What is GST, and what does it mean for Australian businesses? Fullstack explains the purpose of GST and what companies need to do to comply with tax rules.
Goods and Services Tax (GST), extremely straightforward. As the name implies, in Australia a tax placed on goods and services. GST is defined as a broad-based consumption that applies to a broad spectrum of goods and services that are consumed by the Australian general public.
What is the Goods and Services Tax?
The Goods and Services Tax first came into effect on the 1st of July 2000, and was designed to replace a complicated range of State and Federal taxes, levies, and duties. When first introduced, the tax was subject to criticism based on the negative impact the new tax structure was perceived to have on lower income earners — the flat rate structure of the Goods and Services Tax is payable by all consumers regardless of income level.
An individual that earns $40,000 per annum, for example, pays the same amount of this tax as an individual that earns $100,000 per annum, even though they may consume identical goods and services.
Goods and Services Tax Basics
- The Goods and Services Tax is levied at a rate of 10%
- The tax is paid by consumers — the end users of the goods and services affected by the GST
- Some types of supplies, such as specific fresh foods, medical supplies, and some exports are exempt from the tax. Most supplies, however, are subject to GST
- In some cases real estate may be exempt from the tax, such as the sale of commercial property. Residential property, rural properties, and business premises sold as part of a business are subject to GST
- Businesses that purchase goods or services in order to supply or deliver the products or services that they offer may be eligible for a refund on the tax they pay for these goods and services
- It’s only necessary to register for the tax if your business expects to generate a revenue of over $75,000 per annum
- Businesses that are registered for GST must complete a quarterly Business Activity Statement, or BAS, at the end of each quarter. This BAS must be lodged with ATO. Businesses must also remit tax collected to the ATO — they aren’t able to keep the capital collected when charging the tax.
How Does the Goods and Services Tax Work in Australia?
The calculation of GST simple — tax is added to the price of goods and services by adding 10% giving a final price.
A business may want to present the price of goods and services as GST inclusive, however. In order to determine how much the GST inclusive price of goods and services are, it’s necessary to calculate one eleventh of the total price — the GST exclusive price is ten elevenths of the total tax inclusive price.
If a business offers a service for GST inclusive price of $110, for example, the total tax for the service is $10 — one eleventh of $110. Inversely, any product or service with a GST exclusive price of $100 has a tax of $10.