Goods and Services Tax (GST)
|Understanding the GST|
|Sales tax changes|
|Exemptions: GST free supplies|
|Exemptions: Input taxed supplies|
|Special Rules: Property|
|Special Rules: Insured Events|
A 10% Goods and Services Tax (GST) will commence on 1 July 2000.
The tax will be charged on all goods and services supplied in Australia and goods imported into Australia.
The tax will be charged on the supply of goods and services at each stage of production and at distribution based on the "value added" at such stage.
Unless the goods or services are free of tax, the total tax will be passed onto the final consumer who will pay it to the business which supplied the completed goods and services. The manufacturer and the wholesaler will be given a credit for tax paid by them.
Zero rated goods
Basic food, education, health, child care, local government rates, charities and religious services will be free of tax ("zero rated"). In such cases, no tax is payable by the consumer and any tax paid at earlier stages in respect of non zero rated goods or services used to make the product or service is fully rebateable to the business which paid the tax. Therefore, there should be no GST impact on the price of such goods and services.
Financial services and residential rent will be "exempt". Consumers will not pay GST but elements of the goods or services will be subject to GST at intermediate stages. The tax paid would not be refundable and therefore producers will either bear the cost of the GST or increase the price of the goods and services.
Generally, suppliers of exempt services will not obtain a credit on GST paid by them.
All businesses with a turnover over $50,000 ($100,000 for non-profit societies, clubs and associations) must be registered.
Registration is compulsory for all taxis regardless of turnover.
Any business with a turnover of more than $50,000.00 per annum (for non-profit organisations $100,000.00 per annum) must be registered and obtain an Australian Business Number. All taxis must be registered regardless of turnover. GST credits can only be claimed by a registered business.
GST returns must be lodged at least quarterly,
however businesses with a turnover of more than $20,000,000 per annum
must lodge monthly. Other businesses can elect to lodge monthly if they
wish. Returns must be lodged by the 21st day of the following
It has been confirmed that a sale of a business will be GST free and that the purchaser will not pay GST on the stock on hand.
One change from the original proposal relates to the sale of houses. If the house is already built, no tax will be payable, however if it is a new house built by a registered business, tax will be payable.
It will be possible to group companies together as one GST payer. The group can nominate a representative payer. In that case, supplies between group members will be GST free.
Special rules apply to contracts which entered before 1 July 2000. The general rule is that contracts dated before 8 July 1999 will not be subject to GST on goods and services supplied after 1 July 2000 up until the first contract review date. If there is no review by 1 July 2005 then the GST applies from that date.
There will be special transitional provisions for Rights for Life, Funeral Agreements, Sales Tax Credit, Second Hand Goods, Construction Agreements, Motor Vehicle Input Tax Credit, Insured Events and Gambling.
The basic principle is that there is no statutory right of a vendor or service provider to recover a GST liability from a customer. The recovery of GST from a customer is purely contractual. Therefore, contract drafting will be critical.
The price of new contracts which span July 2000 will need to allow for the introduction of the GST as well as the abolition of sales tax. As between registered businesses the GST impact should be neutral but consumers will not be able to claim GST credits. Some businesses (such as banks) cannot pass the GST on to their customers.
A contract should make clear whether the prices include or exclude GST. Displayed prices must include GST. Current contracts could state that they are exclusive of GST but any GST are payable by the purchaser.
Lease or franchise agreements which provide for a fee based on sales turnover should exclude GST from the turnover base. GST should also be excluded from contracts where the price increases with CPI or where commissions are paid on the sale price.
How will GST affect businesses?
Businesses will need to train staff and review their computer systems. Businesses will need to look at the cash flow and the timing of their purchases. This will depend upon whether or not they can claim input credits.
Different sorts of businesses will be affected depending on their industry, eg whether they are car dealers or residential builders.
Businesses will need to look at the grouping issues and review their contracts.
The abolition of a number of State business taxes (including stamp duty on conveyances of businesses and commercial real estate, leases and mortgages) which was a part of the original Tax Reform package will be "deferred indefinitely".
The abolition of bank accounts debits tax has been deferred until at least 2005. The abolition of Financial Institutions Duty has been deferred until 1 July 2001.
However the abolition of stamp duty on marketable securities (shares) will proceed on 1 July 2001.
As from 29 July 1999, the following goods will have the rate of sales tax reduced from 32% to 22%:
If you are in business you must start getting ready now for payment of GST.
Planning for GST means determining your existing GST position and finding out whether any changes to the structure of your business or your products would alter your position.
Even if you are business for which the GST will be "revenue neutral" you must still allow for the compliance costs .
It is important that you understand the GST liability on all of your contracts. This will depend on when they were entered into and whether the price of those contracts is reviewable. Each of your contracts should be reviewed to establish your potential liability from 1 July 2000. You should be careful to ensure that you can show any price rises relate only to the GST as these will be monitored by the ACCC.
In each case you must ask:
If you are a supplier of goods or services you should now be reviewing your documentation to ensure that you can pass on GST to your customers and that they will pay the GST on demand. This will be important in terms of cash flow and profitability. It is also important to specify in your contracts that there is no right of set-off and that the GST must be paid in full. Your contract should also provide for variations in changes in GST.
Where you are a recipient of goods or services you should ensure that any contracts specify your right to receive tax invoices and adjustment notes so that you can claim for any input credits that you are entitled to. Contracts should also provide for a refund to you of excess GST paid by you.
Contracts which span 1 July 2000
Special provisions apply to contracts which span 1 July 2000. Generally, contracts entered into before 8 July 1999 are GST-free until the earlier of 1 July 2005 and the date of the first review opportunity after 1 July 2000. However contracts for bodies which are not entitled to input tax credits, such as financial institutions, are GST free only if they commenced before 2 December 1998.
If a supply is GST free, no GST is payable on outputs (sales) and full credit is given for GST paid on inputs (purchases).
This will apply to :
If a supply is input taxed no GST is payable on outputs (sales) and no credit is given for GST on inputs (sales). This is the least desirable position.
The following are input taxed:
GST on the sale of property will depend on the type of property: farm, residential (new or established?), commercial, going concern business and unimproved Crown land are all treated differently.
Whether GST will affect a transaction also depends on whether the vendor and purchaser are registered.
GST will be payable on agent's commission, legals and advertising but there is no GST on stamp duty or rates.
No GST is payable on the sale of existing homes by individuals. It doesn't have to be a principal place of residence.
GST is payable on the sale of new houses and new land and all non-residential land and buildings (new or established) by registered businesses (see exceptions and choice of method of calculation)
Exceptions to general rule
There is no GST on :
Method of calculation
The vendor of property subject to GST has a choice of calculating it
under the usual rules or margin system.
c. MARGIN: GST on gross margin on sale of property (i.e. sale price less original purchase price, or for property owned at 1 July 2000, value at that date)
If a property is purchased under the margin system, the purchaser can't claim input credits on purchase but can still claim credits on development/maintenance
No GST is payable on residential tenancies. However residential landlords will not be able to claim credits for GST paid on the cost of work done or materials used in the property.
Commercial landlords must pay GST on rent and outgoings charged to tenants. Landlords will only be entitled to recover GST from tenants if their leases permit it. If the leases are silent, rent will be GST-inclusive, where one-eleventh of the rent represents GST.
Tenants who pay GST to landlords will be able to claim a credit if they are registered. Landlords will also be entitled to a credit on GST paid in connection with the management and maintenance of their property.
Landlords should be aware of the following specific issues relating to leases:
Rent: GST is payable regardless of whether the rent is fixed or is based on turnover, however the Retail Tenancies Act does not permit the addition of charges other than rent or outgoings ;
Outgoings: where a landlord pays outgoings (including rates, maintenance, security, cleaning, power and insurance) and recovers them from a tenant, GST is payable, although water charges are GST free. As the landlord may pay GST when he pays for the outgoings initially, the tenant should only reimburse the landlord for the GST exclusive amount plus one lot of GST ;
The landlord is entitled to recover GST paid by it on outgoings;
Sub-leases will need to be carefully drafted to make clear whether the sub-tenant pays GST, to avoid the sub-tenant paying GST on his own lease as well as on the Head Lease;
Other Fees: GST is payable on any fee for the granting of a lease, extension of a lease , granting of an option or surrender of a lease. A fee payable for consent to an assignment as a result of the sale of a business should be GST-free;
Valuations: The market value of rents after 1 July 2000 will be GST-inclusive unless the lease specifically requires otherwise.
The effect of the imposition of GST must be
carefully assessed in each business. Contracts (including leases) should
be reviewed and restructured.
Settlement of any insurance claim is a taxable supply by the insured
to the insurer after 1 July 2000 if the event giving rise to the claim
happened after 1 July 2000 and the insured was entitled to an input
credit for the premium even if the payment is not made to the insured.
Therefore a payment under a public liability policy to a third party could result in a GST debt if the insured was a registered business which claimed the GST on the premium as a credit.
It may be possible to add the GST liability to the policy.
There is no GST on hire purchase/loans (financial supplies).
GST is payable on car lease payments- input credits can be claimed by a business. A purchase for residual price is subject to GST
There is no GST on the private sale of second hand cars
GST is payable on new car purchases BUT sales tax will be abolished.
Livestock at auction: the auctioneer will nominate whether the sale is GST exclusive or inclusive
Farm equipment is subject to GST but depreciation will be calculated on the GST exclusive price.
There is a new fuel excise.
Full details are available at the Treasury’s Internet site at www.taxreform.ato. gov.au