Did you know GST-free sales and purchases are actually not free from Australia’s Goods and Services Tax?
A little bit confusing, hey? Don’t worry, let us break it down for you.
There are many goods and services that you buy and sell that are GST-free, including milk, bread, eggs and some childcare, healthcare and educational services.
They are still subject to GST, so technically they are not “free” from GST, however the standard 10% GST rate does not apply to them.
Instead, GST-free goods and services have a 0% rate.
What Products and Services are GST-free?
When you report your tax obligations in your Business Activity Statements, it’s important that you check what is GST-free.
Here are some of the types of transactions that should be assigned GST-free tax rates:
- Most basic food such as milk, bread and eggs
- Educational courses
- Some medical and healthcare services
- Some childcare services
- Some religious services and charitable activities
- Some retirement village services
- Water, sewerage and drainage
- International transport and related matters
- Precious metals
- Sales through duty-free shops
- Grants of land by government
- International mail
- Sales of businesses as going concerns
- Some telecommunications supplies
- Eligible emissions units
- Bottled water
- Bank charges
- Interest paid
- Cars for disabled people
For more information on GST-free supplies, take a look at the ATO’s website.
Can You Claim GST Credits Against GST-Free Sales?
You can claim credits for GST included in the price of any goods and services that you buy for your business.
If your business sells products or services that are subject to 10% GST, such as clothes, you can claim credits for the GST on the price of any goods and services you used to make that sale.
For example, if you sold $22,000 worth of clothes, you would have collected $2,000 of GST from your customers.
If you spent $16,500 on expenses with 10% GST to make those sales, you would claim $1,500 of GST credits against the $2,000 of GST collected.
You would then owe the ATO $500, which is the amount of GST collected minus the GST credits.
If your business sells products or services that are GST-free such as childcare, you can still claim credits for the GST on the price of any goods and services you used to make that sale.
For example, if you sold $22,000 worth of childcare services, you would have collected no GST from your customers.
If you spent $16,500 on expenses with 10% GST to make those sales you would still claim $1,500 of GST credits.
In this situation, the ATO would owe you $1,500, which is the amount of GST collected minus the GST credits.
What Other Products and Services Do Not Have 10% GST?
Because of this, GST-free supplies may seem the same as BAS Excluded and Input Taxed supplies.
But they are not the same, so you must treat them separately in your accounts and in your Business Activity Statements.