Lesson 9 Goods and Services Tax Li, Jialong 2011-2-26.

Lesson 9

Goods and Services Tax

Li, Jialong

2011-2-26

Goods and Services Tax

Readings to de completed: PDF file GST for Small Business

GST Fundamentals GST = Goods and Services Tax. It is a tax on supply of goods. It is a tax you charge your customer. A business has a legal obligation to collect

tax and pass the tax to Australian Tax Office (ATO).

Other GST Terms

GST free = no tax to charge to the customer.

Input tax = GST cannot be charged to the customer so the business pays the GST and this adds to the costs of the business.

Input credits = tax you claim back from ATO.

GST Formulas

10 % added to Exclusive price GST = price x 0.10 GST = price x 10 /100 110% is the inclusive price, ie the GST amount is 1/

11 of tax inclusive price Total price including GST = price x 110% Total price including GST = price x 1.10 Example: Bought item for $165 165 / 11 =15 15 is the tax credit or GST component

How the GST Works

1. A registered business purchases goods or services which includes GST

2. Business can now claim an “input tax credit” for the GST paid on purchases

3. Business charges and collect GST on sales

4. Tax is paid in full by the end customer (consumer)

5. The business in its Business Activity statement calculates the amount of tax to send by:-

Amount sent to ATO =GST Collected from customers– GST paid on supplies and expenses

What is Input taxed?

Definition: When a BUSINESS is charged GST on a purchase and that business is not allowed under the GST rule to charge their customer any GST in their prices, they are said to be INPUT TAXED.

The Tax is therefore paid by the business and not its customer. This is not a common situation and the main types of business’s that are affected are:

• Landlords who can’t charge GST on residential rent

• Financial services businesses

• Non GST Registered businesses ( under $75,000 and chose to opt out of the GST process

What are the two main types of input

taxed? You do not include GST in the price of input

taxed sales you make and you cannot claim GST credits for purchases that you use to make input taxed sales.

The two most common input taxed sales for small businesses are:

■ financial supplies INTEREST from financial institutions

■ renting or selling certain supplies of residential premises.

Business Activity Statement (BAS)

You use an activity statement to report your business tax entitlements and obligations, including GST, pay as you go instalments, pay as you go withholding and fringe benefit tax instalments. An example of a BAS is below.

Business Activity Statement (BAS)

Business Activity Statement (BAS)

Review Questions

PDF File GST for Small Business

GST Cash/Accrual Reporting

GST Free

BAS

Exercises

Exercises 9.1-9.4

Reading and Resources

Study Notes Lesson 9

The End of Lesson 9