The GST was introduced to Australia in the year 2000 to replace the Wholesale Sales Tax that existed on the sale of goods in Australia. The GST is a broad based tax levied on practically all goods and services at a rate of 10%. There are some GST free goods and services including fresh food, health and education services.
GST is payable on all goods and services when a taxable supply is made by an entity that is registered for GST. A taxable supply is only made when consideration is received; the good or service is connected with Australia and the supply is is not GST free or input taxed.
The GST is ultimately a tax on consumption, as businesses who pay GST on their business inputs can claim it back so long as they are registered. All businesses can elect to be voluntarily registered, and if the business entity has an annual turnover of more than $75,000 then registration is compulsory. For businesses with turnover of less than $75,000 that are providing services directly to consumers, there is a competitive benefit to not voluntarily registering. However, if large capital acquisitions are planned it can often be a good idea to voluntarily register for GST in order to claim back the tax credit.
Businesses that are registered for GST must file a Business Activity Statement (BAS) with the Australian Taxation Office either monthly, quarterly or annually depending on the conditions of their registration. The BAS is generally due to be lodged with the GST paid on the 28th of the month following the BAS period. There are financial penalties for not lodging a BAS on time, and if the reported GST paid or collected is wrong there may be severe repercussions. If an honest mistake is made in the BAS and is later discovered, the BAS can be amended and the GST difference will become due or refundable.
In order to claim the GST back on a purchase, a business must hold a valid tax receipt which shows the suppliers ABN and the amount of GST that has been charged. The GST is often criticized as an onerous compliance burden for small businesses, but with good bookkeeping and professional advice the compliance burden can be minimized. By keeping clear records and keeping tax receipts for all purchases, businesses can ensure they are able to claim back as much of the GST input credits as they are entitled to.