Australian Taxation Office
15-Aug-2020 By - Anna Eydlish
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How Does GST Works for Businesses?

Most goods and services sold or consumed in Australia are subject to 10% goods and services tax, or ‘GST’. This means that if you charge $100 for your goods or services, your customer will be charged $110. The additional $10 is the GST which needs to be paid to the ATO.

Businesses collect GST for the government whenever they sell goods and services and then pay this revenue to the Australian Taxation Office. When you buy supplies for your business, you’ll be charged 10% in GST which you can claim back as a credit. At the end of each GST period – usually quarterly but occasionally monthly – you need to account for the GST you’ve collected on your sales minus any that you’ve paid (the credits) on your purchases. The difference is the amount payable (or refundable if credits on purchases exceed debits on sales). You do this by completing a business activity statement and paying the net GST to the ATO.

Businesses with a turnover of less than $75,000 are given the choice of registering for GST because if a business is spending extensively on supplies, the business might want to claim the GST credits back. This is particularly the case if GST credits on purchases exceed the GST charged to customers.

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The government then distributes this money to the states and territories to pay for public services and infrastructure, such as hospitals, roads and public schools.

It’s important to know whether you need to register for GST because the revenue plays a vital part in building our communities. 

You are required to register if you:

  • Run a business or enterprise with an annual turnover  of $75,000 or more 
  • Run a not-for-profit organisation with an annual turnover of $150,000 or
  • You are a taxi or a ride-sourcing driver, in which case you have to register for GST regardless of your annual turnover. 

You must register for GST within 21 days of meeting any of these circumstances. If you pay GST on any items purchased for your business, you can claim a GST credit.

Importantly, you will need an Australian Business Number or ‘ABN’ to register. 

GST Reporting

A business activity statement (BAS) is used to report all your periodic business tax obligations and entitlements. You need to report all the GST charged on your sales and the credits on your business purchases on your BAS as well as your pay as you go (PAYG) instalments and PAYG withholding tax.

Businesses with a turnover greater than $20 million must complete a BAS on a monthly basis and other businesses can also choose to do this if they prefer (for instance, if there are cash flow advantages to your business). Otherwise, BAS forms are due quarterly.

You must lodge your BAS quarterly by the 28th day of the month following the end of the financial quarter (September, December, March, June). If you lodge monthly, your BAS must be lodged by 21 days after the end of each month.

Accounting for GST

When you make a taxable sale of more than $82.50 (including GST), your GST registered customers must be given a tax invoice in order for them to be able to claim the GST credit. If they request one and you don’t provide it at the time, you have 28 days from their request to give it to them.

Invoices need to display specific information. For sales of $1,000 or more, invoices must display:

  • the words ‘tax invoice’
  • the seller’s name and ABN
  • date of the invoice
  • buyer name and ABN or address
  • a description of the items sold, the quantity and the price
  • the GST amount or that the total amount includes GST.

Invoices for less than $1,000 need to have all the above but not the buyer’s details.

There are two ways to account for GST: the cash basis or the accruals basis.

Businesses with a turnover of less than $2m can choose which method they prefer. Other businesses must use the accruals basis.

If you apply the cash basis, you must account for sales and purchases in the period in which you are paid for sales or pay for purchases. The advantage of this method is that GST reporting is better aligned with cash flow, which can be helpful for small businesses.

If you apply the accruals basis, you must account for sales and purchases in the period in which you invoice sales or receive an invoice for purchases.

man using calculator with coffee and laptop

GST and income tax deductions

If you are able to claim an income tax deduction for something you’ve bought for the business, you can only claim for the net amount (without the GST). This is to prevent you effectively getting tax relief twice on the same amount.

If there’s no GST credit for that purchase (for example if it’s an ‘input taxed’ item), you can claim an income tax deduction for the gross amount (including the GST).

‘Input taxed’ items do not include a GST component in the price, hence a GST credit cannot be claimed. Examples of input taxed items include rent on residential premises, financial items such as loans, ATM transactions and sales of existing residential premises (excluding new homes or commercial buildings.

When your goods or services include GST (and when they don’t)

If you’re registered for GST the goods and services you sell in Australia generally include GST in the price unless they are GST-free or input taxed.

Taxable Sales

Taxable sales must be:

For payment of some kind

For a sale to be taxable, it must be made for payment. This is usually monetary but can be another form of payment, such as:

  • goods or services provided instead of money, such as barter transactions
  • payment in the form of refraining from doing something.

Made in the course of operating your business

For a sale to be taxable, you must provide the goods or services as part of conducting your business. This includes all sales of business assets, including items such as motor vehicles and office plant and equipment. It also includes things done in the course of setting up or winding down your business.

Connected with Australia

GST applies to sales that are connected with Australia, whether they are goods, property or other things.

Goods

A sale of goods is connected with Australia if the goods are any of the following:

  • delivered or made available in Australia to the purchaser
  • removed from Australia
  • brought to Australia – provided the seller either imports the goods or installs or assembles the goods in Australia.
  • from 1 July 2018, supplies of low value imported goods to a consumer in Australia

Exports of goods and services from Australia are generally GST-free, even though the sale is connected with Australia. For more information, see Exports; GST on low value imported goods

Money 2724235 1280

Property

A sale of a property is connected with Australia if the property is in Australia. For GST purposes property includes:

  • land
  • land and buildings
  • interest in land
  • rights over land
  • a licence to occupy land.

Things other than goods or property

A sale of something other than goods or property is connected with Australia if any of the following applies:

  • the thing is done in Australia
  • the seller makes the sale through a business they carry on in Australia
  • the sale is of a right or option to purchase something that would be connected with Australia.
  • the purchaser of the sale is an Australian consumer.

For taxable sales you need to:

  • account for the GST in the price of your goods and services
  • issue a tax invoice to the buyer
  • pay the GST you’ve collected less any credits you are owed when you lodge your activity statement.

Remember – You can claim credits for the GST included in the price of purchases you needed to make your taxable sales.

If you’re registered for GST and you’re dealing with an overseas supplier or business, you may have to account for GST on the transaction. For more information read Reverse charge of GST on things purchased from offshore on the ATO website. 

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GST-free sales

Most basic foods, some education courses and some medical, health and care products and services are exempt from GST.

GST-free sales don’t include GST in the price, but you can still claim credits for the GST included in the price of purchases you use to make your GST-free sales.

Main GST-free products and services

Most basic foods, some education courses and some medical, health and care products and services are exempt from GST.

Things that are GST-free include:

  • most basic food
  • some education courses, course materials and related excursions or field trips
  • some medical, health and care services
  • some menstrual products (from 1 January 2019)
  • some medical aids and appliances
  • some medicines
  • some childcare services
  • some religious services and charitable activities
  • supplies of accommodation and meals to residents of retirement villages by certain operators
  • cars for disabled people to use, as long as certain requirements are met
  • water, sewerage and drainage
  • international transport and related matters
  • precious metals
  • sales through duty-free shops
  • grants of land by the government
  • farmland
  • international mail
  • exports
  • sales of businesses as going concerns
  • some telecommunications supplies
  • eligible emissions units.

Input taxed sales

The most common input taxed sales are financial supplies (such as lending money or the provision of credit for a fee) and selling or renting out existing residential premises.

Input-taxed sales are sales of goods and services that don’t include GST in the price. You can’t claim GST credits for the GST included in the price of your ‘inputs’.

The most common input-taxed sales are financial supplies (such as lending money or the provision of credit for a fee) and selling or renting out residential premises.

Do you need to register for GST?

GST is a tax of 10% on most goods, services and other items sold or consumed in Australia. You’ll need to register for GST if:

  • Your business or enterprise has a GST turnover of $75,000.
  • You provide taxi or limousine travel for passengers in exchange for a fare as part of your business, regardless of your GST turnover.
  • You want to claim fuel tax credits for your business or enterprise.

If you don’t fit into one of these categories, registering for GST is optional. However, if you choose to register, you generally must stay registered for at least 12 months.

consumers

International businesses selling to Australian consumers

You must register for GST if you’re an overseas business importing services and digital products to Australian consumers and makeover A$75,000.

You should consider registering for GST if you’re:

  • a merchant who sells imported services or digital products
  • an electronic distribution platform operator facilitating these sales.

Examples of digital products and services include:

  • streaming or downloading movies, apps, games and e-books
  • services such as architectural or legal services.

From 1 July 2018, you’ll need to register for GST if you’re an overseas business with a turnover in Australia of more than A$75,000 and sell low value imported goods to Australian consumers. This will affect goods valued at A$1000 or less on items like:

  • clothing
  • cosmetics
  • books
  • electric appliances.

How Do I Pay GST?

Register for GST

If you qualify for at least one of the criteria above, you are required to register for GST. To register for GST, you will need an Australian Business Number (ABN). Once you have an ABN, you can register for GST:

  • via the ATO’s Business Portal;
  • by calling the Australian Taxation Office (ATO) on 13 28 66; or
  • through your registered tax or Business Activity Statement (BAS) agent.

However, even if you have registered your business for GST, you do not necessarily have to pay GST on all goods and services you provide to the public.

Work Out Whether Your Sales Are Taxable

You are required to pay GST on all goods and services you provide unless they are GST-free or input taxed. You can pass on the cost of GST to your consumers by adding the flat 10% GST to the price you charge for your goods and services.

GST-Free Goods and Services

Some goods and services are GST-free, including:

  • most basic foods;
  • some education courses;
  • medical products and services; and
  • health and care products and services.

This means that you cannot charge your consumers GST when you sell these types of products or services. However, when you lodge your Business Activity Statement with the ATO, you can claim a refund for the GST you paid on input materials you purchased.

Input-Taxed Goods and Services

Similarly, you cannot charge your consumers GST for input-taxed goods and services. Input-taxed goods and services are goods and services that do not include GST in the price. 

These include:

  • financial supplies, for example, the lending and borrowing of money; and
  • the sale and rental of residential premises.

However, unlike GST-free goods and services, you cannot claim a refund for the GST you paid on the purchase of your input materials.

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Should I Charge GST to My Customers Overseas?

Export products are generally GST-free. Again, this means that you do not have to charge your customers GST; however, you can still claim for a refund for the GST you paid for any input materials purchased. Nonetheless, you will still need to pay for GST in some circumstances.

Lodging Business Activity Statements (BAS) With the ATO

A BAS is a form that you fill out between one and twelve times a year, depending on your business size. The ATO uses the information on your BAS to work out your GST refund or bill. It’s also used for business income tax (if you’re in the pay-as-you-go system), employee income tax, fringe benefits tax, luxury car tax, wine equalisation tax, and fuel tax credits.

After the end of each business quarter, you need to complete a Business Activity Statement and lodge it with the ATO. In your BAS, you need to report the amount you have collected from your consumers as GST and pay the equivalent amount to the ATO.

There are four ways to lodge your BAS. 

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Lodge online

Lodging your quarterly BAS online means you may be eligible for a concession, giving you an extra two weeks to lodge and pay.

Each of the following online options will step you through the process as you go:

  • Online services for individuals and sole traders (accessed through myGov) – allows you to manage your tax and super in one place.
  • Business Portal – a secure ATO website used to manage your business tax affairs online. To access the Business Portal after 27 March 2020, you will need to use myGovID. You will no longer be able to use AUSkey or Manage ABN connections (your myGov login when your account is linked to an ABN).
  • SBR-enabled software external Link – allows secure online lodgment directly from financial, accounting or payroll software, and often integrated with business software that’s tailored to specific industries. See the different forms available

Lodge through your tax or BAS agent

If you have a registered tax or BAS agent they can lodge, vary, and pay on your behalf through their preferred electronic channel.

When you use an agent:

  • they can view activity statements sent to your myGov Inbox
  • you can still access your activity statement through the Business Portal or myGov even if your agent is managing them on your behalf.

Nothing to report (‘nil’ BAS)

You can only use this service if you have nothing to report for the period and need to lodge your BAS as ‘nil’.

You can lodge your ‘nil’ BAS:

  • online
  • by phone on 13 72 26
    • this is an automated service and you can call anytime (24 hours a day, seven days a week)
    • you will need to have your activity statement document identification number (DIN) handy

Lodge by mail

Mail your original, completed BAS, using the pre-addressed envelope provided in your BAS package.

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