Running a business | Last updated: 9. October 2024

What is GST (Goods and Services Tax)?

You may have heard of GST. It's a crucial tax element affecting every purchase, and understanding it is vital for everyone in the economy, from consumers to business owners.

You may have heard of GST. It’s a crucial tax element affecting every purchase, and understanding it is vital for everyone in the economy, from consumers to business owners.

Discussing tax can get complicated, but it’s worth understanding the Goods and Services Tax (GST) because it’s a major part of Australia’s tax system and it impacts nearly all of us. Whether you’re a business owner, a shopper, or simply someone trying to decipher your receipts, it’s important to have a grasp on what GST means for you. Here’s an easy-to-understand breakdown of the basics.

What is GST in Australia?

In Australia, the Goods and Services Tax (GST) is a 10% tax added to most goods and services transactions. It was implemented by the Australian government in July 2000. Whether you’re enjoying your morning coffee or hiring professional services, GST is likely included in the price. For businesses and consumers alike, understanding the GST system is an essential part of financial literacy.

What are the GST rates?

Within this system, the GST rate is universally set at a flat 10% in Australia. Such a consistent rate makes the math straightforward, whether as a consumer tracking expenses or as a business incorporating GST into pricing strategies.

What is a GST number?

For operational purposes, businesses that engage with GST must have a unique Australian Business Number (ABN), serving as their GST number. This crucial identifier is used for various tax-related activities, including issuing invoices, completing business activity statements, and claiming GST credits.

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What is GST percentage?

You may have heard of the term «GST percentage». GST percentage is often used interchangeably with the rate, standing at the constant 10%. It’s calculated on the total amount of the sale. Thus, if an item is sold for AUD 100, GST of AUD 10 is added, making the total cost AUD 110.

What is GST turnover?

Businesses must also be mindful of GST turnover, which reflects their gross income, excluding the GST collected on sales. Mandatory GST registration kicks in once a business’s GST turnover hits AUD 75,000 or more annually (or AUD 150,000 for non-profits). Reaching this threshold signifies a responsibility to contribute to and engage with the GST system more formally.

This integrated explanation of GST in Australia covers its rate, the importance of the GST number for businesses, the implications of the GST percentage added to sales, and the concept of GST turnover, which can define a business’s obligations under the tax system.

How does GST work?

GST functions as a multi-stage tax that is imposed on goods and services at each step of the supply chain. Here’s a streamlined view of how it operates in practice:

1. GST registration

Businesses whose GST turnover meets or exceeds the threshold must register for an ABN and GST. Once registered, they are responsible for adding the 10% GST to the prices of applicable goods and services they sell or supply.

2. GST invoicing

Registered businesses include GST in their prices and issue tax invoices to their customers. These invoices must display the GST amount for each item alongside the total price.

3. Input tax credits

At the same time, registered businesses can claim credits for the GST they have paid on their own purchases related to business activities, which are known as input tax credits. This mechanism ensures that businesses are taxed only on the value they add at each stage of the supply chain.

4. Reporting GST

Registered businesses report the collected and credited amounts to the Australian Taxation Office (ATO) by lodging regular Business Activity Statements (BAS). Businesses calculate the net amount of GST they owe (the difference between collected GST on sales and GST credits on purchases). If the credits exceed the amount collected, the business can claim a refund.

5. Paying GST

Should a business have a GST liability at the close of a reporting period, it is required to settle this amount with the Australian Taxation Office (ATO) by the specified due date. Conversely, if the business has paid more GST than it has collected, it will receive a refund from the ATO.

6. Adjustments

Sometimes, there might be changes or errors in previous activity statements. Businesses must make any necessary adjustments in their current BAS to ensure that the total GST paid and credits claimed accurately reflect their actual GST liability.

GST aims to be transparent and equitable so that the final consumer bears the cost. Businesses throughout the supply chain act essentially as tax collectors, but the tax is ultimately borne by the end consumer. By allowing businesses to claim input tax credits, GST prevents cascading taxation, ensuring that each transaction is taxed in a fair and balanced manner.

Do I need to register my business for GST?

Determining whether you need to register your business for GST hinges on your GST turnover. It is compulsory to register for GST if:

Your business has a GST turnover of AUD 75,000 or more.
You are a non-profit organisation and your GST turnover is AUD 150,000 per year or more.
You provide taxi travel or ride-sourcing services, regardless of your GST turnover This applies even if you are a driver for a company like Uber or Ola.

If your business falls below the threshold, registering for GST is optional. While voluntary registration will involve more administrative work, such as lodging regular BAS, there are benefits; for instance, you can claim input tax credits on your business purchases. Before opting in, weigh the decision carefully to ensure it aligns with your business strategy and cash flow management.

How do I register for GST?

If you need to register for GST or decide to do so voluntarily, the process is straightforward. Here’s what you need to do:

1. Get an ABN (Australian Business Number)

Before you register for GST, you must have an ABN. If you don’t already have one, you can apply for an ABN and GST registration simultaneously.

2. Register online

The easiest way to register for GST is through the Business Portal on the Australian Government’s Business Registration Service website or via the ATO’s online services. You can also register via your tax agent or through ATO phone services.

3. Provide relevant details

You’ll need to provide details about your business, including your ABN, business structure, and contact information.

4. Choose your reporting and payment cycle

During the registration process, you’ll be asked to select how often you want to lodge and pay your GST—monthly, quarterly, or annually. Choose the timeframe that best suits your business’s cash flow needs.

5. Lodge your commitments

Once registered, ensure you are ready to lodge your BAS by the due date and pay any GST owing.

Post-registration, keep a close eye on your GST turnover. If it increases and crosses the threshold, you must register for GST within 21 days. Additionally, stay attuned to regulatory changes that may affect your GST registration requirements.

By adhering to the registration process and staying informed about your obligations, you will be better positioned to manage your business’s compliance with the Australian tax system effectively.

GST-free sales

Not everything is subject to GST in Australia. Several types of goods and services are GST-free, meaning they are not taxed. These include most basic food items, certain medical services and medicines, some educational courses and materials, and exports. Understanding which expenses are free from GST can save individuals and businesses money, as they can claim credits for the GST included in the price of purchases that relate to selling these GST-free goods and services.

GST on imports and exports

Australia’s GST system extends beyond domestic goods and services to include international trade. Understanding how GST applies to imported and exported goods is essential for businesses engaged in global commerce.

GST on imports

When goods are imported into Australia, they are generally subject to GST at the point of entry, similar to domestic purchases. The Australian Customs Service collects this tax, and importers can typically claim credits for this GST paid on goods that are for business use, just as they would for goods and services purchased within Australia. However, certain imports may be exempt, such as those that qualify as GST-free supplies if sold within Australia.

GST on exports

Exports, on the other hand, are treated favourably under GST legislation. Goods and services exported from Australia are classified as ‘GST-free.’ This exemption aims to ensure that Australian businesses remain competitive in international markets, as their products do not carry the additional cost burden of GST. To benefit, exporters must comply with specific documentation and timeframes. In effect, Australian businesses do not charge GST on their exports, and they are entitled to claim credits for any GST included in the price of purchases that relate to their export activity.

Integrating the knowledge of GST as it applies to imports and exports is fundamental for businesses to manage their pricing and competitiveness effectively on a global stage. Keeping abreast with the obligations and entitlements related to GST in international trade can help businesses avoid potential pitfalls and leverage tax advantages.

Mastering the essentials of GST: Your key to a smooth financial journey

Navigating the waters of GST in Australia need not feel daunting. Whether you’re a consumer eyeing the final price on a product or a business owner calculating your BAS, understanding these basic concepts of the Australian GST system can ensure that you’re fully informed and complying with the tax laws in Australia. Remember, GST affects nearly every financial transaction, so having a solid grasp on the topic is beneficial for everyone involved.

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Conta is thrilled to bring our expertise to Australian shores, offering a dedicated solution for hassle-free GST compliance. Embrace a seamless way to handle your taxation invoices with Conta, your new ally in Australian business operations.