VAT, GST and Sales Tax in Australia

Summary

Name of the tax Goods and services tax (GST)
Date introduced 1-Jul-00
Trading bloc membership None
Administered by Australian Taxation Office (http://www.ato.gov.au)
GST rates
Standard 10%
Other GST-free (zero-rated) and input taxed (exempt without credit)
GST number format ABN 12345678901
GST return periods Monthly (turnover in excess of AUD20 million; optional for all other registered persons),  Quarterly (turnover below AUD20 million),  Annual with quarterly payments (turnover below AUD2 million) Annual (turnover below AUD75,000)
Thresholds
Registration AUD75,000 (AUD150,000 for nonprofit bodies)
Recovery of GST by non-established businesses No

Scope of the tax

GST applies to the following transactions:

  • Taxable supplies of goods and services, which are supplies con­nected with the “indirect tax zone” (i.e., Australia) and made for consideration in the course of a business enterprise by an entity that is registered or that is required to be registered for GST
  • Reverse-charge supplies made to a registered entity in Australia if the supply is not connected with Australia and if the recipient of the supply does not make the acquisition solely for a credit­able purpose. Effective 1 July 2017, offshore intangibles sup­plied to Australian non-registered consumers (e.g., digital supplies and services) may be subject to GST.
  • Taxable importations of goods into Australia, regardless of the status of the importer

Who is liable

The GST registration threshold is AUD75,000 (AUD150,000 for nonprofit bodies). The threshold applies, retrospectively and pro­spectively, based on either of the following:

  • Current GST turnover, which is the value of all supplies made or likely to be made in the current month plus the preceding 11 months
  • Projected GST turnover, which is the value of all supplies made or likely to be made in the current month plus the next 11 months

To calculate turnover for the above purposes, turnover from input-taxed (exempt) supplies, supplies that are not connected with Australia and certain other types of supplies are excluded.

Voluntary registration. An entity that has turnover below the reg­istration threshold may apply to register for GST voluntarily if the entity is carrying on an enterprise.

Group registration. Subject to certain requirements, two or more entities that are closely related may form a GST group. The effect of GST grouping is to treat the group members as a single entity for certain purposes. In general, all GST liabilities and input tax credit entitlements for group members are attributed to a represen­tative member of the group, and the group submits a single GST return (incorporated as part of the Business Activity Statement; see Section I). The representative member of the group must be an Australian resident. However, nonresidents may be included in a GST group as members. Transactions between group members are not considered taxable for GST purposes and consequently are effectively ignored.

Grouping is permitted for companies, partnerships and trusts. For companies to be included in a GST group, they must be con­nected by a 90% (or greater) share ownership relationship in terms of voting power, right to receive dividends and right to receive capital distributions. However, all eligible companies are not required to be included in a GST group. The rules for the grouping of trusts and partnerships with companies are complex.

Branch registration. An independent branch of a company may be registered separately as a GST branch, with its own GST number. Certain requirements must be met relating to the nature of the activities and accounting systems of proposed GST branches. In addition, a branch of a registered entity may not be registered as a GST branch if the entity is a member of a GST group.

Limited registration. Nonresident entities may register for GST in a “limited” capacity to reduce their compliance burden from 1 July 2017 if they have made one or more inbound intangible consumer supplies. This limited GST registration allows nonresi­dents to collect and remit GST on a quarterly basis without the ability to claim any input tax credits for GST included within associated expenses.

Nonresident entities. GST applies to taxable supplies and to tax­able importations made by nonresidents. In general, a nonresident entity is not required to appoint a tax or fiscal representative in Australia for GST purposes. However, GST payable on any tax­able supply or taxable importation made by a nonresident through a resident agent is payable by the agent. The nonresident is still required to be registered for GST, but need not submit GST returns if all supplies or acquisitions are made through the agent.

As an alternative to registration, some nonresidents may agree with the recipient of the supply for the recipient to account for the GST liability under the voluntary reverse-charge procedure.

Since 1 October 2016, certain business-to-business transactions (other than supplies of goods or real property) between nonresi­dent suppliers and Australian-based business recipients will no longer be “connected” with Australia. Subject to certain condi­tions and transitional rules being satisfied, GST will not apply to these supplies and consequently a nonresident supplier that may have previously been required to be registered for GST in Australia could deregister.

These rules do not apply where the nonresident supplier is carry­ing on an enterprise in Australia. The concept of an entity carry­ing on an enterprise is broadly consistent with Australia’s current tax treaty approach for determining a permanent establishment, and incorporates the “183 day” and “fixed place” rules.

Also see comments under the heading “Digital economy” for changes to the GST obligations of nonresidents making supplies to Australian consumers.

Voluntary reverse charge. GST on a taxable supply is payable by the recipient and not by the supplier if all the following condi­tions are met:

  • The supplier is a nonresident.
  • The supplier does not make the supply through an enterprise that it carries on in Australia.
  • The recipient is registered (or is required to be registered) for GST.
  • The supplier and recipient agree that the GST is payable by the recipient.

The voluntary reverse charge does not apply if either of the fol­lowing circumstances exists:

  • The compulsory reverse charge applies.
  • The supply is made by the nonresident through a resident agent.

Compulsory reverse charge. A compulsory reverse charge applies in the following circumstances:

There is a supply of anything other than goods or real property that is either (a) not connected with Australia or (b) connected with Australia because it is a supply made through an enterprise carried on outside of Australia and it is a supply of a right or option to acquire something that would be connected with Australia.

  • The recipient of the supply is registered (or required to be registered).
  • The supply is for consideration.
  • The recipient acquires the supply solely or partly for the pur­pose of a business enterprise carried on by it in Australia.
  • The acquisition is not solely for a creditable purpose (that is, it is not eligible for full input tax credits), and the supply is not input taxed or GST-free (see Section D).

The compulsory reverse charge applies primarily to businesses that make input-taxed (exempt) supplies (for example, financial insti­tutions) and to acquisitions made for a partly private or domestic purpose. The reverse charge does not apply to private consumers who are not registered or required to be registered for GST.

Australian-based business recipients that make acquisitions from nonresidents of Australia may have an increased reverse-charge liability from 1 October 2016 as a result of the changes to the GST rules.

Late-registration penalties. Penalties and interest may be imposed for late registration or for failure to register and for late submis­sion of a GST return, as part of the Business Activity Statement (see Section I), or late payment of GST.

Tax representatives. Not applicable.

Digital economy. From 1 July 2017, the supply by nonresident suppliers of intangibles, including anything other than goods or real property (e.g., digital products, services, rights), to an Australian non-registered consumer will be taken to have the necessary connection with Australia and may be subject to GST unless otherwise exempted.

The onus is on the supplier to determine that its customer is not an Australian consumer.

In some circumstances, the responsibility for the GST liability that arises under the amendments may be shifted to the operator of an electronic distribution platform rather than the supplier of the intangible supply.

Deregistration. An entity that ceases to carry on an enterprise must cancel its GST registration. The entity must notify the Australian GST authorities that it is no longer entitled to be reg­istered within 21 days after ceasing operations. An entity that is no longer required to be registered may apply to cancel its regis­tration. However, the Commissioner of Taxation is not required to cancel the registration if a business has been registered for less than 12 months.

GST rates

The terms “taxable supplies” and “taxable importations” refer to supplies of goods and services and importations that are liable to GST and which give rise to a right to claim input tax credits for GST included in acquisitions related to the supply. Taxable sup­plies are supplies subject to the standard rate of GST, which is 10%.

“GST-free supplies” are supplies not liable for GST but that nev­ertheless do give rise to a right to claim input tax credits for GST included in acquisitions related to the supply.

Examples of GST-free supplies of goods and services

  • Basic foodstuffs
  • Water, sewerage and drainage services
  • Exports of goods and services performed for nonresidents of Australia who are not in Australia when the supply is made
  • Health, education, religious and related supplies
  • Child care
  • Supplies of going concerns
  • International transport and mail

“Input-taxed supplies” are supplies not liable for GST, but which do not give rise to a right to claim input tax credits for GST included in acquisitions related to the supply (see Section F).

Examples of input-taxed supplies of goods and services

  • Financial supplies
  • Rental of residential premises
  • Sales (or long-term leases) of residential premises (except for new residential premises)
  • Supplies of some precious metals
  • Supplies in the course of fundraising events conducted by charitable institutions
  • Supplies made through school “tuck shops” and cafeterias

Option to tax for exempt supplies (input-taxed supplies). Not applicable.

Time of supply

Australia does not have time of supply rules. Instead, it has attri­bution rules with respect to the timing of when GST is payable or an input tax credit is claimable. The time when GST is payable on a supply depends on whether the taxable person accounts for GST on a cash basis or on an accrual basis.

Cash accounting. Entities may choose to account on a cash basis only under limited circumstances, which involve, among other conditions, consideration as to whether an entity satisfies certain income tax definitions.

For entities that use cash accounting, GST is payable with respect to a taxable supply in the tax period in which the consideration is received. If only part of the consideration is received in a particu­lar tax period, GST is payable only on that part.

Accrual basis. For businesses that account for GST on an accrual basis, GST is payable with respect to a taxable supply for the tax period in which the invoice is issued or when any of the consid­eration is received for the supply, whichever is earlier.

Prepayments. If a prepayment or a deposit is treated as part pay­ment of the consideration for a supply, GST is payable in the period when the deposit is paid. For entities that use the accrual basis of accounting, the deposit triggers a liability to account for GST on the full value of the supply. For entities that use cash accounting, GST is payable on the amount of the deposit.

Security deposits are not considered to constitute payment of the consideration for a supply until the deposit is applied as partial payment toward the consideration for the supply. GST is payable on a security deposit that is forfeited.

Continuous supplies. If a supply is made continuously over a period of time for consideration that is either paid progressively or periodically, the supply is treated as if each component of the progressive or periodic supply is a separate supply.

Imported goods. GST is payable for imported goods at the time of importation. For an importer registered under the GST-deferral scheme, GST is payable on the due date for the importer’s next Business Activity Statement (see Section I).

Recovery of GST by registered entities

A registered entity may claim input tax credits for the GST includ­ed in the consideration for goods and services acquired within Australia, GST paid on importations of goods and GST paid under reverse-charge arrangements to the extent that the acquisition is a creditable acquisition. Input tax credits are generally recovered by being offset against GST payable on taxable supplies.

A valid tax invoice or customs document must generally be retained to support claims for input tax credits.

Non-creditable acquisitions. “Non-creditable acquisitions” are purchases of goods and services used to make input-taxed sup­plies or acquisitions that are not used for business purposes (for example, goods acquired for private use by an entity). In addi­tion, input tax credits are blocked or reduced for some items of business expenditure.

However, acquisitions related to making financial supplies remain creditable if the entity does not exceed the financial acquisitions threshold. An entity exceeds the financial acquisitions threshold if, in the current month and the preceding 11 months, or in the current month and the next 11 months, the GST on acquisitions related to financial supplies exceeds, or will exceed, either the lesser of AUD150,000 or 10% of the total input tax an entity incurs. In calculating the amount of GST on financial acquisi­tions, financial acquisitions related to borrowings are excluded. Acquisitions related to borrowings that are not used to make input-taxed supplies remain creditable. An entity that exceeds the financial acquisitions threshold may be entitled to reduced input tax credits (at a rate of 75% or 55%) in specific circumstances.

The following lists provide some examples of items of expendi­ture for which input tax credits are not available (non-creditable acquisitions) and examples of items for which input tax credits are available if the expenditure is related to the enterprise of an entity (creditable acquisitions).

Examples of non-creditable acquisitions

  • Acquisitions used for nonbusiness purposes
  • Entertainment acquisitions that are ineligible for income tax deductions
  • Acquisitions related to input-taxed supplies (however, acquisi­tions related to making financial supplies that either do not exceed the financial acquisitions threshold, or relate to borrow­ings not used to make input-taxed supplies, remain creditable)

Examples of creditable acquisitions

  • Advertising
  • Purchase, lease and hire of a car, van or truck
  • Maintenance and fuel for a car, van or truck
  • Parking
  • Mobile phones (GST may be payable on a recharge of costs to employees)

Partly creditable acquisitions (partial exemption). A creditable acquisition is an acquisition of goods or services used by a regis­tered entity in its business enterprise. However, input tax credits are generally not available for GST included in acquisitions that are used for making input-taxed (exempt) supplies, subject to whether an entity exceeds the financial acquisitions threshold (see Non-creditable acquisitions).

In general, the amount of the input tax credit available for a cred­itable acquisition is the amount of GST payable on the supply.

However, the amount of the input tax credit is reduced if the acquisition is only partly creditable. An acquisition is partly cred­itable if either of the following conditions applies:

  • The acquisition is made only partly for a creditable purpose (for example, it partly relates to input-taxed supplies).
  • The taxable person provides, or is liable to provide, part of the consideration for the acquisition.

The amount of the input tax credit for a partly creditable acquisi­tion is based both on the extent to which the acquisition is made for a creditable purpose and on the amount of the total consider­ation that is provided, or liable to be provided, by the taxable person.

The Australian tax authorities require that the extent to which an acquisition is made for a creditable purpose is determined based on the planned use of the acquisition “on a reasonable basis.” Direct allocation methods are preferred if possible. However, indirect allocation methods are acceptable if it is not feasible to use a direct method. Examples of common indirect methods include the following:

  • A pro rata calculation, based on the cost of acquisitions used to make taxable supplies compared with the total cost of all acquisitions.
  • A pro rata calculation, based on the total value of taxable sup­plies made compared with the total value of all supplies made.

Subsequent input tax credit adjustments may be required in later tax periods, depending on the actual use of the acquisition com­pared with its expected use.

Refunds. If the amount of input tax credits in a period exceeds the GST payable in the same period, the excess amount is applied against any other outstanding tax debts and any surplus is refund­ed. Any refunds of GST must be paid into an Australian bank account.

Preregistration costs. Not applicable.

Recovery of GST by non-established businesses

Only entities that are registered for GST may claim refunds of GST incurred on Australian acquisitions. In general, entities (including nonresidents) that make acquisitions in Australia for the purposes of their enterprises may register for GST if necessary.

Invoicing

Tax invoices and adjustment notes. A registered person must gen­erally provide a tax invoice for all taxable supplies made if requested to do so by the recipient of a supply. A tax invoice is not required for supplies with a GST-inclusive amount of AUD82.50 or less.

A tax invoice is generally necessary to support claims for input tax credits.

An adjustment note (or credit or debit note) may be issued to reduce or increase the amount of GST payable on a supply if the amount of GST originally charged is incorrect (for example, as a result of an error or because of an agreed adjustment to the price). The adjustment note should be clearly marked either as an adjustment note or as a tax invoice (provided the amount of any credit is shown as a negative amount), and it must provide detailed particulars of the adjustment made.

Proof of exports. Exports of goods are GST-free. To qualify as GST-free, goods must generally be exported within 60 days. Exports must also be supported by evidence that indicates the goods have left Australia within the allowable time limit. A sup­plier must have documents that would enable a person who is independent of the transaction to reasonably conclude that a sup­ply of goods was made and that the supplier exported them within the specified time limits.

Foreign-currency invoices. If a tax invoice or adjustment note is issued in a foreign currency, the GST must be shown in Australian dollars (AUD) or the applicable exchange rate used must be shown. Registered persons may use the exchange rate issued by the Reserve Bank of Australia applicable at 4 p.m. on the day of the invoice or on the previous day, or any other rate that is acceptable to the Australian tax authorities.

GST returns and payment

Business Activity Statement. GST liabilities are reported using a Business Activity Statement (BAS). Registered persons whose annual turnover equals or exceeds AUD20 million must complete a BAS each month, which must be filed electronically, and must pay any net GST liability. Monthly returns and payments are due by the 21st day of the month following the end of the return period.

Registered persons whose annual turnover for GST purposes does not exceed AUD20 million must submit a BAS each quarter or they may opt to submit monthly. These registered persons may also choose to report some information annually. Quarterly returns and payments are generally due by the 28th day of the month following the end of the relevant return period, but may be made by 28 February for the December quarter.

Registered persons whose turnover for GST purposes does not exceed AUD2 million may opt to file an annual BAS and pay GST in quarterly installments.

Persons whose turnover for GST purposes does not exceed AUD75,000 and who voluntarily opt to register for GST, may apply to file annual BASs and pay GST annually.

Entities that register for a “limited” registration must submit a BAS each quarter but will not have the ability to claim any input tax credits on the BAS.

GST liabilities must be paid in Australian dollars. Special schemes. Not applicable.

Electronic filing. Registered persons whose annual turnover equals or exceeds AUD20 million must file their BAS electroni­cally.

Annual returns. See Business Activity Statement above.

Penalties

A late lodgment penalty may be imposed for the late filing of a BAS. The penalty applies for each 28-day period, or part thereof, that the BAS remains overdue, up to a maximum of five periods. The amount of the penalty is one penalty unit for each period (a penalty unit is currently AUD180) but may be increased depend­ing on the size of the entity’s business. General interest charges may be imposed on late payments of GST. The rate changes quarterly. It is around the range of 8% to 11% per year, com­pounded daily.