GST BASICS Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE LEGAL PRACTITIONERS MARCH...

GST BASICS www.ato.gov.au

Presented by:Australian Taxation Office

SEGMENT AUDIENCE DATE

LEGAL PRACTITIONERS

MARCH 2005PROFESSIONAL

GST basics

Norman Kochannek


Overview

What GST is and how the system works

Types of sales

Claiming GST credits


Overview cont.

Registering for GST

Accounting for GST

Tax invoices

Reporting and paying GST


What is GST and how the GST system works


The GST is

A tax on private consumption

A multi-stage tax

Borne by consumers not by business

Collected by all registered businesses


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 GSTPrice = $110

Wholesaler sells chocolate for $200 + $20 GSTPrice = $220

Retailer sells chocolate for $300 + $30 GSTPrice = $330

Activity statementGST on sales $10Less GST credit 0GST to pay $10

Activity statementGST on sales $20Less GST credit $10GST to pay $10

Activity statementGST on sales $30Less GST credit $20GST to pay $10

Consumer pays $30 GST to retailer

$10 GST to ATO

$10 GST to ATO

$10 GST to ATO

$30 total GST


Types of sales


Three types of sales

Taxable sales

GST-free sales

Input taxed sales


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-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.


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.


Summary

GST

charged/collected

GST credit

available

Taxable sales

GST-free sales

Input taxed sales


Claiming GST credits


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


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.


Registering for GST


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


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


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


Australian business number (ABN)

Must have an ABN for GST registration

Registration through:

- business entry point at

- www.business.gov.au

- mail to Tax Office

- electronic lodgment system.


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.


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


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


Accounting for GST


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.


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).

July Aug Sept Oct Nov Dec Jan Feb Mar

1 July - 1 October - Issued Invoice Received Payment

First Quarter Second Quarter Third Quarter

Monthly and cash basis - GSTcharged to be sent in by 21 November

Quarterly and cash basis - GSTcharged to be sent in by 28 February

Cash basis of accounting


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

July Aug Sept Oct Nov Dec Jan Feb Mar

1 July - 1 October - Issued Invoice Received Payment

First Quarter Second Quarter Third Quarter

Monthly and non-cash basis - GSTcharged to be sent in by 21 August

Quarterly and non-cash cash basis - GSTcharged to be sent in by 28 October

Non-cash basis of accounting


Tax invoices


Function of a tax invoice

No tax invoice = no GST credit (some exceptions)

Verifies amount of GST credits


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.



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.



Extra information required varies depending on:

sales of less than $1,000

sales of $1,000 or more

mixed sales.


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 less than 1/11th of price

Tax invoice should show:

GST-exclusive value of the sale, and

total amount of GST payable.


Tax invoice less than $1,000

Tax InvoiceWindows to Fit Pty Ltd 15 Burshag RoadABN: 32 123 456 789 Festler NSW 2755

Date: 1 March 2004

Total$825

$825TOTAL PRICE INCLUDING GST

Description of supplyWindow Frames

12

3

4

5 6


Tax invoice $1000 or more

Tax InvoiceWindows to Fit Pty Ltd 15 Burshag RoadABN: 32 123 456 789 Festler NSW 2755

Date: 1 March 2004

To: My Business Pty Ltd135 Bundall RoadSURFERS PARADISE Q

Qty Value Total500 $15.00 $7,500

$1.50 $750

$8,250

Description of supply

TOTAL AMOUNT PAYABLE

Window Frames GST

12

3

45

6

7 8 910


Mixed sales

Tax InvoiceAny Supplies Pty Ltd 123 Burshag RoadABN: 47 123 455 271 Festler NSW 2755

Date: 1 March 2004

To: My Business Pty Ltd135 Bundall RoadSURFERS PARADISE

Qty Value Total50 $2.20 $1105kg $1.00 $5

$115

$10

* indicates a taxable supply

TOTAL AMOUNT PAYABLETotal includes GST of

Carrots

Description of supply Soft drinks * 1

2

3


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


Adjustment note

Windows to Fit Pty Ltd 15 Burshag RoadABN: 32 123 456 623 Festler NSW 2755

Date: 1 April 2004

To: My Business Pty Ltd135 Bundall RoadSurfers Paradise

10 damaged window frames returnedTax Invoice Date: 1 March 2004

Original Price $825Adjusted Price $660

Amount Refunded $165

AMOUNT REFUNDED INCLUDES GST

Refund NoticeAdjustment Note

1

2

3

4

5

6

7 8


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


Reporting and paying GST


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.


Reporting and paying GST – 3 options

Option 3 (if eligible)

- pay Tax Office notified amount quarterly

- lodge an annual GST return.


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


Tax Office’s legal database


Summary

Advertised price includes GST

GST is 10%

Three types of sales

Must apply within 21 days of becoming required to be

registered


Further assistance?

www.ato.gov.au

Business InfoLine 13 28 66

A Fax from Tax 13 28 60

Writing to:

Australian Taxation Office,

GPO Box 9935 in your Capital City

[email protected]


Questions?


Our commitment to you

The information in this presentation is current at March 2005.

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

www.ato.gov.au, 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.

GST BASICS Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE LEGAL PRACTITIONERS MARCH...

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