Understanding the Goods & Services Tax (GST)

Have you ever wondered what all the different Tax Codes are that your Accounting Program has? Have you ever wondered why you need them and wouldn’t it be easier to just use GST and FRE all around? Well in today’s blog we look at the different tax codes within the different accounting programs and what they actually mean.

What is GST?

GST stands for Goods and Services Tax; it was implemented on 1st July 2000 as part of the Australian Government Taxation Reforms.

GST is an indirect board based consumption tax. Indirect means that it is not levied directly on your income, but levied on goods, services and activities. Broad based means that it generally applies to all transactions undertaken by all taxpayers with limited exceptions.

The current GST tax rate is 10% charged on most goods, services and other items sold or consumed in Australia

An entity carrying on an enterprise is not required to register for GST if their annual turnover is less than $75,000, or $150,000 for non-profit organisations. If you provide taxi travel, you must register for GST regardless of your turnover.

GST is applied in three different ways:

  • Taxable Supplies
  • GST-Free Supplies
  • Input Taxed Supplies

GST is levied at 10% on the supply of goods and services. Usually this applies unless the goods and/or services are GST free or input taxed. All goods and services that are GST free or input taxed are specifically identified in the GST legislation. Any item not specifically identified in the GST legislation is taxed at a rate of 10%.

In Accounting Programs, we need to track the three GST areas correctly so that we can report them on the BAS correctly. The areas that need to be tracked in you Accounting Program are:

  • Sale Including GST
  • Export Sale
  • GST-Free Sale
  • Input Taxed Sale
  • Capital Purchase with GST
  • Non-Capital Purchase with GST
  • Capital Purchase for making input taxed sales
  • Capital GST-Free Purchase
  • Non-Capital GST-Free Purchase
  • Private or Non-Deductible
  • Non-reportable

So lets look at each one in detail so that you have a better understanding of what they mean and where they belong. For all of these we are assuming you are registered for GST and you meet the following considerations:

  • You are supplying a Goods or Service
  • You are Registered for GST
  • You are carrying on an Enterprise
  • There is a Consideration (Payment)
  • You are Connected with Australia

Sales Including GST

Sales Including GST are literally that, a sale that has GST in the price.

To be a taxable sale, a sale must be:

  • For payment of some kind
  • Made in the course of operating your business
  • Connected with Australia

You must do the following when making a Taxable Sale:

  • Include GST in the price
  • Issue a tax invoice to the byer
  • Pay the GST you’ve collected when you lodge your activity statement

Export Sale

Exports of Goods and Services from Australia are generally GST-Free. In order for you to claim them as GST-Free you must export them within 60 days of either receiving payment for the goods or issuing an invoice for the goods. If the goods are being paid for by instalments, the payment or invoice must be for the final instalment. You may apply to the ATO to extend the 60 day period if you need to.

GST-Free Sale

No GST is payable on Sales that are GST-Free. When you first establish you business and register for GST, you need to establish whether you sales will include GST or be GST-Free. Most areas of food, health and education are largely GST-Free, as are non-commercial activities of non-profit organisations. If you believe your sales should be GST-Free then you need to make sure you research it before you start making sales.

The ATO has more detailed information about what sales are GST-free in areas of:

  • Food
  • Health
  • Education
  • Non-commercial activities of charities
  • Precious metals
  • Exports
  • Going concerns
  • Water, sewerage and drainage

Input Taxed Sale

You don’t include GST in the price of input-taxed sales. The most common input-taxed sale for small businesses are financial supplies and selling or renting out residential premises.

Most financial supplies are classified as input taxed sales and do not have GST in the price. These include, but are not limited to, lending money or providing credit for a fee, selling shares.

Residential Premises are properties that can be occupied, are occupied or are intended to be occupied as residences. This includes houses, flats and other types of residential accommodation, but not vacant land. You do not include GST when selling or renting residential premises. The sale of new residential premises and the sale or rent of commercial residential premises are not input taxed sales.

Capital Purchase with GST

Capital Purchases are ‘capital’ items you purchase that have GST in the price. These can include business assets you purchase as plant and equipment, such as machinery, cash registers, computers and cars or they can be land and buildings. It doesn’t matter if they are brand new or second-hand.

Non-Capital Purchase with GST

Non-Capital Purchases are items you purchase like trading stock, the normal running expenses of a business, such as stationery and repairs, equipment rentals and/or leases. These will all have GST in the price of the purchase.

Capital Purchase for making input taxed sales

Capital Purchases for making input taxed sales are purchases such as Residential Investment Properties, these are purchases that you make in order to earn an income on that is input taxed and does not include GST.

Capital GST-Free Purchase

Capital GST-Free Purchases could be equipment that you purchase from a supplier who isn’t registered for GST. For example, someone who has a lathe in their back shed and decides to sell it to you. The lathe is used to earn you income, therefore it’s a Capital Purchase, but the person selling the lathe isn’t registered for GST so there is no GST in the purchase price.

Non-Capital GST-Free Purchase

Non-Capital GST-Free Purchases may include trading stock, for example fruit and vegetables that a restaurant purchases to make their meals. And purchases for normal running expenses such as water, sewerage and drainage.

Private or Non-Deductible

Some times business owners make a purchase that includes a portion that will be used for private consumption or a non-deductable business expense. When this happens the amount of GST included in the purchase price needs to be adjusted. Only the amount of the claiming portion of the purchase price can be used when claiming input tax credits.

For example, if you went to the supermarket and purchased tea and coffee and cleaning products for the office, but also purchased products for your home, then the portion that includes the office expenditure is the only portion that you can claim. Likewise

Non-Tax deductible expenses, such as speeding fines need to be reported, but the GST cannot be claimed as an input tax credit.

Non-reportable

Non-reportable is anything that is NOT reported on the BAS, such as cash transfers, deposits paid and received, superannuation, depreciation. And although wages are reported on the BAS they are not reported under the GST section of the BAS therefore they are classed as non-reportable as well…

Accounting Packages

Now lets look how all this relates to your accounting Program.

MYOB

Default GST Treatment Tax Code to Use
Sale including GST GST
Export Sale EXP
GST-Free Sale FRE
Input Taxed Sale ITS
Capital Purchase with GST CAP
Non-Capital Purchase with GST GST
Capital Purchase for making input taxed sales CAI
Non-Capital Purchase for making input taxed sales INP
Capital GST-Free Purchase CAF
Non-Capital GST-Free Purchase FRE
Private or Non-Deductible NTD OR PRI
Non Reportable N-T

Reckon

Default GST Treatment Tax Code to Use
Sale including GST GST
Export Sale EXP
GST-Free Sale FRE
Input Taxed Sale INP
Capital Purchase with GST CAG
Non-Capital Purchase with GST NCG
Capital Purchase for making input taxed sales CAI
Non-Capital Purchase for making input taxed sales NCI
Capital GST-Free Purchase CAF
Non-Capital GST-Free Purchase NCF
Private or Non-Deductible [blank]
Non Reportable [blank]

Xero

Default GST Treatment Tax Code to Use
Sale including GST GST on income
Export Sale GST Free Exports
GST-Free Sale GST Free Income
Input Taxed Sale Input Taxed
Capital Purchase with GST GST on Capital
Non-Capital Purchase with GST GST on Expenses
Capital Purchase for making input taxed sales N/A at this time
Non-Capital Purchase for making input taxed sales Input Taxed
Capital GST-Free Purchase GST Free Capital
Non-Capital GST-Free Purchase GST Free Expenses
Private or Non-Deductible N/A at this time
Non Reportable BAS Excluded

Saasu

Default GST Treatment Tax Code to Use
Sale including GST G1
Export Sale G1, G2
GST-Free Sale G1, G3
Input Taxed Sale G1, G4
Capital Purchase with GST G10
Non-Capital Purchase with GST G11
Capital Purchase for making input taxed sales G10, G13, G1
Non-Capital Purchase for making input taxed sales G11, G13, G1
Capital GST-Free Purchase G10, G14
Non-Capital GST-Free Purchase G11, G14
Private or Non-Deductible G11, G15, GP
Non Reportable [blank]

Intuit QuickBooks

Default GST Treatment Tax Code to Use
Sale including GST GST
Export Sale GST Free Exports
GST-Free Sale GST Free
Input Taxed Sale Input Tax
Capital Purchase with GST GST on Capital
Non-Capital Purchase with GST GST on Non-Capital
Capital Purchase for making input taxed sales Input Tax
Non-Capital Purchase for making input taxed sales Input Tax
Capital GST-Free Purchase GST Free Capital
Non-Capital GST-Free Purchase GST Free Non-Capital
Private or Non-Deductible N/A at this time
Non Reportable Out of Scope of GST

Identifying how to us the Tax Codes within your Accounting Program will help you better understand how easy it is to do you BAS.



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2 thoughts on “Understanding the Goods & Services Tax (GST)

  1. Hi,

    I am not sure what tax code to use on Reckon Accounts Plus to record the following expense.
    Plumbing repair to a rental property.
    It is my understanding that we cannot claim the GST on a residential rental property.
    Any help appreciated. Thanks

    • Hi Bronnie,

      Does Reckon Accounts give you an option to use INP as a tax code? if so that is the one I would use 🙂

      Regards

      Sonya