An introduction to the Australian Goods and Services Tax
So what is the GST?
The GST (Goods and Services Tax) was introduced into Australia on 1 July 2000. It is an indirect, broad-based multistage tax that is:
- intended to tax final consumption in Australia by consumers; and
- levied at a flat rate of 10% on the supply and importation of most goods, services and things.
Most countries have a “GST” type tax and usually calls it a VAT (Value Added Tax). So if you’re from Europe, Canada etc, then a GST is the same thing as a “VAT”. Australia calls their tax a “GST” because we copied large parts of New Zealand’s law, which calls their VAT a “GST”.
The GST is called an “indirect tax” because whilst consumers bear the burden of paying the tax, it is actually business which collects it for the government.
A direct tax would be income tax – paid by individuals, or companies. Indirect taxes are things like GST, stamp duty and payroll tax where the person who collects the tax isn’t actually the person who bears the burden of it.
“Broad-based” just means that GST is applied to almost everything at a flat rate of 10%. The only things which don’t have GST on it are things that are “GST-free” or “input-taxed”.
GST-free things include food items (eg. essential things like bread, milk, meat etc), health products, education and other things that a now defunct Australian minor political party called the Australian Democrats managed to negotiate from the Government when the GST was first imposed.
Input-taxed things include financial supplies (e.g. bank loans, shares and basically anything a financial services company provides), residential rent and residential property.
As a multi-stage tax, GST is collected through each stage in the distribution chain. However, to prevent double taxation, businesses that are registered for GST can claim back the GST included in the price of most inputs they purchase to make their sales (or “supplies”).
Example. You make and sell chairs. When you sell the chair for AUD200, you need to charge AUD20 extra as GST, which you hand over to the Australian Taxation Office (ATO).
But to make and sell the chair, you buy wood for AUD110, which includes AUD10 of GST. So you get to claim AUD10 back from the ATO as an “input tax credit”.
So essentially, the net amount you actually give the ATO is AUD10 (i.e. AUD20 (for GST on the chair) less AUD10 (for GST on the wood you bought)).
So how does it all work?
This is where you should have a look at How do I complete my GST returns.