GST is payable on taxable supplies, but
what is a supply
and who pays the GST?
Supply must be made for a consideration
Supply must be made in the course of or furtherance of an enterprise
Supply must be made in connection with Australia
Supply must be made by a registered entity
What if a supply is partly taxable and partly GST-free?
GST is payable on taxable supplies and taxable importations.
Subdivision 9-A
An entity makes a taxable supply if it makes a supply for consideration;What is a supply
(Section 9-10)?GST only applies to taxable supplies and taxable importations. It does not apply to all supplies. The definition of supply for GST purposes is very broad, being "any form of supply whatsoever".
Specifically included are
supplies of goods or services;
the provision of advice or information;
the grant, assignment or surrender of real property;
a creation, grant, transfer, assignment or surrender of any right;
a financial supply; and
an entry into, or release from, an obligation to do anything, to refrain from an act or to tolerate an act or situation.
Example
Provision of advice or information includes income tax advice provided by a tax agent;
a grant of a right includes an agreement for the exclusive use of a trade name; and
an entry into an obligation to refrain from an act includes, where a vendor of a business agrees not to trade in the same type of business within 100 km of the business sold.
Its not enough just to be a supply as defined!
It must be made in the course or furtherance of an enterprise that an entity is carrying on;
It must be connected with Australia; an
the entity making the supply must be registered or required to be registered.
An entity makes a taxable supply if:
it makes a supply for consideration;
What is meant by consideration?
(Section 19-15)?
monetary payment
inducements to do or to refrain from doing something,
payments by way of barter
payments by someone other than the recipient of the supply.
forgiving a debt in exchange for a supply
Taxes are not supplies!
Division 81 states that the payment of certain taxes and charges (to be determined in writing by the Commonwealth Treasurer) will not be the provision of consideration
A supply must be made in the course or furtherance of an enterprise that an entity is carrying on
What is meant by ‘in the course ’ or ‘furtherance of’ an enterprise?
This is not defined in the legislation but is considered broad enough to cover any supplies made in connection with an enterprise. Private supplies are not included.
For example, if Joe, an electrician is operating a business from his family home, and decides to sell that home, this is not a supply in the course of his enterprise. It is a private sale.
If Joe gathers up all his left over electrical cable and sells it for its copper content, this is a supply in the course of his enterprise.
A supply must be connected with Australia
What is meant by the term connected with Australia
(Section 9-25)?This will be established where you are dealing with:
Goods
which are: delivered in Australia;
made available in Australia;
removed from Australia;
imported into Australia; or
installed, or assembled in Australia.
Real property
(including buildings) which are in Australia.A supply of things other than goods or real property(in other words, ACTIONS)
if:
the thing is done in Australia; or
supplied through an enterprise supplier carries on in Australia.
An enterprise is carried on in Australia if it is carried on through a permanent establishment.
Australia is defined to exclude any external territory but includes installations such as oil rigs.
What is an example of a supply connected with Australia?
An accountant who practices in Australia provides a client in Australia with financial advice, the provision of that advice constitutes the making of a supply connected with Australia. If that advice were provided to an overseas company in respect of a takeover of an Australian company that too would be a supply connected with Australia. In the latter case, this is because the advice is being provided through an enterprise being conducted in Australia.
To make a taxable supply an entity must either be registered or required to be registered.
When does an entity have to register?
If an entity is required to be registered for GST, it must apply for registration
within 21 days of becoming required to do so. The requirement will arise of when the entity becomes aware that its annual turnover meets or exceeds the registration turnover threshold.(penalty for entities failing to apply for registration when they are required to do so (Section 42 of the Taxation Administration Act 1953).Annual turnover
(Division 188)When determining whether or not annual turnover meets the registration turnover threshold, an entity must calculate
both the current annual turnover and the projected annual turnover.Current annual turnover
(Section 188-15) is the value of all supplies made or likely to be made during the current month and supplies made during the previous 11 months.Projected annual turnover
(Section 188-20) is the value of all supplies made during the current month and all the supplies likely to be made for the next 11 months.In determining current annual turnover, and projected annual turnover exclude:
those supplies that are input taxed;
supplies for no consideration (other than certain supplies to associates – see section 72-5); and
supplies not connected with the enterprise of the entity.
In addition to excluding the above, the entity excludes from estimation of the entity’s projected annual turnover any supplies made or likely to be made:
by way of a transfer of capital asset;
as a consequence of ceasing an enterprise; or
as a result of substantially and permanently reducing the size or scale of the enterprise.
If both the current annual turnover and the projected annual turnover are below the registration turnover threshold an entity may still be required to be registered if the Commissioner is not satisfied that the projected annual turnover is below the registration turnover threshold.
Click here for more details on registration requirements
Taxable Supplies! Summing it all up...
A supply that is
GST-free or
input taxed
is not a taxable supply (Division 38 and 40,
To be a taxable supply, the goods or services
must be made in the course or furtherance of an enterprise that an entity is carrying on;
must be connected with Australia; an
the entity making the supply must be registered or required to be registered.
What if a supply is partly taxable and partly GST-free?
Section 9-80 part of the supply that is a taxable supply, is the proportion of the value of the actual supply that the taxable supply represents.
For example, if a supply valued at $30,000 is 80% taxable and 20% GST-free or input taxed, the value of the supply which is taxable is $24,000 (80% of $30,000).
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