GST is something that is part of everyday life which we try to avoid. There are really only two circumstances where customers are exempt from paying GST. The first is if it falls under the basic exemptions such as basic food, sales at duty-free and some medicines for example. The other circumstance is when a business is small enough that they don’t have to register for GST credits.
Paying and charging GST
Goods and services tax sounds straightforward yet there are a number of items which fall in an exception to paying GST. This means as a business if you are selling a GST free item like basic food, exports or some forms of education then you don’t have to pay GST. However, the business can still claim GST credits if the inputs they bought to make the product had GST. The other main business exception for GST is an input taxed sale. This is simply sales like residential property which isn’t new, financial services or leasing a property. The key idea is if you operate in Australia and receive money from the goods or services then they will be taxable. If they are taxable and your business fits one of the three categories below then you will have to charge GST.
Example
Taylor’s business sells bread, a basic food item. To make the bread Taylor has to purchase yeast which she is charged GST for. As a result, Taylor doesn’t charge GST for the bread as it is a GST free sale yet she can still claim GST credits for the GST she paid on the yeast.
Example
Mark is a credit provider. He supplies a basic loan to Julian for a free. This is counted as an input taxed sale. Therefore GST is not included in the price and Mark can’t claim GST credits.
Small business exemptions
Not every business has to charge GST. Instead, only businesses which meet one of three criteria must register for at least 12months.
- GST turnover is greater than $75,000
- Taxi or limousine service
- claiming fuel tax credits
If one of these is met, then the business will register for GST, therefore, the customers will be charged GST. Hence, a customer could be exempt from paying GST if the business is small enough that they don’t charge GST. A business which is registered for GST credits allows it to claim GST concession.
Example
John has a clothing store where he sells shirts for $50, not including GST. This means he will collect $55 when the 10% GST is factored in. However, John bought the fabric for $20 which means he paid $2 GST on the fabric. The price of the fabric had already factored in GST before John bought it hence $20. Now John only owes the ATO $3 as the amount is just GST collected minus GST paid (5-2).
GST exemptions
Here is a list of the most common things which are GST free. You might have already encountered them such as milk and bread. There is still an ongoing process for other products like tampons which are set to be GST free in January 2019. GST is just a flat 10% tax on goods and products sold in Australia. The way it works is that a business will factor the tax into their costs for when they sell a product. Then the business will claim a credit.
Conclusion
Ultimately GST is something we can’t get away from. Even in areas of importing the products are still coming into Australia. If you’re a keen shopper your best bet is to go duty-free or try looking around for discounts. As for businesses it’s all about what category you fit into, whether you are small enough to not need to register for GST, the product is GST free item or it is an input taxed sale.
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