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Tax

What is GST?

01 October 2019

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

You pay it as a levy on most of the goods and services you consume, but have probably given little thought to what it is or how it’s calculated. We’re talking about the GST or Goods and Services Tax, which is really just a value-added tax (VAT) - with a slightly fancier name - on most of the goods and services that you purchase or consume.

How the GST works

Any business, including international businesses with annual revenue exceeding $75,000 AUD is required to add to the goods and services it sells you – at a flat rate GST of 10 percent. This means that if a business charges $100 for goods or services, you the customer will be charged $110.

The additional $10 is the GST which the business is required to pass on to the ATO. The $50 billion-plus collected in GST every year is distributed to the state governments to pay for their annual budgets, on things like education, roads, healthcare, and other services.

Can you claim the GST back?

While there’s no way to avoid paying GST, travellers departing Australia can get a GST refund under the tourist refund scheme (TRS) for goods that were purchased for $300 AUD or more (GST inclusive) and satisfy other requirements. However, any company responsible for collecting GST on the ATO’s behalf, can claim back any GST that it has incurred in costs running the business.

What is exempt from GST?

GST is applicable to almost all purchases of goods and services you make. However, you are exempt from paying it on certain basic food staples – like meat, fish, fruit and veggies – plus some education courses, rent for long-term residential accommodation, and child care.

While goods with a customs value of A$1,000 or less (AKA low value goods) that you purchase from overseas used to be GST-free, that typically is no longer the case. Similarly, while Medicare and Pharmaceutical Benefits Scheme (PBS) payments or services supplied to the public are also exempt, some health care related suppliers and service providers are required to collect GST.

Click here for a more definitive list of GST-exempt goods and services.

How to calculate the GST component:

Let’s say the value of the good or service is $17.50 (Inc-GST):

  • Divide this total price by 11 to determine the GST.
  • $17.50 divided by 11 is $1.59.

How to add the GST:

Let’s say the value of the good or service before GST is added is $17.50:

  • Based on 10 percent – the GST is calculated at $1.75
  • Total price (Inc-GST value) is $17.50 + $1.75 = $19.25

How to take the GST off:

Let’s say the value of the good or service is $17.50 (Inc-GST):

  • To work out the price without GST you have to divide the amount by 1.1
  • $17.50 divided by 1.1 is $15.91.

Are you paying the right amount of GST?

To ensure you’re not paying more GST than you need to (i.e. 10%), it pays to always ask for a receipt. Remember, a business is required to provide you with a receipt or proof of purchase for anything you buy over $75. However, a business must also provide you with a receipt for anything you buy under $75 within seven days of your request.

Any receipt or proof of purchase provided to you must include the business name and ABN (or CAN) the date of supply, details on the product or service and the price. Use the calculation above (ie divide the price by 11) to work out how much GST was included in the price, and if it’s over 10 percent you need to contact the business to find out why.

If you recently established a small business and are unclear of your GST obligations, A CERTIFIED FINANCIAL PLANNER® professional can guide you through everything you need to know, by making it part of your overall plan for less money stress, and better financial wellbeing.