The New Tax System

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SMALL BUSINESS, EDUCATIONAL AND COMMUNITY ADVISER
EDUCATION PROGRAMME
1
SMALL AND MEDIUM BUSINESS COURSE 1 GST
Introduction Registration
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THE NEW TAX SYSTEM
A better tax system
TAXREFORM

• Abolition of hidden indirect taxes
• Substantial personal income tax reductions
• The introduction of GST

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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GST TERMS
Taxable Supplies

• Supplies of goods and services connected with
  Australia, made by registered persons or
  entities, for consideration

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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 Tax Invoice to claim the
  input tax credits

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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

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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

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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

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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

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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

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GST TERMS
Attribution rules

• Determine time of GST supplies
• Cash basis rules
• Accrual basis rules

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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

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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

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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

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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

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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

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CONTRACTS
All contracts should address GST issues

• If the contract doesnt 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

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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

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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

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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

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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

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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

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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

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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

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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)

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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

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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

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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!

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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

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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

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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

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PLANNING ITEMS
The planning for GST starts now

• Register for GST
• Printing invoices and price lists
• Point of sale recording

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GST REGISTRATION FLOW CHART
BASIC REGISTRATION RULES
Does the Business only make Input Taxed Supplies
You are unable to Register for GST
YES
NO
You must register for GST
Is this a business with a current turnover
greater than 50,000?
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
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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 only GST free
supplies
Does the business primarily make GST supplies
NO
YES
YES
YES
You must register on a monthly basis
Registration on a quarterly basis may improve
your cash position
Registration on a monthly basis may improve your
cash position