Accounting
January/February 2000

GST - getting it right

Accountant, Geoff Coy, looks at the impending introduction of the new taxation system and the first "port of call" being the application for an Australian Business Number and whether or not to register for GST

The new tax system has now been passed and along with a number of other reforms will come into effect on 1 July 2000.

The major element of the new tax system is the Goods and Services Tax (GST). Other issues include the reduction of personal income tax and the abolition of a number of hidden taxes.

The GST will have an impact on everyone. For consumers, in most cases it means an increase in prices.

However the impact will be greatest on businesses, who must not only adjust their prices accordingly, but must also spend significant time and cost implementing new accounting systems to capture and record the GST as well as to educate themselves and their staff.

The GST in a Nutshell

ª The GST is a broad based indirect tax on private consumption in Australia.
ª The GST rate is 10%.
ª Generally only registered entities must pay GST to the ATO.
ª Anyone carrying on an enterprise (business) must be registered and entities with an annual turnover of $50,000 ($100,000 for non-profit bodies) or more must register.
ª The GST is generally levied on the supply or importation of anything except to the extent the supply or importation is input taxed or GST-free.
ª Registered entities do not bear the cost of GST because it is included in the price of what they supply.
ª Although purchases by registered entities include GST in the purchase price, a corresponding credit (input tax credit) for the GST can be claimed. This occurs right along the commercial chain to final consumption in Australia.
ª The GST is borne by the final private consumer who is not entitled to claim a corresponding input tax credit.
ª Importation of goods is different in that the Australian Customs Service will collect the GST from the importer when the goods are imported.
ª The amount of GST paid to, or refund obtained from, the ATO each tax period is the difference between the GST payable and the input tax credits claimed in that tax period.
ª It is important to remember that the liability to pay GST falls on the entity making the taxable supply.

It does not matter at what price it sells the goods or provides the service, the amount of GST it is liable to pay is 1/11th of that price.

You will collect GST you have charged to your customers and report it monthly or quarterly to the ATO by way of the BAS.

You will also be charged GST by your suppliers on the things you purchase or acquire for your business. You can claim this GST back from the ATO on your BAS.

The difference between the GST you have collected and the GST you have been charged is the amount you owe or are owed by the ATO.

Through your record keeping system you will need to record the amount of GST you have paid and collected before a BAS can be completed.

Who can Register for GST
Any entity carrying on an enterprise will be able to register for GST. An entity means an individual, body corporate, a corporation sole, a body politic, a partnership, an unincorporated association or body of persons, a trust or a superannuation fund.

An enterprise includes a broad definition of commercial activities, clubs and associations. Enterprises do not include hobbies.

Commencing in November 1999 the ATO will send all registered business taxpayers a registration kit for GST and an application form for the Australian Business Number (ABN). An entity will need to register for GST and will also need to register for an ABN. An entity can apply to register from November 1999 and must register by 31 May 2000 if it expects to satisfy the registration elements at 1 July 2000.

Lodging GST Returns
When registering for GST care must be taken because the application form may ask the person seeking registration to nominate whether GST will be paid monthly or quarterly and whether the business will account for GST on a cash or accruals basis.

Generally speaking GST forms are to be lodged, and GST paid quarterly. The GST return must be lodged and the GST paid by the 21st day following the end of the tax period.

The B.A.S.
The GST is expected to be part of the new Business Activity Statement (BAS). The BAS form will be the one form that is required to be lodged with the ATO by 21st day after the end of each (monthly or quarterly tax period).

The BAS will not only record GST but also other tax liabilities such as FBT, PAYE and PPS.

A BAS form must be lodged even if no taxable supplies have been made in the respective period. It is expected that late lodgement of BAS forms will incur penalties.

BAS forms and payments will be able to be lodged electronically or through the mail.

Most goods and services supplied in Australia by a registered business will be subject to GST. These are called taxable supplies.

Some supplies will be GST-free, which means businesses will not charge GST on them. However businesses may be entitled to claim input tax credits for GST paid on the items purchased or acquired to use in that business. GST-free supplies include:

ª Basic food
ª Exports
ª Sewerage & water
ª Eligible child care
ª Most education and health services

Some supplies will be input taxed, which means you will not charge GST for them but neither will you be entitled to input tax credits for GST paid on things you purchased or acquired to make the supply. Input taxed supplies include:

ª Financial supplies
ª Residential rents
ª Some supplies of residential premises
ª Precious metals
ª GST is not charged on wages and salaries

Input tax Credits
A registered entity is entitled to claim a credit for GST it has paid on the inputs it has acquired.

To obtain an input tax credit all the following conditions must be satisfied:

ª The entity is carrying on an enterprise
ª Item is acquired in carrying on an enterprise
ª It is a taxable supply
ª There must be consideration
ª The entity is registered for GST purposes
ª Must not be for private or domestic purposes
ª The acquisition does not relate to making supplies that will be input taxed
ª The entity has a tax invoice for the acquisition

A Tip !!
Some businesses will have already paid GST or will do so before 30th June 2000 on items such as insurance and memberships.

This is due to any obligation spanning two financial years.For the input credit to be claimed after 1st July 2000 you need to ensure that your bookkeeping system captures the GST component by setting up the necessary control accounts in the current financial year.

In the next issue we will look at bookkeeping procedures and how to keep track of GST collected or payable as well as issuing a tax invoice and claiming back the wholesale sales tax.