What is GST and how does it work?

GST commenced in Australia on 1 July 2000 and was introduced to replace a range of State and Federal taxes, duties and levies.  It has been criticised as being unfair to lower income earners’ as it is a flat rate payable by consumers, no matter what their income level.  For example, a person who earns $30,000 pays the same amount of GST as a person who earns $100,000 if they consume the same goods and services.

What do you need to know about GST?  Some of the more important things to know about GST are:

• it is levied at a rate of 10%;
• it is ultimately paid by consumers who are the end users of goods and services;
• it is levied on most goods, services and other items sold or consumed in Australia;
• certain types of supplies are GST free.  Examples include certain fresh foods, exports and medical supplies, but most are subject to GST;
• certain real estate sales are subject to GST (for example, sales of commercial property), while others are not (for example, resale of residential property owned by mums and dads, business premises sold as part of an ongoing business and most rural property);
• businesses that purchase goods or services to use as part of the product or service that they supply to consumers may receive a refund of the GST they pay;
• only certain businesses are required to register for GST, which is currently those with a GST turnover (i.e. revenue) of greater than $75,000 per annum;
• if you are registered for GST then you must complete a quarterly Business Activity Statement (BAS) after the end of each quarter, lodge it with the ATO and remit your GST collections to the ATO (you don’t get to keep them).

How does GST work?

GST is levied at a rate of 10%, which means that in order to calculate the GST to be added to goods or services you simply add 10% to the GST exclusive price.

However, if you have a GST inclusive price and want to work out how much of the price is GST then the GST equal one eleventh of the total, which means that the GST exclusive price is ten elevenths of the total.

For example, if the GST inclusive price of something is $110 then one eleventh of that amount is $10 (i.e. the GST) and ten elevenths of that amount is $100 (i.e. the GST exclusive price).  Working in reverse, if you have goods or services with a value of $100, then 10% GST is $10 and when these amounts are added together then the GST inclusive price is $110.

Conclusion

If you need help with GST, contact LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.