kochannek

GST BASICS Overview  What GST is and how the system works  Types of sales  Claiming GST credits

GST BASICS Overview cont.  Registering for GST  Accounting for GST  Tax invoices  Reporting and paying GST

GST BASICS What is GST and how the GST system works

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

GST BASICS 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 Wholesaler sells chocolate for $200 + $20 GST Price = $220 Retailer sells chocolate for $300 + $30 GST Price = $330 Activity statement GST on sales $10 Less GST credit 0 GST to pay $10 Activity statement GST on sales $20 Less GST credit $10 GST to pay $10 Activity statement GST on sales $30 Less GST credit $20 GST to pay $10 Consumer pays $30 GST to retailer $10 GST to ATO $30 total GST

GST BASICS Types of sales

GST BASICS Three types of sales  Taxable sales  GST-free sales  Input taxed sales

GST BASICS 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 BASICS 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.

GST BASICS 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.

GST BASICS Summary GST charged/collected GST credit available Taxable sales GST-free sales Input taxed sales

GST BASICS Claiming GST credits

GST BASICS 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

GST BASICS 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.

GST BASICS Registering for GST

GST BASICS 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

GST BASICS 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

GST BASICS 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

GST BASICS Australian business number (ABN)  Must have an ABN for GST registration  Registration through: - business entry point at mail to Tax Office - electronic lodgment system.

GST BASICS 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.

GST BASICS 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

GST BASICS 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

GST BASICS Accounting for GST

GST BASICS 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.

GST BASICS 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).

JulyAugSeptOctNovDecJanFebMar 1 July -1 October - Issued InvoiceReceived Payment First QuarterSecond QuarterThird Quarter 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

GST BASICS 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

JulyAugSeptOctNovDecJanFebMar 1 July -1 October - Issued InvoiceReceived Payment First QuarterSecond QuarterThird Quarter 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

GST BASICS Tax invoices

GST BASICS Function of a tax invoice  No tax invoice = no GST credit (some exceptions)  Verifies amount of GST credits

GST BASICS 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.

GST BASICS 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.

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

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

GST BASICS Tax invoice less than $1,

GST BASICS Tax invoice $1000 or more

GST BASICS Mixed sales 1 2 3

GST BASICS 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

GST BASICS Adjustment note

GST BASICS 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

GST BASICS Reporting and paying GST

GST BASICS 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.

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

GST BASICS 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

GST BASICS Tax Office’s legal database

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GST BASICS Summary  Advertised price includes GST  GST is 10%  Three types of sales  Must apply within 21 days of becoming required to be registered

GST BASICS Further assistance?   Business InfoLine  A Fax from Tax  Writing to: Australian Taxation Office, GPO Box 9935 in your Capital City 

GST BASICS Questions?

GST BASICS Our commitment to you The information in this presentation is current at March In the taxpayers' charter we commit to giving you information and advice you can rely on. If you try to follow the information contained in our written general advice and publications, and in doing so you make an honest mistake, you won't be subject to a penalty. However, as well as the underpaid tax, we may ask you to pay a general interest charge. We make every effort to ensure that this information and advice is accurate. If you follow our advice, which subsequently turns out to be incorrect, or our advice is misleading and you make a mistake as a result, you won't be subject to a penalty or a general interest charge although you'll be required to pay any underpaid tax. You are protected under GST law if you have acted on any GST information in this presentation. If you have relied on GST advice in this Tax Office presentation and that advice has later changed, you will not have to pay any extra GST for the period up to the date of the change. Similarly, you will not have to pay any penalties or interest. If this information does not cover your circumstances, you can seek further information from our website at or help from the Tax Office or a professional adviser. Since we regularly revise our presentations to take account of any changes to the law, you should make sure this edition is the latest.