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What is GST?

by | 26 May 2020 | Tax

If you were asked to explain GST, what would you say?

Would it go something like this: “It’s a tax you pay on things you buy.” If so, you’re not alone.

This was the typical response people gave us when we did a quick street poll on the topic – and while it’s not a bad explanation, it doesn’t quite give a complete picture.

So, let’s break it down. Firstly, GST stands for Goods and Services Tax.  

It is a tax system that came into effect in Australia in 2000 as part of the Howard Government’s attempt to simplify taxes and to build more funds for the states and territories. 

Many other parts of the world have a GST system, including New Zealand, India and the UK – where it is called Value-Added Tax or VAT. 

How Does GST Work in Australia?

You may have heard people refer to GST as a broad-based tax. That’s because the 10% GST applies to most goods and services sold in Australia.

So, let’s look at how it works.

It starts with businesses that are registered for GST collecting the tax from customers who purchase goods and services from them.

They do this by including the 10% tax in the price of the goods and services that are subject to GST.

The Australian Taxation Office (ATO) then collects the GST from those businesses in much the same way it collects other taxes, such as company tax or PAYG withholding tax.

The Commonwealth government then carves up the total funds collected from the GST and distributes it to Australia’s states and territories. 

It is up to each state or territory’s government to decide on how to spend the money. 

Which Products and Services Does GST Apply to?

If your business is registered for GST, then the products and services you sell in Australia are generally subject to the 10% tax, including:

  • Electric appliances
  • Clothing
  • Car repairs
  • Cosmetics

Not all goods and services sold in Australia attract 10% GST.

To find out more, check out our articles about GST-Free supplies, Input-Taxed supplies, and BAS Excluded supplies.

Who Should Register For GST?

Businesses that generate more than $75,000 (ex GST) of annual turnover are required to register for GST. 

But you can still register and charge customers the tax if your annual revenue is below that amount.  

To find out more about if you need to register for and pay GST, check out our article here.

How Do I Register My Business For GST?

You can register online through the ATO’s Business Portal website or by calling them on 13 28 66.  

Alternatively, you can apply through a registered tax agent or BAS agent. 

You will need an Australian Business Number (ABN) before you can register for GST. To get an ABN, you can apply through the Australian Business Register (ABR).

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