GST as it Affects SMEs

GOODS AND SERVICES TAX
GST As It Affects SMEs

www.lewistaxation.com.au
1. GST Defined

1st July 2000
2. Commencement Date

10%
3. GST Rate

Imposed on goods and services supplied
Tax of 10% on the consumption of most goods and services in Australia will not apply to the export of goods or services
4. GST Scheme

Two registrations
Australian Business Number
GST
Businesses should register for ABN
If turnover under $50k might be good reasons not to register for GST
Group Registration?
Branch Registration?
5. Registration Packages – The New Tax System

All enterprises engaged in a taxable activity
Must register if turnover exceed $75,000 per annum
All taxi drivers must register
Includes:
Business Trade Profession
6. Registration For GST – The New Tax System

Can include some activities of:
government
Government Corporations
Charities
Gift Deductible Funds, Authorities or Institutions
Religious Organisations
A lease or license to an interest in property
6. Registration For GST – The New Tax System cont'd....

Enterprise does not include:
Hobbies
Recreational activities – not for commercial reasons
Activities where there is no expectation of profits
Employee activities
Non profit organisations have to register if turnover and membership fees, excluding donations, exceed $150,000
Must register within 21 days of become liable to do so
6. Registration For GST – The New Tax System cont'd....

Group Registration
Companies, Trusts or Partnerships with common ownership or membership often operate as a group
Companies can form a GST group if each company:
is a member of the same (at least 90% owned) group as all other members of the GST group or proposed GST group;
7. Groups And Branches

Companies can form a GST group if each company (cont’d):
is registered for GST;
has the same tax periods as all the other members;
accounts for GST on the same basis (i.e. cash or non cash) as all the other members;
does not belong to another GST group; and
has not “branched” for GST purposes
7. Groups And Branches cont'd....

The 90% ownership requirement does not apply to non profit bodies, however non profit bodies may only form a group where:
all members of the GST group or proposed GST group are non profit bodies; and
all members are members of the same non profit association

Trusts and Partnerships may also become members of a GST group if they satisfy the regularity requirements
A Partnership and a Trust can form a group
Two Partnerships and a Trust can form a group
GST groups are effectively treated as a single entity

Joint application to ATO to nominate members
An entity may also register its branches as GST branches if it wishes to have them as separate entities for GST purposes
GST is payable on transactions between GST branches

If turnover under $75,000 per annum
Cannot charge GST
Cannot claim GST on inputs
8. Option Of Not Registering For GST

Supply of goods or services
For payment – either cash or kind
Not including private nature activities
Not on salaries or wages
Not on sale of the family home
9. Taxable Activity

Food (special provisions)
Exports
International Air and Sea Travel
Health (virtually all)
Education (virtually all)
Child Care Services (virtually all)
Religious Activity (virtually all)
Charitable Activities (virtually all)
10. “GST Free Supplies” Goods And Services

Water and Sewerage Rates
Cars for disabled persons
Health Insurance Premiums
Precious metals
Sale of a business (as a going concern)
Supplies through inwards Duty Free Shops
Grants of freehold land
Subdivided farm land
10. “GST Free Supplies” Goods And Services cont'd....

Sales of farm land
Private Sales (garage sales)
Hobbies
Private Recreational Pursuits
Wages
10. “GST Free Supplies” Goods And Services cont'd....

GST free unless specifically included
Food defined as:
food marketed for human consumption
beverages
mixtures with food
fats and oils
Food that is GST free will be GST free throughout the food chain – so long as it is marketed – “Fit for Human Consumption”
11. Food – GST Free Unless …

Beverages GST free include:
milk products
soy milk and rice milk
tea
coffee
fruit and vegetable juices
beverages for infants or invalids
water
Packaging necessary for supply of food is GST free
11. Food – GST Free Unless cont'd....

Live animals
Any grain, cereal, sugar cane not processed
Plants under cultivation
Food unfit for human consumption
Prepared foods
Confectionery
Savoury snacks
Bakery products
12. Food That Is Not GST Free

Ice cream food
Biscuit goods (except breakfast foods or rusks)
Food for consumption on premises where it is supplied
Hot take away food
12. Food That Is Not GST Free cont'd....

GP Medical Consultations
Specialist
Ambulance Services
Aboriginal and Torres Strait Islander Health
Diagnostic, Surgical and Therapeutic Procedures
Audiology
Chiropody
Chiropractic
13. Medical And Health Services That Are Free Of GST

Dental
Dietary
Nursing
Optical
Occupational Therapy
Pharmacy
Psychology
Physiotherapy
13. Medical And Health Services That Are Free Of GST cont'd....

Speech Pathology and Therapy
Social Work
Health Care provided at Hospitals and Nursing Homes
Nursing Care Services provided to patients at home
Wheel chairs, crutches, artificial limbs, modifications to motor vehicles for the disabled
13. Medical And Health Services That Are Free Of GST cont'd....

Pre School
Primary School
Secondary School
College
TAFE
University
Adult Education for employment related skills
14. Education Services That Are Free Of GST

GST not charged
Entitled to Input Tax Credits
15. GST Free Activities

Exempting from charging GST:
Financial Services
Residential Rent
Supplies of Residential Premises (other than sale of a new house)
16. Input Taxed Supplies/Activities (Exempt Supplies And Goods)

Applies to Input Taxed Supplies/Activities
GST not charged – but
Not entitled to Input Tax Credits
17. Input Taxed

Supplier entitled to a credit on GST paid
Called “Input Tax Credit”
Only available to enterprises registered for GST
Only get full credit if acquisition 100% creditable purpose
Not available for Input Taxed Supplies
18. Input Tax Credit

Must be acquired for carrying on business
Not if an Input Taxed Supply
Not if for private purposes
19. Creditable Purpose

Calculated:
Gross value of turnover x 10%
or
1/11 of total price including GST
20. GST On Taxable Supplies

Output Tax
less
Input Tax Credit
Adjustments
equals
GST Payable or Refundable
21. GST Payable/Refundable

Monthly
Electronically
Refunds can be offset against income tax owing
22. Business Activity Statement For $20m Plus Sales

Quarterly
Can elect to lodge monthly
Lodgement and payment dates:
28th February
28th April
28th July
28th October
23. Business Activity Statement For Sales Under $20m – Standard Method of Lodgement

Taxpayers who are required to lodge Business Activity Statements on a quarterly basis, have an option known as Option 2 "Streamlined Quarterly Remittance Form"
24. Business Activity Statement For Sales Under $20m - Streamlined Quarterly Remittance Form

Businesses with an annual turnover under $2m have the option (known as Option 3) of lodging their Business Activity Statements on a quarterly basis.
25. Business Activity Statement For Sales Under $2m - Small Business Option

If turnover under $2m – statement can be prepared on “Cash” basis:
no debtors
no creditors
If turnover over $2m – statement must be prepared on an “Accruals” basis including:
debtors
creditors
26. Turnover Level “Cash” Or “Accruals” Basis

“Cash basis” means GST delayed until money received
but
cannot claim input tax credits until payment made
“Accruals basis” means GST payable in period invoice prepared
and
can claim input tax credit
26. Turnover Level “Cash” Or “Accruals” Basis cont'd....

Subject to GST
Does not apply to “Private” Sales:
family car
garage sale
Dealer gets Input Tax Credit for purchases from an unregistered person
27. Second Hand Goods

Will pay GST on imports whether registered or not
Input Credits only allowed to registered enterprises
28. Importers

Must include GST
GST should not be shown separately
29. Displayed Prices

Paid direct to business’ bank, building society or credit union account
May be offset against other tax debts
30. Refunds Of GST

Must have to claim Input Tax Credit
Must supply within 28 days of request for all invoices over $75
Must include:
Name of supplier
Words “Tax Invoice”
Australian Business Number of supplier
Date
31. Tax Invoices

Brief description of what supplied
GST inclusive price
When GST payable is exactly 1/11 of the total price “the total price includes GST for this supply”
or
the supply value and the GST amount must be listed separately
31. Tax Invoices cont'd....

Suppliers of $1,000 or more
Additional information required:
Recipient name
Recipient’s address or Australian Business Number
Quantity or volume of goods provided

Taxable and Non Taxable Supplies
Additional information required:
Each taxable supply
The amount excluding GST for the supply
The amount of GST payable
Total amount payable for the supply

“Non Tax Invoice”
Must deduct Withholding Tax
32. Invoice Without An Australian Business Number

Automatically approved to issue:
Agricultural Industries
Registered Government Entities
Recipients with a turnover over $20m
Other types of businesses must obtain ATO approval to issue
33. Recipient Created Tax Invoice

Key requirements:
“Recipient Created Tax Invoice”
ABN of supplier and recipient
“GST shown is payable by the supplier”
33. Recipient Created Tax Invoice cont'd....

Cannot charge GST
Cannot claim Input Tax Credits
Withholding Tax will be deducted by Payers
34. Unregistered Businesses (Without Australian Business Number Or GST Registration)

Prepared and presented by a supplier to an enterprise as the reason for not quoting an Australian Business Number to the enterprise
If you receive a "Statement By A Supplier" you do not have to withhold any tax from the payment
You must retain the supplier's statement for five years
35. Statement By A Supplier

Issue an invoice quoting ABN
Not a “Tax Invoice”
Payers do not deduct Withholding Tax
36. Business With An Australian Business Number – But Not Registered For GST

Discount allowed
Return of faulty goods
Bad Debts
37. Adjustments

An Adjustment Note may have to be issued where an “adjustment event” occurs in a later tax period
An “adjustment event” is any event in relation to a supply which effectively:
cancels the supply i.e. for return of goods
changes the consideration e.g. prompt payment discounts, volume rebate
adjustment to prices
38. Adjustment Notes

Certain information must be known on Adjustment Notes, including:
the name or trading name of the supplier;
the words “Adjustment Note” stated predominantly;
the Australian Business Number of the supplier;
the date of issue of the original Tax Invoice;
38. Adjustment Notes cont'd....

Certain information must be shown on Adjustment Notes, including (cont’d):
the number of the original Tax Invoice;
a brief description of the items for which there is an adjustment; and
the GST inclusive price of the adjustment
38. Adjustment Notes cont'd....

GST on premiums
Registered enterprises can claim Input Tax Credit
No GST payable on claims
Must notify Insurer of GST status
If renewal is after 1st July 2000 – notify Insurer of status before 30th June 2000
39. Insurance

Accurate and current
Correct calculation of GST
Payment for the GST has to be made three weeks after the end of a month and 28 days after the end of a quarter, except the December quarter, when payment is to be made by 28th February
40. Accounting Records For GST

The financial records of an enterprise need to produce sufficient information for the completion of the Business Activity Statement
41. GST Control Accounts

Your professional advisor has invested in:
training material
seminars
check lists
procedural matters
Your professional advisor can assist
42. Professional Assistance

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GST as it Affects SMEs

by Alan Lewis Accountants

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