GST & BAS Advice: A Practical Guide
Throughout the past 10 years, if you conducted business in Australia, you are obligated to prepare and submit Business Activity Statements (BAS) coupled with repetitive reporting and compliance procedures.
In cooperation with your company's bookkeeper and other internal accounting personnel we at Positive Outlook Accounting can answer all your GST requests from BAS advice, attending to your ATO reporting, GST exempt transactions, BAS lodgements and conflict resolution. Simply call our office on 03 5973 5322, or complete the on-line enquiry form or send an e-mail to: firstname.lastname@example.org for prompt and professional attention.
How Goods and Services Taxation [GST] is applied in your business transaction is not always as straightforward as you may think. There are numerous subtleties and combinations of circumstances that determine whether or not traditional business transactions and even non-monetary transactions are subject to GST or classified as a GST exempt service.
GST exempt services
There is a generally held belief that GST is payable on every sale and purchase, when in reality this is not the case. There are many GST exempt transactions and services that every business owner should be aware of otherwise you may end up inadvertently paying too much tax or not claiming your businesses' legitimate tax refunds.
GST exemptions can apply for:
- Real property transactions
- Childcare services
- Healthcare and medical fees
- Disability services
- Veterinary expenses
- Health Insurance costs.
- Registered Training Organisations
- Fresh (unprocessed) foods.
- Food and food ingredients
- Beverages and beverage ingredients
- Export Business
- Government grants
- Student accommodation
- Residential rent
- Medical aids and appliances
- International travel and transport
- Business insurance and settlements
- Not for profits
- Registered charities
- Culinary fats and oils
- Tourist's purchases
There are also a small number of supplies that are Input-taxed. If you make an input-taxed supply, you cannot charge GST but neither can you claim back any of the GST you paid.
Input-taxed supplies include:
- Financial supplies
- Residential premises for rent
- Sales of residential premises (not new homes)
- Food at school tuckshops (optional);
- Fundraising activities of charities (optional)
- Certain transactions involving precious metals
When a supply is both a GST-free supply and an input-taxed supply, it is treated as GST-free.
The following examples summarise just a few of the GST legislation's subtleties and the combinations of circumstances that may determine whether or not certain types of business transactions attract GST or not.
Real Property transactions and GST
GST treatment of real property transactions remains one of the most complicated and least understood areas in GST law, many still failing to apply GST correctly, or including inadequate GST clauses in real property contracts. Selling your home is usually a private transaction and not subject to GST. However, if you undertake a subdivision, that subdivision can potentially be considered as 'carrying on an enterprise' by the ATO. If you are judged to be carrying on an enterprise, you are required to be registered if your GST turnover is $75,000 or more ($150,000 for non-profit organisations). In many instances, the proceeds from real property transactions are included in calculating your entity's GST turnover, even if it is an isolated or a one-off transaction.
Residential premises are exempt from GST only when they are to be used predominantly for residential purposes. Should a portion of a property has been converted for commercial use, that part of the property may be subject to GST.
GST property transactions margin scheme
The margin scheme results in a smaller GST liability. If a real property transaction is subject to GST, the vendor and purchaser can, under certain circumstances, choose to adopt the 'margin scheme' prior to settlement. Under the margins scheme GST liability is calculated as one eleventh of the margin only rather than one eleventh of the total proceeds of the sale. The margin for property acquired after 1 July 2000 is the variance between its sales price and the acquisition cost. Any properties you acquired prior to July 2000 will need to have their market valuation and margin amount calculated according to a convoluted methodology approved by the ATO.
An LBW tax accountant can advise you on all property related tax issues including income tax implications and stamp duties. The smaller GST liability under the margin scheme will effectively reduce your stamp duty liabilities, as it is calculated on the property's GST inclusive sale price.
Self Managed Super Funds and GST
If you establish a Self Managed Super Fund (SMSF) it would generally not be required to register for GST, as SMSFs are not permitted to operate a business. However, under certain circumstances, GST registration of your SMSF may be required or recommended when commercial rental property is among your fund's holdings.
Some supplies that are associated with your SMSFs financial supply may entitle you to issue recipient created tax invoices (RCTIs) and reduced input tax credits. Under normal circumstances, you would not be able to register for GST to claim reduced input tax credits back. However, if your SMSF is already registered, you may be eligible.
Education and GST
You will not have to pay GST for approved education courses that are designated as GST free supplies, they include: pre-school care and childcare; primary and secondary school courses; tertiary and further education; English language courses for overseas students (ELCOS), Masters or Doctoral Degree course; Special education programs plus adult and community education determined likely to add to the employment related skills of people undertaking the course. GST free education supplies also encompass; first-aid and life-saving training; apprentice tuition; professional or trade certificate training and tertiary residential college courses. In addition certain course materials are free from GST, as are student accommodation expenses.
Business coaching, however, is not designated as GST free education in the Act. Should you engage in some business coaching with a coach who is registered for GST you must pay the tax, then claim the GST back in your subsequent BAS.
Non-monetary transactions and GST
Many business operators erroneously consider that non-monetary transactions are GST free, when these types of transactions are in fact subject to GST just like monitory considerations for service. A non-monetary transaction is where in-kind payments are made, when goods or services are bartered or when part exchange transactions occur, as consideration of supply but where the market value of the transaction is not expressed as a sum of money.
Non-monetary consideration occurs when the charges and payment is wholly or partially non-monetary. For tax purposes you will need to establish the GST inclusive market value of the non-monetary portion of your transactions then add it to any monetary amount to establish the GST inclusive price of the transaction. Normal GST rules apply as they would with a monetary payment. A tax invoice is required and you must keep records of all non-monetary transactions.
Recipient created tax invoices and GST
A recipient created tax invoice (RCTI) is a tax invoice issued by the purchaser of the goods and/or services rather than the seller. Only an ATO defined and approved number of situations, and industry types are eligible to issue RCTIs. Sales can be invoiced using RCTIs when a written agreement between the seller and purchaser meets all of the ATO's requirements.
Industry sectors where RCTIs can apply include agriculture, multi-level direct sales organisations, mortgage and loan brokers and some types of financial institution. For more information about types of purchasers that are eligible to issue RCTIs, what information the RCTI needs to contain and an explanation of situations where sales can be invoiced using RCTIs talk to your Positive Outlook Accounting accountant.
Positive Outlook Accounting is a leading Mornington Peninsula accountancy firm which provides business consulting, financial planning as well as providing corporate business strategy and tax planning advice to the Business Sector. the Professions and the Trades. In addition to these services, we also provide accounting services; we cover all aspects of your Australian business' taxation including capital gains, payroll tax plus tax effective asset management. Unlike most other accounting firms, Positive Outlook Accounting also extends personal tax minimisation, wealth creation and self managed superannuation.
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