Understanding GST

Despite the GST being introduced seven years ago, calculating and allowing for it in a business’s books can still be a challenge. Giftrap puts the Australian Tax Office under the pump to reveal what businesses should be doing

GST is charged on most goods and services within Australia and was introduced by the Federal Government with the A New Tax System (Goods and Services Tax) Act 1999, which took affect from 1 July 2000. It was introduced to broaden the tax base, which the government believed was heavily biased towards the provision of services.

Prior to the introduction of the GST, Australia operated a Wholesale Sales Tax (WST), which imposed a tax on the wholesale of goods. It was introduced in the 1930s when the Australian economy was dominated more by the supply of goods. The introduction of GST was based on the fact that Australia had evolved to become more service-based over the years. It served to more fairly balance the advantages that service-providing businesses had over the suppliers of goods.

Most goods and services will incur GST, however the following are examples of GST-free supplies:

• most health and medical care services;

• most educational services;

• most food for human consumption (other than prepared foods, confectionary, snacks, ice-cream, biscuits, alcohol, soft-drinks and certain other drinks);

• certain activities of charities and related bodies;

• international travel and transport;

• sales of ‘going concerns’;

• certain dealings with land;

• exports of goods or services or other things if certain requirements are met.

Some sales are GST-free sales, including:

• basic food for human consumption, for example, fruit, vegetables, plain milk and bread;

• exports;

• some health services and education courses;

• some activities of charitable institutions;

• childcare;

• religious services;

• water and sewerage services; and

• a sale of a going concern, for example, a business.

The GST is levied at a flat rate of 10 percent on most goods and services, apart from GST-exempt items, and input taxed goods and services.

When issuing an invoice it needs to contain the following information:

• The Australian business number (ABN) of the business issuing it.

• The price.

• State the words ‘tax invoice’ prominently.

• The date of issue of the tax invoice.

• The name of the supplier.

• The name of the recipient.

• The address or ABN of the recipient.

• A brief description of each thing supplied and for each description the quantity of goods or the extent of the services.

• If the GST payable on the supply or supplies is exactly one-eleventh, the invoice must contain a statement to the effect that the total amount payable includes GST for the goods or service, or must set out the total amount of GST payable.

• If the GST payable on the goods or services is less than one-eleventh, the invoice must set out the amount, excluding GST payable, for the supply or supplies and separately show the amount of GST payable on the taxable supply or supplies.

(Note: if the total amount, including GST, payable for the tax invoice is less than $1,000, you do not need to show the name or address of the recipient, or the quantity of goods or the extent of the services.)

Keep all paper-based invoices and use e-Record which is available from the ATO website.