The aim of this chapter is to introduce students to the fundamental concepts of the goods and services tax (‘GST’) and how it operates in Australia.
Chapter 8 – Goods and services tax - overview:
2. Relevant legislation
3. Format of the Acts
4. Policy reasons behind GST
5. Comparison to PAYG reforms
7. Taxable supplies
8. GST-free supplies
9. Input taxed supplies
10. Creditable acquisitions
11. Tax invoices
12. Imports treatment
13. Derivation and net amounts
1.1 Overview of the operation of GST
¨ Text at paragraph 27-000 to 27-045
Basic features of the GST are that GST:
n Applies from 1 July 2000;
n Applies at a flat rate of 10%;
n Payable on taxable supplies and taxable importations;
n Covers most goods, services or anything else supplied;
n Is charged by GST registered entities carrying on an enterprise;
n Designed to be ultimately paid by the private consumer rather than by GST registered enterprises (this is achieved via a credit system – known as input tax credits);
n Is a multi-stage tax charged at each stage of the supply chain;
n Is effectively applied to the value added at each stage of the supply chain; and
n Has a credit mechanism that eliminates tax cascading (tax on tax).
1.2 The effect of GST on sales transactions
Example 1: Business transactions:
To illustrate how the GST can apply to business transactions, below is a standard transaction both before and after the start of GST. It displays how the GST generally does not ‘stick’ for business via the credit system.
(a) Prior to 1 July 2000 (Pre GST):
A blanket manufacturer purchases wool from a sheep farmer for $100. After processing, the blanket manufacturer sells blankets for $200.
Wool expense (DR) 100 Cash (CR) 100
Cash (DR) 200 Blanket revenue (CR) 200
Profit and Loss
Less wool purchases ($100) Profit (value added) $100
(b) From 1 July 2000 (Post GST):
A blanket manufacturer purchases wool from a GST registered sheep farmer for $110 (including GST). After processing, the blanket manufacturer sells blankets for $220 (including GST).
Wool expense (DR) 100 Input tax credit a/c (DR) 10 Cash (CR) 110
Cash (DR) 220 Blanket revenue (CR) 200 GST liability a/c (CR) 20
Profit and Loss
Sales 200 Less wool purchases (100) Profit (value added) 100
Business activity statement (GST return)
GST liability (on sales) 20 Less input tax credits (on purchases) (10) Net GST payable to ATO...