SMALL AND MEDIUM BUSINESS COURSE 1: GST Introduction & Registration

1. SMALL BUSINESS, EDUCATIONAL AND COMMUNITY ADVISER EDUCATION PROGRAMME 1 SMALL AND MEDIUM BUSINESS COURSE 1: GST Introduction & Registration

2. THE NEW TAX SYSTEM A better tax system TAXREFORM • Abolition of hidden indirect taxes • Substantial personal income tax reductions • The introduction of GST

3. TAXREFORM THE NEW TAX SYSTEM The Introduction of GST • A very visible tax - enables hidden taxes to be abolished • The abolition of wholesale sales tax will reduce costs for many businesses • GST does not increase costs for a GST registered business • Not all goods and services are subject to GST

4. TAXREFORM THE NEW TAX SYSTEM Impact of GST • GST impacts many facets of a business • Incorrect handling of GST can cause financial loss • Staff need to be educated and trained

5. TAXREFORM THE NEW TAX SYSTEM Government Assistance Initiatives • The New Tax System Advisory Board • The role of the Australian Tax Office • The role of the GST Start-Up Assistance Office

6. TAXREFORM THE NEW TAX SYSTEM The Role of the GST Start-up Assistance Office • GST and Business Skills - an Action Guide • Organisation delivered assistance • Adviser education program • Direct assistance program

7. TAXREFORM THE NEW TAX SYSTEM The role of the ACCC • Ensuring there is no price exploitation as a result of the tax changes • Ensuring that savings from the abolition of hidden taxes are passed on • Will oversee pricing changes from 9 July until July 2002

8. GSTTERMS THE IMPORTANCE OF TERMINOLOGY Overview of GST • It is important to become familiar with the key GST concepts and correct GST terms • Understanding these terms and concepts is the easiest way to start implementing GST in your business • This section is an overview of these terms and concepts • Remember: GST is a tax on domestic consumption of goods and services

9. GSTTERMS THE IMPORTANCE OF TERMINOLOGY There are four kinds of GST supply • Taxable supply • GST - free supply • Input taxed supply • Supply by non-registered persons All GST details flow from these concepts These are the keys to understanding GST

10. GSTTERMS GST TERMS Enterprise • Getting things done • Providing the things we need • Delivering the goods and providing the services • Some enterprises are required to register for GST • All enterprises have the option to register

11. GSTTERMS GST TERMS Entity • An entity is a person, or an organisation, or any other ‘body’ that has a separate legal identity • Single entities may be made up of several enterprises • When registering for GST care needs to be taken to register all entities that comprise a single enterprise • Group registration may be an option

12. GSTTERMS GST TERMS ABN (Australian Business Number) • When a business registers for GST it will receive an ABN • An ABN can be obtained without registering for GST • A business that does not have an ABN will have withholding tax at the rate of 48.5¢ in the dollar deducted from payments made to it by other businesses. • All businesses should obtain an ABN

13. GSTTERMS GST TERMS BAS (Business Activity Statement) • Using this form, the business will advise the ATO of its GST liability or refund claim. • This form will also be used for all tax payments in addition to GST • The GST section of this form will be completed every month, or every three months, depending on the basis of GST registration

14. GSTTERMS GST TERMS Goods and Services • Goods are the tangible things we consume • Services are things people do for others • Goods and Services have a cost and, generally, a price • Goods and Services are what an enterprise produces

15. GSTTERMS GST TERMS Taxable Supplies • Supplies of goods and services connected with Australia, made by registered persons or entities, for consideration

16. GSTTERMS GST TERMS Input Tax Credits • GST is included in the price of ‘GST supplies’ a business acquires • This GST can be claimed as an input tax credit if those supplies were acquired for business purposes • A business must have a TaxInvoice to claim the input tax credits

17. GSTTERMS GST TERMS Input Tax Credits • The aggregate of input tax credits is deducted from GST collected from customers • The net GST is payable to the ATO

18. GSTTERMS GST TERMS GST - free supplies • GST is not included in the price of GST-free supplies • Therefore, no input tax credits are available when you purchase GST-free supplies • GST input tax credits can be claimed on taxable supplies acquired by a registered person to make GST-free supplies • Note the categories of supplies that include GST-free supplies

19. GSTTERMS GST TERMS Input Taxed Supplies • GST is not included in the price of input taxed supplies • Therefore, no input tax credits are available to the purchaser for input taxed supplies • GST input tax credits cannot be claimed on taxable supplies acquired to make input taxed supplies • Note the categories of input taxed supplies

20. GSTTERMS GST TERMS Consideration • Consideration is what is given in return for supplies made • Consideration can be in money • Consideration can be in goods or services that have worth in money terms

21. GSTTERMS GST TERMS Value • When used in a GST context, value means the GST exclusive price of the goods or services supplied • The price of goods or services comprises of the value plus applicable GST

22. GSTTERMS GST TERMS Attribution rules • Determine time of GST supplies • Cash basis rules • Accrual basis rules

23. THE BASICS OF GST GST affects almost all transactions • GST will apply to business transactions unless a specific exemption applies • If a transaction is a taxable supply, GST is included in the price • The rate of GST is 10%

24. THE BASICS OF GST GST affects almost all transactions • GST collected by ‘business’ from its customers periodically gets paid to the ATO • In principle a registered business is able to get back the GST it has to pay on its purchases • GST thus is not a tax on the business; it is not a business cost

25. THE TAX FRACTION The GST is 1/11th of the price charged or paid • The GST inclusive price includes both a GST content and the cost / income element

26. GST TRANSACTIONS Every business transaction most likely will: • Involve a supply for GST purposes • For GST purposes transactions are called supplies • If a transaction is not treated as a taxable supply, there must be valid reasons why not

27. GST TRANSACTIONS Every business transaction most likely will: • Involve a supply for GST purposes • If the transaction is a supply, it has GST implications • The attribution rules determine in which GST period: GST output tax has to be accounted for GST input tax credits may first be claimed

28. CONTRACTS All contracts should address GST issues • If the contract doesn’t pass the GST on to the customer, the business will wear the cost • Special rules provide relief from GST for some contracts entered into pre 1 July 2000 but completed after 1 July 2000 • The ATO has released a fact sheet / charts which summarise these rules

29. LIMITS ON INPUT TAX CREDITS There are some transactions for which you cannot claim input tax credits • A registered person cannot claim back GST included in the price of goods or services acquired for private consumption • A business cannot claim input tax credits on things bought to make input taxed supplies

30. GST INCLUSIVE GST supplies should always be priced GST inclusive • Setting prices / quoting • Signs, advertisements, price tags, catalogues • Alternative of: GST inclusive pricing, or the ‘value’ of the supply plus the amount of GST stated in dollars • Real risk of loss for traders when they get this wrong

31. WHO CAN REGISTER GST? To register for GST, you must be an entity conducting an enterprise • Businesses and entities conduct enterprises • Generally the GST net extends only to supplies connected with Australia

32. GST REGISTRATION Most businesses should register for GST • Last registration date 31 May using ABN registration form • Consider cash or accrual basis • Consider monthly or quarterly returns • Choices exist for some businesses • There is withholding tax exposure for businesses without an ABN

33. CASH BASIS OF REGISTRATION The ‘cash basis’ allows for simpler accounting systems • Only pay to the ATO the GST included in the payments received • Only claim from the ATO the GST in the payments made that are covered by tax invoices • Threshold is one million dollars

34. ACCRUAL BASIS OF REGISTRATION Use an accrual basis only if required to, or it provides substantial cash flow or other commercial advantages • To calculate GST on an accruals basis include accounts owed by and owed to the business • Identify GST on “outputs”- taxable supplies made by the business • Identify receivable GST on “inputs”- supplies acquired by the business • Accrual basis available to all

35. QUARTERLY OR MONTHLY RETURNS Most Businesses will find quarterly returns are best • Many businesses making GST taxable supplies will adopt quarterly returns • GST payments just 4 times a year - 21st day following period end • Cash flow or other commercial advantages may prompt monthly GST reporting

36. TAX INVOICE Always make sure a Tax Invoice is obtained • A tax invoice is your voucher to get money from the ATO • Needs to contain certain information • Different tax invoice levels exist- Up to $50 (before GST)- More than $50 and up to $1000 (before GST)- Greater than $1000 (before GST)

37. RECORDS Keep a record of all transactions to keep track of GST • Record all outflows • Record all inflows • File tax invoices received • Keep all bank statements • Record debtors and creditors

38. SYSTEMS Make sure the GST information needed to complete the BAS return is readily available • Keep GST records up to date on a regular basis • Ensure the GST information and records is accurate and readily available, when required

39. CONTROLS Always have checks in place to make sure GST is calculated correctly • Make sure you get it right • Nothing missed - Nothing wrong • Automatic checks and balances • No tax invoice from a supplier - no payment!

40. RISKS Always remember GST • Not identifying transactions which constitute taxable supplies • Misclassifying a GST taxable supply as a GST-free supply • Charging GST and not paying it to the ATO • Not including GST in prices

41. RISKS Always remember GST • Not collecting and holding valid tax invoices covering input tax credit claims • Not identifying GST input tax credits and not claiming refunds • Claiming a GST input tax credit for costs of making input taxed supplies • Spending GST owing to the ATO

42. TRANSITION Contracts entered into before 1 July 2000 and which span that date can have tax implications • Special transition rules apply • Need to check existing contracts now • Refunds available for WST paid on certain stock on hand at 30 June 1999

43. PLANNING ITEMS The planning for GST starts now • Register for GST • Printing invoices and price lists • Point of sale recording

44. GST REGISTRATION FLOW CHART BASIC REGISTRATION RULES Does the Business only make Input Taxed Supplies You are unable to Register for GST YES NO Is this a business with a current turnover greater than $50,000? You must register for GST YES NO YES Do you expect your turnover to exceed $50,000 in the next 12 months You may choose whether to register or not NO

45. GST RETURN PERIOD FLOW CHART Does the business have a turnover of GST supplies and GST free supplies in excess of $20,000,000 NO Does the business primarily make GST supplies Does the business primarily make only GST free supplies NO YES YES YES Registration on a quarterly basis may improve your cash position Registration on a monthly basis may improve your cash position You must register on a monthly basis