Goods and Services Tax (GST)

A goods and services tax (GST) is a 10% tax added on to the sale of most goods and services ('taxable sales') consumed in Australia from 1 July 2000.

GST is paid at each step in the supply chain, with entities charging GST in the price of goods and services supplied. However, entities that are registered for GST (and have been issued with an Australian Business Number (ABN)), can claim input tax credits from the ATO for any GST included in the price paid for goods, services and anything else purchased for the entity. This means that the GST liability flows along the supply chain and is actually included in the price paid by the consumer, who cannot claim input tax credits.

However, the liability to pay GST rests on the supplier of goods and services, not on the customer. In other words, even if GST is not included in the price of goods and services supplied, GST is still payable to the ATO.

The GST section of the business activity statement (BAS) is to be used by entities to:

• report the GST payable on taxable sales made, and

• claim the GST included in the price paid for purchases and the GST paid on anything imported for use in the enterprise.

GST on taxable importations is payable by entities that are registered for GST as well as those that are not, including individuals and other entities who may not even be carrying on an enterprise. The Australian Customs Service generally collects GST, along with customs duty, on imported goods when they enter the country. Entities that are registered for GST are entitled to input tax credits for the GST paid on anything imported for use in the enterprise.

Some sales are not subject to GST and are either GST-free sales or input taxed sales.

If sales are GST-free then GST is not payable, but the supplying entity is entitled to claim input tax credits for anything purchased or imported for use in the enterprise. GST-free sales include most food, exports, sewerage and water, eligible childcare, non-commercial activities of charitable institutions, and most education and health services.

If sales are input taxed then GST is also not payable, but the entity is not entitled to claim input tax credits for anything purchased or imported to make the sale. Input taxed sales include financial sales, sales of residential rent and residential premises, and some sales of precious metals.

Examples of GST in operation:

1. Lawrie, a timber merchant, sells timber to Trish, a furniture manufacturer, for $220 (including $20 GST).

2. Trish uses the timber to make a table and sells it to Gus, a furniture retailer, for $440 (including $40 GST).

3. Gus sells the table to Owen, a consumer, for $550 (including $50 GST).

4. Lawrie pays the $20 GST to the ATO.

5. Trish is entitled to an input tax credit for the $20 GST included in the price paid to Lawrie. She offsets this $20 against the $40 GST payable on the sale of the table to Gus and pays $20 to the ATO.

6. Gus is entitled to an input tax credit for the $40 GST included in the price paid to Trish. He offsets this $40 against the $50 GST payable on the sale of the table to Owen and pays $10 to the ATO.

7. Owen, the consumer who buys the table, bears the GST because consumers cannot claim input tax credits.