Learn How GST Works In Australia

In every country, the government runs with tax revenues from the people. There are many taxes like individual income tax, income tax on enterprise, excise tax, and much more. But what about GST? And how does GST works in Australia?

 

How GST is in Australia

 

Taxation in Australia includes two main types, federal tax, also known as Commonwealth tax, which is collected by the federal government, and state tax which is collected by every state. The Australian Government gets around 81 percent of tax revenue from federal taxation’s which is also known as Goods and Service Tax in Australia comes under Federal Taxation.

 

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What is GST?

 

GST- a consumption tax is a tax on purchasing goods or services. The whole taxation is in which people are taxed based on how much they consume rather than how much they add to the economy (income tax). In Australia, goods and service taxes are about 10% on most sales, with some exceptions, such as for certain food items, health care products, and housing services.

 

 This was introduced by the Howard government and was commenced on the first of July in 2000. By replacing the previous Federal wholesale sales tax system, it also phased out various state and territory taxes, duties like banking tax, and stamp duties.

 

Let’s move on to our core topic of discussion here on how GST works in Australia.

 

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How GST works in Australia?

 

Goods and service tax is a value-added tax and they work differently with businesses or as an individual consumer. As an individual consumer, you will be buying a product where GST is included in the price. So, you buy more, you pay more and it varies according to the product you purchase. But with business, there is a lot more process like from registration to setting GST price and claiming credits.

 

When you manage a business or other enterprise which includes GST and if you generate a GST turnover of $75,000 or more, you must register for GST. For non-profit organizations, you must register for GST if your GST turnover is $150,000 or more. And this is how GST works in Australia.

 

Registration for GST

 

Nowadays registering for GST is simple. You can easily register for GST online via the phone or through a registered tax or BAS agent when you register for your business. You only need to register for GST once, even if you handle more than one business.

 

If you haven’t registered for GST, then you have to check each month if your threshold has reached or is likely to be exceeded. And if you have exceeded the threshold, then you have 21 days to register. You are obligated to pay GST regardless of your threshold when providing taxi or limousine service to passengers. This GST applies to both the drivers and the owners of taxis.

 

So what happens if you’re opening a new business and you haven’t reached the threshold. Do you need to register?

 

If you operate a business related to craftwork, for example, then you will be most likely have the need to purchase wood or a few different things to create the product and those things will be subject to GST. What registering for GST will do is allow you to claim the GST back. So, it makes your input cost a little cheaper. But if you’re in a service business and mostly employing staff to run the business, there is no GST for labor. So, registering for is GST is useless.

 

If you don’t register for GST even when you are required to, you must pay GST on sales made since the date you’re required to register. This could happen even if you didn’t include GST in the price of the sales because you have already crossed the threshold. Also, you must pay penalties and interest.

 

GST for Non-Resident

 

For Non-resident it is entirely different. They undergo a different procedure to apply. Depending on the business activity, you need to register either Standard GST Registration or Simplified GST Registration.

 

Standard GST Registration:

 

For the business that

  1. Have ABN(Australian Business Number )
  2. Make supply connects with Australia
  3. Issue invoice
  4. Wants to claim GST credits

 

 Simplified GST registration

 

Where you

  1. Provide services and digital products to Australian consumers from out of Australia
  2. Imports goods valued at $1000 or less (low valued goods) into Australia.

 

 How to calculate GST

 

To calculate the amount of GST which is already included in the price of the product, you have to divide the total price by 11.

 

For example, if you are buying a product that costs over $375 with GST. Then divide the cost of the product by 11.  So, $375 divided by 11 equals $34. And that’s your Goods and service tax.

 

How to calculate GST Turnover

 

GST Turnover =Total income (not your profit) – {   GST is included in sales to your customers.

Sales that aren’t for payment and that are not taxable.

Sales that aren’t connected with an enterprise you run.

Input-taxed sales you make.

Sales that don’t have to do anything with Australia.}

 

Cancelling GST registration

 

If you close or sell your business, then you must cancel your GST registration within 21 days. If your business structure changes from partnership to a company, you must cancel your GST registration within 21 days. Right after you canceled the GST registration, you cannot operate on GST registered basis. You also may need to cancel ABN.

 

How to cancel GST

 

You can cancel your GST registration or any other registration together

 

  • Through online service for business
  • By calling 13 28 66 – between 8:30 AM and 6:30 PM, Monday to Friday; or by completing the Application to Cancel Registration form through our online ordering system and sending it in by mail.

 

How does it affect other registration?

 

Canceling GST many only affect only a few other registrations

 

  • Fuel tax
  • luxury car tax
  • wine equalisation tax

 

Claiming GST credits

 

You can claim for any type of GST included in the price for any goods and services you purchase for the business. This is known as GST credits or input tax credit. An input tax credit means that at the time of paying tax on output(final product), you can reduce the tax you already paid on input(purchase).

 

For example, If you are a manufacturer you would have to pay tax for the input you have purchased which is 400, and output tax which is 550 instead you can pay 150 because you can claim input credit 400 (input purchase).

 

 When can you claim your GST credits?

 

First, you must register to GST to claim GST credits. You can claim a credit for any GST included in the price you purchase for the things used in business. These are called GST credits or input tax credits. You can claim GST credits by using your business activity statement

 

You can claim GST credits only if the following condition is followed:

  • You intend to use your purchase solely or partly for your business, and the purchase should not be related to making input-taxed supplies, then only you can claim the credits.
  • The purchase price must be included in GST.
  • You provide or are liable to provide payment for the item you purchased for your business.
  • You should have a tax invoice from your supplier (for every purchase which is more than $82.50).

 

And while claiming GST credits, make sure your supplier is also registered to GST. You can check their GST registration status by entering his ABN on the ABN Lookup website. All you have is a 4-year time limit for claiming your GST credits.

 

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Tax Invoice

 

When you make a taxable sale over $82.50 that includes GST, you will need to send an invoice, so that your GST-registered customer can claim credits. If one of your customers asks for a tax invoice, you must provide one within 28 days of request.

 

A tax invoice for sales under $1000

 

The taxable sales for less than $1000 must include at least enough information to determine the following seven details

  1. That must include the document is intended to be a tax invoice
  2. They must include the seller’s identity
  3. The seller’s Australian business number (ABN) should be mentioned
  4. The date the invoice was issued to the person
  5. A brief description of the items sold, including the quantity (if you can provide) and the price of the product
  6. The GST element can be displayed separately from the rest of it is exactly one-eleventh of the total price, for example by showing a statement saying ‘Total price including GST’
  7. Each sale on the invoice is taxable to the extent that it is listed on the invoice

 

A tax invoice for sales of more than $1000

 

For tax invoices for sales more than $1000 or more need to show the buyer’s identity or Australian Business Number(ABN).

 

But if you send or receive an invoice that only has a figure at a wine equalization tax-goods services tax (WEG) label, you need more information to be able to claim GST credits and for it to be considered as a valid tax invoice.

 

Business Activity Statement (BAS)

 

When you are registered for GST as a business company, you must file a Business Activity Statement (BAS). Your Business Activity statement will help you report and pay:

 

  • Goods and Services Tax (GST)
  • Pay As You Go (PAYG) installments
  • PAYG withholding tax
  • Other taxes.

When you register for an Australian business number (ABN) and GST, you will automatically receive your BAS when it is time to lodge.

 

GST – Free sales

 

You should not include GST in the price if your product or service is GST-free. Even if you are making a product that is GST – free, you can still claim credits for the GST included in the price of purchases you use to make a product.

 

GST is not charged on most food and other basic goods and services, as well as certain education courses and a few health care products and services.

 

Things that are GST-free include:

 

  • Certain medicines
  • Basic food
  • Certain education courses, course materials
  • Some medical, health, and care services
  • Certain menstrual products
  • Certain medical aids and appliances
  • Certain childcare services
  • Few religious services and charitable activities
  • Supplies of accommodation and meals to residents of the retirement villages by certain operators
  • cars for disabled people to use when certain requirements are needed to approve them
  • Water, Sewerage, and Drainage
  • International transport and matters related to that
  • Certain precious metals
  • Sales through duty-free shops

 

Additionally, if you are eligible for a GST-free purchase of a car, then you can also purchase some car parts without paying GST. These include items such as:

 

  • Batteries
  • Disc brake pads
  • Tires
  • Oil filters
  • Petrol filters
  • Liquid petroleum gas (LPG) conversion kits
  • Spark plugs
  • water and fuel pumps
  • Radiator hoses
  • Windscreens
  • Head and tail-light globes.

 

Conclusion

 

By now, you have a good understanding of how GST works in Australia. What they are, their benefits, how to register, how to cancel, and the differences between them and other forms of taxation.

 

Each country has its own GST percentage. However, the way they work might be similar, but that doesn’t mean they have to be alike. As part of GST, the government is not the only party that benefits, but an individual also gains benefits on how to use the money efficiently and how to gain benefits from GST. And this is how GST works in Australia.

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