Goods and Services Tax is part of a taxation system governed by the Australian Tax Office (ATO). The tax applies to all product and service purchases at a rate of 10% including those take place between suppliers, manufacturers and retailers. Businesses are able to claim credits on their own payments and on any other business purchases. Only the end consumer pays Goods and Service Tax without being able to reclaim any of the payments that they have made.
Registering for Goods and Services Tax
In Australia, businesses have to meet the following criteria before they can register for Goods and Services Tax:
- The business must act as an enterprise and have a turnover in excess of $75,000 in each financial year (or $150,000 if the business is a non-profit organisation)
- The business must act as an enterprise and project a turnover of $75,000 or more in the forthcoming financial year (or $150,000 if the business is a non-profit organisation)
- The business must act as an enterprise and provide taxi travel as part of its services
GST registrations must be made through the Australian Tax Office. This can be done independently or by using a third-party service provider.
Making Payments
Business activity in Australia is recorded on Business Activity Statements (BAS) and for Goods and Services Tax purposes, these are returned to the Australian Tax Office on a quarterly basis unless the business turns over more than $200,000 in a financial year, in which case the statements are submitted on an annual basis.
Businesses must pay the full amount of tax at the time of any business purchase but registration allows them to claim back credits on any payments that have been made. Business Activity Statements highlight the amount of Goods and Services Tax paid on transactions and the amount being claimed back as tax credits.
Keeping Records
Record keeping is an integral part of managing Goods and Services Tax payments. To claim back tax credits successfully, you will need to present a valid tax invoice from your suppliers. Tax exemptions are applied to any individual products or services that cost less than $75. A valid tax invoice will contain the name of the supplier, their Australian Business Number and the price of the product or service including any Goods and Services Tax paid.
Invoices should be kept on record for five years after the date each Business activity Statement is lodged. The same invoices must be kept for five years for income tax return purposes. Understanding the basics of the tax can help businesses keep a tighter control on spending and ensure that they claim the credits they are entitled to.