Goods and Services Tax can sometimes seen complicated, especially to those who have never encountered it before.
As a quick introduction, GST is 10% tax that you must pay on goods and services and other items that you have sold or consumed in Australia. GST registered businesses will usually include GST in the price of the goods or services they sell, which they can then claim credits for. All business whose GST turnover exceeds $75,000 must register. Businesses are also entitled to a refund if their credits for GST exceed what they have paid.
The following content looks at GST on a range of different items, GST concessions, GST adjustments, special rules and FTL penalties.
Tax invoices often contain information that does not appear on a normal invoice, such as the amount of GST and total amount payable for supplies provided. The GST system requires that tax invoices are valid and contain correct information. Thus, tax invoices will provide proof of the amount of GST paid on a supply.
The GST system requires that tax invoices be issued when you make taxable sales of more than $82.50 where the purchaser requests it. It should also be noted that tax invoices can also be used for claiming GST credits.
Special conditions apply for certain occupations. For example, sales by charities are GST free if they are below specified percentages of market value. Most education services are GST free, as are donations and ‘no strings attached’ grants to education institutions.
Depending on your occupation, certain supplies may in fact be GST exempt or input taxed. As there are a number of special rules for GST it is important to keep up to date with changes and special considerations that the system allows for.
GST on Contracts
Goods and Services Tax can affect contracts depending on when the contract was made, whether there is an opportunity to review and whether the recipient is entitled to full input tax credit. These factors dictate when supplies will be GST-free.
There are 3 options concerning who and how the GST is paid:
1. Supplier pays the GST based on the existing price of the supply
2. Supplier pays the GST based on the revised price
3. Recipient pays the GST (even if they are not registered for GST) based on the existing price of the supply – this option only takes effect if the recipient either elects to pay the GST or does not accept an arbitrated offer of a price revision.
Time limits on claiming GST refunds
In certain circumstances taxpayers may be entitled to claim an outstanding GST refund for an activity statement they have previously lodged.
Generally, they must claim a GST refund or notify the Tax Office of their entitlement within four (4) years of the end of the tax period to which the entitlement relates.
Examples of where a taxpayer could have an entitlement to an outstanding GST refund include where:
They made a mistake such as a clerical or accounting error in an earlier activity statement; or
They incorrectly treated a sale as taxable when it should have been GST free.
Where a taxpayer incorrectly treats a sale as taxable when it should have been GST free, the ATO will only make a refund to a taxpayer when they are satisfied that the overpaid GST has been reimbursed to the customer. The taxpayer is not legally required to reimburse the customer, but the Tax office will not make any refund unless they do.
What if the taxpayer does not make the claim within the four-year period?
If a taxpayer does not claim their refund of GST that they overpaid on their supplies, or notify the ATO of their entitlement to claim back overpaid GST, within the four year limit, the maximum refund they can claim will be limited to an amount equal to what they paid for the relevant tax period.
However, if a taxpayer has a tax invoice and has not claimed any of the input tax (GST) credit for that purchase, they may still claim it in the current or any later tax period – the four year time limit does not apply.
Nonetheless, a taxpayer generally cannot claim a GST credit by revising an earlier activity statement for a tax period that ended more than four years ago.
When does the time limit take effect?
The time limit takes effect four years from the end of the tax period of the activity statement. Therefore, the exact time limit will depend upon the taxpayer’s own statement periods – e.g. monthly, quarterly or annually.
Onus on supplier to recover GST
If GST is payable on the transaction, but has not been provided for in some way in the contract, the supplier may find itself liable to account for the GST without any legal right of recovery from the customer. In this respect, the risk lies on the supplier to:
be clear on whether GST applies, in whole or in part. Particular attention should be paid to contracts which span 1 July 2000 and to whether any transitional rules apply; and
if GST applies, ensure that either it is included in the price, or is otherwise provided for.
Some typical ways in which GST is provided for in contracts are as follows:
The price is specifically stated to include GST;
The price is stated to be subject to GST, which will be added and will be legally recoverable from the customer, possibly backed up by a guarantee on indemnity;
The price is stated to be subject to any additional charges or taxes that may arise, with the expectation that this would include GST. It may be that this will be satisfied by certain outgoings recovery clauses (Smale v Fletcher Homes Ltd (1996) 17 NZTC 12,662).
The contract states that the price will be reviewed as from the date that GST commences.
Example: In September 1999 a fitness club enters into a 12-month contract with a customer. The contract is made after 8 July 1999 and is therefore not entitled to the benefit of the concessions noted. The contract will be treated as a periodic or progressive contract, so the proportion of the contract fee that relates to the period after 30 June 2000 will be subject to GST. If the fitness club has not provided in the contract for the price to include the GST or provided for it in some way, it will be liable to fund the GST itself. As it does not have any right of recovery from the customer, it may have to request the customer to contribute an additional amount to cover the GST. If this is not successful, the fitness club may have to absorb the payment.
Payroll tax is a self-assessed, general purpose state and territory tax assessed on wages paid or payable by an employer to its employees, when the total wage bill of an employer (or group of employers) exceeds a threshold amount.
Waiting until the end of the financial year or when your quarterly Business Activity Statement (BAS) is due will put you and your staff under unnecessary pressure, and may reduce the quality – and therefore the usefulness – of financial data to your decision making.
Delaying financial tasks will also deny you regular financial information such as cash flow statements, which can be critical to helping you manage the everyday ebb and flow of your business.
It is also important to note that a number of returns and forms have to be completed very soon after the close of the financial year.
The below financial activities are necessary to produce financial statements, such as profit and loss statements and balance sheets. Such financial statements give you information that is critical to helping you understand how your business is performing and highlighting possible areas for improvement.
It is important to never become complacent in this area.
Dispose of old/slow moving stock.
Write off excess stock.
Review purchasing policies to prevent over-spending on stock.
If stock is a high cost item, consider using software the tracks stock and is integrated with your accounting software.
Invoice as soon as your good or service is delivered.
Consider referring bad debts to collection agents.
Undertake a credit check of new debtors.
Renegotiate trading terms with consistently slow payers.
Contact slow payers early.
Reconcile payments promptly and regularly to identify and resolve discrepancies.
Make sure your sales staff are aware of the debtors position on all sales calls to assist with collection process.
Enter data promptly, with accurate transaction dates
Regularly check data entry for quality.
If possible, separate “cash handling” from “data entry” to minimise potential for fraud.
Where possible, implement a live feed between your bank and your system to reduce handling and transcription errors.
Consider using electronic workflow systems or apps such as Xero, that help you digitise accounting records, including invoices, and transfer that data into your accounting system to reduce the need for manual data entry.
Annual Leave entitlements
Encourage staff to take leave regularly – avoid a large build-up of entitlements.
PAYG withholding obligations
Ensure employee declarations are up to date.
Comply with legislation regarding frequency of payment of PAYG withholding to the tax office. .
Profit and loss statements
The profit and loss statement, balance sheet and cash flow statement can if prepared regularly, show emerging problems in time for corrective actions.
One Stop can assist with preparation.
Use financial software such as Xero to produce regular financial statements and ‘dashboard’ reports
Comply with legislation regarding frequency of payment, choice of fund and reporting to staff.