On 1 July 2000 a GST was introduced in Australia for the first time. As the name suggests this is a tax (currently 10%) on the sale of goods or services.

There are some goods and services that are exempt from GST (most notably fresh food, education and medical services and supplies)

All businesses must have an ABN or else they will have tax withheld at 48.5%, however, not all businesses are required to register for GST. A business with gross sales of less than $50,000 does not have to register for GST, but can choose to do so voluntarily. Taxi drivers must register for GST even if they turnover less than $50,000.

A business that is registered for GST must charge GST on all its taxable supplies. The business also receives a credit for the GST that it has paid on its inputs. These transactions are reported to the ATO and the net amount of GST is remitted on a quarterly basis (or monthly for entities with an annual turnover greater than $20Mil).

Quarterly (or monthly) reporting is done using a Business Activity Statement (BAS) and this form captures all tax amounts due for the period (GST Collected, GST Paid, PAYG Withheld from Employees wages, Tax withheld for failure to quote an ABN, Wine Equalisation Tax and Luxury Car Tax, PAYG Installment, Fringe Benefits Tax Installment and deferred company and superannuation fund installments.

GST can be calculated on either a cash or non-cash (accruals) basis. Under the cash basis you only account for GST actually paid and received. Under the non-cash basis you remit GST on invoices that you have raised (but not necessarily received payment) during the reporting period and claim GST credits on invoices that you have received from suppliers (but not necessarily paid) during the reporting period.

You can account on a cash basis if:

If you do not satisfy one of the above criteria, you can still write to the ATO and request permission to account on a cash basis.

It should be noted that this taxation system has a compliance element to it. If a business (typically a cash based business that deals with the general public) chooses not to register for GST, they will not be able to receive an input tax credit for any GST that is paid on business purchases. This in effect means that the business is paying tax at the rate of 10% of their business inputs. A business that is mainly for the supply of labour (with little or no business inputs) is more likely to prosper from the cash economy by failing to declare their income, however the ATO have targeted such industries for special audit focus. Even if a business does register for GST, but fails to declare all of its income, the ATO is gathering statistical information every quarter and where reported sales appear low in relation to input tax credits claimed an audit becomes more likely. Severe penalties apply where there has been a reckless disregard for the law.

Special rules apply to the sale of property and these should be carefully considered before purchasing or selling real estate. More information on the Margin Scheme can be obtained from the ATO website. The ATO GST Guide for Small Business is also a helpful reference.