Taxes can be a headache to figure out, whether you are trying to calculate personal or business expenses. Knowing the different tax rules will give you a better understanding of how much you’re actually paying the government.
This article will provide you with a guide to how Australia’s goods and services tax works.
What Is a Goods and Services Tax?
First things first, though. What does a goods and services tax (GST) mean, and how does it impact you?
GST is the additional cost levied on products and services that are consumed. Because of this, the people who are actually paying for the goods and services tax are the customers.
This money will go to the government and will make up a part of their budget. They will then use this budget to improve the country, such as by investing in education or infrastructure.
Australia places a 10% indirect tax on goods and services. Businesses will be the ones collecting this money before handing them over to the government. Most of the time, when you are purchasing something, the price tag already includes the GST.
The easiest way to calculate the cost of GST on your personal or company budget is by using an online GST calculator.
GST products will usually be divided into three different categories. This includes whether the product is made in Australia and sold domestically. Another category includes goods that are being sold overseas (exports), and the third category will refer to products that are being brought into the country (imports).
Products That Do Not Have GST
Some products and services don’t have a goods and services tax. GST-free items usually include:
- Basic food
- Some medical services
- Some menstrual products
- Religious services or charity activities
- Sales of businesses as going concerns
- International mail
To see the complete list, you can visit the Australian Taxation Office’s website.
Sale of a Business as a Going Concern
The sale of a business as a going concern refers to selling a business along with all the necessary elements for the buyer to keep the company going. This sale can be excluded from having to pay GST if it meets the following criteria:
- Payment has been made for the sale of the business
- The buyer has registered for GST
- Both the vendor and the buyer agrees, in writing, that the business is sold as a going concern
- The seller supplies everything that the buyer needs to keep business operations running until the day of the sale
Make sure to double-check with a tax professional when it comes to selling your business as a going concern.
Registering for GST
Your business has to register for GST if it fulfills the following criteria:
- The business has an annual GST turnover of $75,000 or more
- Your nonprofit has an annual GST turnover of $150,000 or more
- You provide transport travel, such as limousine rides, Uber, and more (regardless of your GST turnover)
- You want to claim fuel tax credits
Registering for GST is optional, although you may have different requirements depending on whether or not you are a resident.
If you are a new business but will expect to make more than $75,000 annually, you can immediately register for GST within the first few weeks.
Alternatively, if you are a small business and make less than $10 million, you may be able to access GST concessions.
If you are reporting GST for your business, you will need a business activity statement. This is a report that includes all the relevant business tax obligations within a period of time. GST will be included in this report as being charged on the sales and credits aspect of your business expenses.
Usually, your business activity statement will be due once every quarter (on the 28th of the month), although businesses that make more than $20 million will need to complete it once every month.
How to Claim GST Credits
Anything that you buy for your business can earn you a GST credit, but you will need a tax invoice if you buy something that costs more than $82.50. If you run a business, your customers can also request this to make a claim.
Your tax invoice will usually need to include the company’s name and Australian business number (ABN), date of purchase, the customer’s name and address, quantity and price of products, and the GST.
If your tax invoice exceeds $1,000, you need to show the buyer’s identity or their ABN.
If you buy something that costs less than $82.50, you can provide one of the following:
- A tax invoice
- An invoice
- A receipt
These are the other conditions that apply when claiming GST credits:
- The product you purchased is only used for business operations
- The purchase price includes GST
- You paid for the product that was purchased
You’ll need to file the GST claims within four years of the actual purchase.
Cases Where You Can’t Claim GST Tax Credits
There are reasons why you may not be able to claim GST credits. This may be because you haven’t registered for GST.
Otherwise, you won’t be able to claim GST tax credits for products that do not have GST. This includes scenarios when the sale is GST-free, input-taxed, or is sold by someone who did not register for GST.
You will not be able to claim GST tax credits for wages that you pay to employees (which are expenses that do not include GST). Additionally, any expenses that cost more than $82.50 and that you do not have a tax invoice for will not be something you can claim.
There are still more reasons why you may not be eligible for a GST tax credit. This includes situations where you are not actually purchasing something for business purposes, where the time limit for claiming the GST has ended, where you purchased a real property under a margin scheme, and more.
GST in Your Accounting Statements
You can include GST in your accounting system by using the cash basis or the accruals basis. A cash basis accounting method will include revenues or expenses when you process the payment or receive the payment. When it comes to GST reporting, you will account for the GST on your sales and purchases in the same period that you actually pay for them.
On the other hand, using the accrual basis accounting method includes only recognizing your income when the liabilities are incurred. It won’t matter whether you’ve received payment or not. In these cases, you’ll have to account for the GST when you receive an invoice or when you send out an invoice.
Considering GST and Income Tax Deductions
Sometimes, you may want to file a claim for your tax-deductible purchases. If you also have GST included, however, you will have to ensure you understand the calculations.
If you’re making a claim for income tax deductions, you can only provide a claim that does not include the GST of a product. For instance, you bought $50 worth of pens, and the GST results in an additional cost of $5. This makes a total of $55.
When you are claiming a deduction, you will only be allowed to include the $50. If you are claiming a GST-free item, you can include the gross amount. Input-taxed items don’t include a GST, such as ATM transactions, rent, loans, and more.
Which Organizations Can Enjoy GST Concessions?
The Australian Taxation Office needs to endorse charities or non-profits to receive tax concessions. GST concessions are available for:
- Non-profit organizations
- Government schools
Not-for-profit organizations can receive a GST concession for the following:
- Selling food at a canteen at school
Charities, government schools, and more can receive a GST concession for the following:
- Tickets for raffles
- Fundraising events
- Any activities that don’t have a commercial purpose
- Reimbursing volunteer expenses
- Donated items
Religious groups may also be eligible for GST concessions.
Australia’s Goods and Services Tax System
Overall, Australia has a goods and services tax for products that are domestically produced and sold, for exports, and also for imports. GST always costs 10% in this country and will be paid for by the customers of the products.
If you are a business registering for GST, there is a lot of tax information that you have to be aware of. This includes how you will report GST, how you will claim GST tax credits, how you will claim tax deductions, and whether or not you will be eligible for concessions.
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