Module6 GSTFundamentals

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GST Fundamentals
June 2014
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Table of Contents
PREFACE......................................................................................... 1
INTRODUCTION .............................................................................. 2
How to approach the GST ....................................................................... 2
Liability to GST – introduction ................................................................ 5
ENTERPRISE AND REGISTRATION .................................................... 6

Requirement to be registered ................................................................. 6
Enterprise ................................................................................................................. 6
MT 2006/1 and the meaning of 'enterprise'................................................................ 7
In the form of a business .......................................................................................... 7
Entity carrying on a business .................................................................................... 7
Entity having some characteristics of a business ..................................................... 8
Adventure or concern in the nature of trade .............................................................. 8
On a regular or continuous basis, in the form of a lease, licence or other grant of an
interest in property ................................................................................................... 8
GST turnover ............................................................................................................. 9
Current GST turnover .............................................................................................. 11
General ................................................................................................................... 11
Members of GST groups ......................................................................................... 12
Projected GST turnover ........................................................................................... 12
General ................................................................................................................... 12
Members of GST groups ......................................................................................... 12
Transfer of capital assets, and termination etc, of enterprise, to be disregarded 13
The value of non-taxable supplies .......................................................................... 13
Voluntary or compulsory registration....................................................................... 14
The registration procedure..................................................................................... 15
SMALL BUSINESS CONCESSIONS ................................................... 17

The three GST concessions available to small businesses .......................17
<$2 Million Aggregated turnover test - carrying on a business .................................. 17
Accounting for GST on a cash basis: types of business............................................... 19
Advantages - accounting for GST on a cash basis................................................... 19

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Annual apportionment of input tax credits............................................................... 20
Advantages - annual apportionment of input tax credits ...................................... 21
TAXABLE SUPPLIES ....................................................................... 22

Criteria for taxable supplies ...................................................................22
Determine if the taxpayer has made a supply ........................................................... 22
Is the supply in the course or furtherance of an enterprise?...................................... 24
Determine whether a supply is for consideration ..................................................... 25
Is the supply connected with Australia? ................................................................... 26
Is the supply a GST-free supply?............................................................................... 27
Is the supply an input taxed supply? ........................................................................ 27
Special taxable supply rules ...................................................................28

Tax invoice issues ..................................................................................28
Former requirements (still used by most businesses)................................................ 29
Current requirements (less prescriptive) .................................................................. 32
CREDITABLE ACQUISITIONS .......................................................... 36

Introduction ..........................................................................................36
Has the taxpayer made an acquisition? .................................................37
Is the acquisition for a creditable purpose? ...........................................37
Non-deductible expenses ........................................................................................ 38
Reimbursements ..................................................................................................... 39
Partly creditable acquisitions ................................................................................... 40
Is the supply a taxable supply to the purchaser? ...................................41

Has the taxpayer provided consideration?.............................................42
SIMPLIFIED ACCOUNTING METHODS ............................................ 44

Certain retailers and small enterprise entities .......................................44
ATTRIBUTION OF GST AND CREDITS TO TAX PERIODS ................... 45

Introduction ..........................................................................................45
Determine the tax period ......................................................................46
Compulsory 1 month tax periods ............................................................................. 46
Election to use 1 month tax periods ......................................................................... 46

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Withdrawing elections of one month tax periods ..................................................... 47
Revoking determinations of one month tax periods ................................................. 47
Annual lodgement and payment .............................................................................. 48
Changing the days on which a taxpayer's tax period ends ......................................... 49
Special rules on tax period ends ............................................................................... 49
Special rules relating to tax periods.......................................................................... 49
The method of attribution .....................................................................50

Small business entity ............................................................................................... 51
Aggregated turnover .............................................................................................. 51
Annual turnover ..................................................................................................... 51
Connected entity .................................................................................................... 51
Affiliate ................................................................................................................... 52
Accounting on an accruals basis ............................................................................... 53
Accounting on a cash basis ...................................................................................... 53
Requirement for a tax invoice in order to attribute input tax credits ......................... 54
Accruals basis.......................................................................................................... 55
Cash basis ............................................................................................................... 57
NET AMOUNTS ............................................................................. 58

Introduction ..........................................................................................58
Determine the amount of GST payable on a taxable supply...................59
Determine the amount of the input tax credit .......................................60
Determine the net amount ....................................................................61
Calculation of net GST amount ................................................................................. 61
The occurrence of any adjustment events ................................................................ 62
Bad debts ................................................................................................................ 64
Annual apportionment of initial creditable purpose ................................................. 65
Change in creditable purpose................................................................................... 65
Division 129 Adjustments for change in creditable purpose ................................. 66
Method statement ................................................................................................. 68
The amount of an increasing or decreasing adjustment ............................................ 69
Goods applied solely to private or domestic use ....................................................... 71
Supplies of things acquired etc. without full input tax credits ................................... 71
The GST remittance amount .................................................................................... 72
GST payment options .............................................................................................. 72
Subdivision 162-A - Electing to pay GST by instalments......................................... 73

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Subdivision 162-B – Consequences of electing to pay GST by instalments ........... 74
Subdivision 162-C – GST instalments ..................................................................... 75
Subdivision 162-D - Penalty payable ...................................................................... 76
Lodgment of the GST return ..................................................................................... 76
Electronic lodgment of GST returns ....................................................................... 77
Annual GST return .................................................................................................. 78
Payment of GST liability or refunds .......................................................................... 78
Payments ................................................................................................................ 78
Refunds................................................................................................................... 79
INPUT TAXED SUPPLIES ................................................................ 81

Introduction ..........................................................................................81
Sale of residential premises ...................................................................82
Introduction ............................................................................................................ 82
Sale of used residential premises ............................................................................. 82
Sale of new residential premises .............................................................................. 82
Supplies of residential premises by way of long-term lease ...................................... 83
GST – FREE SUPPLIES .................................................................... 88

Introduction ..........................................................................................88
GST and food .........................................................................................89
Introduction ............................................................................................................ 89
Definition of food .................................................................................................... 89
Food for human consumption .................................................................................. 90
Food that is not GST-free ......................................................................................... 90
Premises used in supplying food .............................................................................. 90
Meaning of Hot Food ............................................................................................... 92
Food specified in Schedule 1 .................................................................................... 92
Beverages specified in Schedule 2 ............................................................................ 93
Combinations of food .............................................................................................. 93
Packaging of food .................................................................................................... 93
What is normal and necessary packaging? ............................................................ 94
Export of goods .....................................................................................95

Introduction ............................................................................................................ 95
Exemption for sale of going concern ......................................................97

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Introduction ............................................................................................................ 97
Supply of a going concern ........................................................................................ 97
Supply of part of a going concern ............................................................................. 98
DIVISION 75 – THE MARGIN SCHEME .......................................... 100

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GST Fundamentals
Preface
Learning objectives
 Upon completion of this workshop, participants should be able to:
 define an enterprise;
 identify whether supplies are made in the course of an enterprise;
 differentiate between taxable, GST-free and input taxed supplies;
 identify whether a creditable acquisition has been made;
 calculate a taxpayer's net amount; and
 understand the reporting and payment obligations under the GST system.
Currency
This edition of the 'GST' paper is current as at 18 June 2014. It takes into account all developments
known to the author before that date.
References
All references are to A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

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Introduction
Summary
 GST commenced on 1 July 2000.
 The main legislation governing GST is the A New Tax System (Goods and Services Tax) Act 1999
(the GST Act).
 GST is a tax on supplies or importations of goods, services or anything else.
 GST is imposed on taxable supplies, but not GST-free or input taxed supplies.
 It is a transaction based tax imposed at all stages of the supply chain.
 Businesses are relieved from the burden of GST on their inputs (expenses and acquisitions) by
input tax credits for the GST included in those inputs.
 The ultimate burden of GST is borne by end consumers who have GST included in the price of
their acquisitions but cannot claim input tax credits.
How to approach the GST

The Australian GST commenced on 1 July 2000. The governing legislation is contained in the A New
Tax System (Goods and Services Tax) Act 1999 and its associated Acts, which received Royal Assent
on 8 July 1999.
In essence, the GST is a tax on the supply or importation of goods, services or anything else, except
to the extent that the supply or importation is input taxed or GST-free, or the supplier is not
registered nor required to be registered. The GST is a transaction based tax, which occurs at all levels
of the supply chain.
A 'thing', which is defined in s 195-1 as ‘anything that can be supplied or imported’, can attract GST
each time it is supplied or imported along the commercial chain to its final consumption in Australia.
However, as a result of the process of obtaining input tax credits for GST included in the price of
acquisitions, which only applies if the recipient is carrying on an enterprise and is registered for GST,
GST is effectively borne by consumers when they acquire anything to consume.
The situation in relation to imported goods is different. The Australian Customs Service collects the
GST from the importers when goods are imported. There is no requirement for the importer to be
registered or even carrying on an enterprise.
On the other hand, any person or entity who is registered is generally entitled to an input tax credit
for the GST on what they acquire or import for the purpose of their enterprise. Generally, the
amount of the input tax credit matches the amount of GST that was:
 paid by the vendor (seller) in respect of that particular taxable supply; or
 paid to Customs (importations only).

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In effect, the input tax credit (ITC) is a reimbursement of the GST paid on the acquisition or
importation. However, there is no input tax credit for anything acquired or imported for private
consumption. This is designed to ensure that consumers are not reimbursed for the GST paid on
their acquisitions or importations and, therefore, bear the cost of the GST.
Tip
An input tax credit could also be loosely described as the GST equivalent of an income tax
deduction (i.e. relating to costs of an enterprise) with GST payable likened to income tax
assessable income (i.e. relating to the revenue of an enterprise).
Tip
To determine GST payable or the input tax credit available from a gross amount (i.e. a
GST-inclusive price) - divide the gross amount by 1/11. However, to determine the GST to be
included on a net amount (i.e. GST-exclusive price before GST has been added) - multiply by
10%.
Tip
GST exclusive means a net amount after GST payable or input tax credit claimable has been
excluded. GST inclusive means a gross amount including GST payable or input tax credit
claimable.

June 2014 3
GST Fundamentals
The following illustration outlines the intended operation of the Australian GST system.
Illustration
GST Remitted
Clay Merchant
$1
Sells clay for $11 (incl. $1 GST)
Garden gnome manufacturer

Buys clay for $11
intended operation of
(incl. $1 ITC), $1
the Australian GST
makes gnomes and sells for $22
(incl. $2 GST)
Nursery
Buys gnomes for $22
Difference payable to
(incl. $2 ITC) $1
Tax Office
and sells for $33
(incl. $3 GST)
Consumer
Buys gnome for $33 Total GST bill $3 (= 1/11 of $33)
NO ITC as not GST registered

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GST Fundamentals
Basic GST Issues
Type of Supply Taxable GST-Free Input-Taxed
Example Accounting firm Hospital Bank Selling Shares
Charge GST?
Yes No No
(1/11 of price charged)
No
Some exceptions, e.g.
Claim Input Tax Credits
Yes Yes  Reduced input tax credits;
(1/11 of GST inclusive costs) and
 Financial Acquisitions
Threshold (FAT)
Liability to GST – introduction

GST is payable on taxable supplies. The liability for payment of the GST rests with the entity that
makes the taxable supply (s 9-40). So what is a taxable supply?
The definition of a taxable supply is found in s 9-5 as follows:
Taxable Supply
Definition – s 9-5
A taxable supply is:

 a supply for consideration; and
 a supply is made in the course or furtherance of an enterprise carried on; and
 a supply connected with Australia; and
 the vendor is registered, or required to be registered.
A supply is not a taxable supply to the extent that it is GST-free or input taxed.
In order to consider whether a taxable supply has occurred, each component of the definition of
taxable supply must be considered. For ease of understanding, these notes have been prepared
considering the registration requirement first as it is the most important question.
Tip
If a taxpayer is not carrying on an enterprise, there is no need to consider the other
subsections of s 9-5 because without an enterprise, a taxpayer cannot register for GST.

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Enterprise and registration
Summary
 A taxpayer must be carrying on an enterprise to be registered for GST, whether registration is
compulsory or voluntary.
 Compulsory registration is required if GST turnover (excluding input taxed supplies) exceeds
the registration turnover threshold ($75,000 for most taxpayers or $150,000 if a non-profit
body).
 The most common form of an enterprise is a business. However, other activities can also
constitute enterprises for GST purposes even if not amounting to a business, such as an
adventure or concern in the nature of trade or leasing activities.
 Turnover is measured continuously for the existing month and the preceding 11 months
(current GST turnover) and the existing month and the following 11 months (projected GST
turnover). Registration is required if the current GST turnover is over the threshold and the
taxpayer cannot satisfy the Commissioner that the projected GST turnover will not be, or if the
projected GST turnover exceeds the threshold.
 Projected GST turnover is calculated more narrowly than current GST turnover. Both exclude
input taxed supplies, but projected GST turnover also excludes supplies of capital assets or
supplies in ceasing or substantially and permanently reducing the size or scale of an enterprise.
Requirement to be registered
Section 23-5 requires a taxpayer to be registered if:
 the taxpayer is carrying on an enterprise; and
 the taxpayer's GST turnover meets the registration turnover threshold.
Enterprise
An enterprise is defined in s 9-20 to be an activity or series of activities:
 in the form of a business;
 in the form of an adventure or concern in the nature of trade;
 on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in
property;
 carried out by the trustee of gift deductible funds, authorities or institutions;
 carried out by the trustee of a complying superannuation fund;
 carried out by charitable institutions;
 carried out by religious institutions; or
 carried out by government and government corporations.

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GST Fundamentals
It is the entity that carries on the enterprise that is required to be registered and not the enterprise
itself. Section 54-5 does provide, however, for a branch of an entity to register separately where
prior approval from the Commissioner is obtained.
An enterprise does not include an activity done:
 as a hobby;
 by an individual or partnership consisting mostly of individuals without a reasonable
expectation of profit or gain;
 as a member of a local governing body established by or under a State law or Territory law; or
 by a person as an employee or in connection with earning withholding payments covered by
the following table extracted from Schedule 1 to the Taxation Administration Act 1953 (unless
the activity is done in supplying services as the holder of an office that the person has accepted
in connection with an enterprise).
Withholding payments covered

Item Provision Subject matter
1 Section 12-35 Payment to employee
2 Section 12-40 Payment to company director
3 Section 12-45 Payment to office holder
4 Section 12-60 Payment under labour hire arrangement or specified by regulations
MT 2006/1 and the meaning of 'enterprise'

MT 2006/1 provides details regarding the concept of enterprise including commentary regarding
each of the following issues.
In the form of a business

The use of the words 'in the form of a business' indicate that both entities carrying on a business
and entities carrying on activities that do not have all the characteristics of business activities
(e.g. activities conducted by non-profit bodies that do not have a profit motive), may be an
enterprise.
This statutory definition is therefore broad enough to include a business according to ordinary
concepts as well as other activities that do not have all the characteristics of business activities.
Entity carrying on a business

Pursuant to s 195-1, a business includes any profession, trade, employment, vocation or calling, but
does not include occupation as an employee. However, an independent contractor may carry on a
business.
It is also a question of fact (to be determined by reference to both the objective facts and the
subjective purpose of the taxpayer) in determining whether a business is carried on and no factor in
itself is conclusive1.
1
Martin v FCT (1953) 90 CLR 470.

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TR 97/11 provides a summary of the main factors that can be considered in combination to
determine whether the activities would constitute the carrying on of a business.
Important
A taxpayer who is uncertain as to whether a business is being carried on may apply for a
Private Binding Ruling.
Entity having some characteristics of a business

Non-profit entities that do not have all the main features of a business (e.g. no capacity to earn and
distribute profits) can be carrying on activities in the form of a business and qualify as enterprises2.
As an example, the trading activities of mutual organisation and non-profit clubs (e.g. the bar
facilities of a sporting club), would be activities conducted in the form of a business (and not
activities performed in carrying on a business). This is because the nature of the business-like
activities (e.g. selling alcohol) is not to derive profits for distribution (usually an indicator that a
business is being carried on), but merely to cover expenditure and return any surplus to its
members3.
Adventure or concern in the nature of trade

A business would usually be a trade engaged in on a regular and continuous basis4, but an adventure
or concern in the nature of trade may be:
 an isolated or one-off transaction that does not amount to a business but which has the
characteristics of a business deal5; or
 transactions of a commercial nature which are entered into for profit-making, but are not
part of the activities of an on-going business,6 but has the characteristics of a business
arrangement.
Tip
For example an isolated transaction such as an individual buying a block of land for purposes
of subdivision and building two townhouses for sale could be an enterprise according to
MT 2006/1 notwithstanding that it would be unlikely to be a business for income tax purposes.
On a regular or continuous basis, in the form of a lease, licence or

other grant of an interest in property
To be an enterprise, the grant of a lease, licence or other grant of an interest in property must be
done on a regular or continuous basis.
2
Paragraph 170 of MT 2006/1.
3
4
5
6

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GST Fundamentals
Note
Property covers all types of property (e.g. tangible assets such as land, cars and boats and
intangible assets such as copyright and patents)7.
Illustration – camping spot rented on a regular basis constitutes an enterprise

(based on Example 38 of MT 2006/1)
Duncan owns a property in the country that is adjacent to a popular national park. There is an ideal
spot on the property for camping near a creek.
Duncan places a sign on the main road advertising the camping spot for short-term lease to tourists.
The camping spot is also used at times by his friends and relatives at no charge, but the camping spot
is leased out for a fee on average about 20 weeks of the year. There is a reasonable expectation of
profit or gain.
The activities carried out by Duncan are regular and involve the leasing of property for a profit.
Duncan is carrying on an enterprise in respect of the leasing activities.
Note
A further example of such an enterprise of leasing could be conducted by the landlord of a
suburban fish and chip shop who does not actually run the shop but holds the commercial
property as an investment.
GST turnover
GST turnover is outlined in Division 188 and covers both current and projected GST turnover. GST
turnover is the sum of the values of all the supplies that the taxpayer has made, or is likely to make,
during the 12 months ending at the end of that month (being current GST turnover) or, during that
month and the next 11 months (being projected GST turnover) other than supplies not for
consideration or supplies that are not made in connection with an enterprise that is carried on.
There are also some other important exclusions such as input taxed supplies and some exclusions
that only apply in calculating projected GST turnover (see below).
Specifically, s 188-5 provides an overview of the various turnover thresholds as follows:
Turnover thresholds
Item This turnover Is relevant to working out:
threshold…
1 Registration turnover Whether you are required to be registered ($75,000 or $150,000 if
threshold (met) the taxpayer is a non-profit body (s 23-5)).
2 Tax period turnover Whether tax periods must be monthly (currently $20 million
threshold (met) (see s 27-15)).
3 Cash accounting Whether you can elect to account on a cash basis ($2 million) (see s
turnover threshold 29-40)).
(not exceeded)
7

June 2014 9
GST Fundamentals
Turnover thresholds
4 Electronic lodgement Whether you must lodge GST returns electronically
turnover threshold (currently $20 million (see s 31-25));
(met) Whether you must pay amounts of GST electronically (currently $20
million (see s 33-10)).
5 Instalment turnover Whether you can elect to pay GST by instalments (see s 162-5(2)).
threshold (not
exceeded)
Tip
Most of the above turnover thresholds impose an adverse obligation on the taxpayer
(e.g. requirement to register, use monthly periods, use accruals basis or electronic lodgement)
where the taxpayer meets (or is >) the particular threshold (refer below). However, the small
GST taxpayer < $2 million thresholds are based on the 'do not exceed' (or <) threshold test
below such that adverse consequences arise where such thresholds are exceeded (as shown
above).
Section 188-10 provides that a taxpayer has a GST turnover that meets a particular turnover
threshold if:
 the taxpayer's current GST turnover > the turnover threshold, and the Commissioner is not
satisfied that the taxpayer's projected GST turnover is below the turnover threshold; or
 the taxpayer's projected GST turnover > the turnover threshold.
The taxpayer has a GST turnover that does not exceed a particular threshold if:
 the taxpayers current GST turnover is < the turnover threshold, and the Commissioner is not
satisfied that the taxpayer's projected GST turnover is above the turnover threshold; or
 the taxpayer's projected GST turnover is < the turnover threshold.
The concept of current and projected annual turnover may be shown in the following diagram.
1/1/07 - 15/2/08
CURRENT TURNOVER 15/11/07 - 31/12/08
PROJECTED TURNOVER
-11 months CURRENT +11 months

MONTH
Warning
Meeting (i.e. being >) either of the above turnover thresholds will result in a more adverse
requirement (e.g. a requirement to register instead of an option to register). It is therefore
important to correctly identify GST turnover.

10 June 2014
GST Fundamentals
Current GST turnover
General
Section 188-15 provides that a taxpayer's current GST turnover at a time during a particular month is
the sum of the values of all the supplies that the taxpayer has made, or is likely to make, during the
12 months ending at the end of that month (refer above), other than:
 supplies that are input taxed; or
 supplies that are not for consideration (and are not taxable supplies under s 72-5 (that is, a
supply without consideration, such as a gift, to an associate));
 supplies that are not made in connection with an enterprise that the taxpayer carries on
(e.g. private and domestic); or
 supplies that are not connected with Australia.
Illustration – calculation of current GST turnover
Vadim Pty Ltd owns several tenanted properties. Most of the properties are commercial premises,
but it also owns some residential premises.
Taxable supply
Vadim Pty Ltd Input taxed supplies
During the 12 months to 30 September, the company derives income of:

 $66,000 (excluding GST) from the commercial premises; and
 $20,000 from the residential premises (input taxed supplies).
For GST registration purposes, Vadim Pty Ltd has a current GST turnover of $66,000, which it derived
from the commercial rent.
The residential rents are excluded from the calculation (i.e. treated as nil) as they are input taxed
supplies. Accordingly, on the basis of current GST turnover alone, Vadim is not required to register.
Note
The company should also check whether it meets the turnover threshold regarding projected
turnover (refer below).

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Illustration
Larry owns and operates a lawn mowing business. On 15 June of the relevant income year, Larry
estimates that his income from lawn mowing for the 12 months ending 30 June will be approximately
$100,000. Larry also sold some household furniture during the year. The consideration he received
for the sale of furniture is not included in Larry’s current GST turnover calculation as the amount is a
private and domestic receipt.
Members of GST groups

If the taxpayer is a member of a GST group, the current GST turnover at a time during a particular
month is the sum of the values of all the supplies that the taxpayer or any other member of the
group has made, or is likely to make, during the 12 months, other than:
 supplies made from one member of the group to another member of the group; or
 supplies that are input taxed; or
 supplies that are not for consideration (and are not taxable supplies under s 72-5); or
 supplies that are not made in connection with an enterprise the taxpayer carries on; or
 supplies that are not connected with Australia.
Projected GST turnover
General
Section 188-20 provides that a taxpayer’s projected GST turnover at a time during a particular month
is the sum of the values of all supplies that the taxpayer has made, or is likely to make, during that
month and the next 11 months, other than:
 supplies that are input taxed;
 supplies that are not for consideration (and are not taxable supplies under s 72-5); or
 supplies that are not made in connection with an enterprise that the taxpayer carries on; or
 supplies that are not connected with Australia; or
 supplies that are excluded under s 188-25 (see below - this is an important exclusion that
differentiates the projected turnover calculation from the current turnover calculation, apart
from the different timeframes they focus on).
Members of GST groups

If the taxpayer is a member of a GST group, the taxpayer’s projected GST turnover at a time during a
particular month is the sum of the values of all the supplies that the taxpayer or any other member
of the group has made, or is likely to make, during that month and the next 11 months other than:
 supplies made from one member of the group to another group member of the group;
 supplies that are input taxed;
 supplies that are not for consideration (and are not taxable supplies under s 72-5);
 supplies that are not made in connection with an enterprise that the taxpayer carries on; or
 supplies that are not connected to Australia.

12 June 2014
GST Fundamentals
Transfer of capital assets, and termination etc, of enterprise, to be
disregarded
In working out a taxpayer’s projected GST turnover, s 188-25 provides that the taxpayer should
disregard:
1. any supply made, or likely to be made, by the taxpayer by way of transfer of ownership of a
capital asset of the taxpayer's; and
2. any supply made, or likely to be made, by you solely as a consequence of:
 ceasing to carry on an enterprise; or
 substantially and permanently reducing the size or scale of an enterprise.
Illustration
Following on from the previous illustration, if Larry was to ascertain his projected GST turnover, and
he estimates that he will sell some of his lawn mowing plant and equipment, the proceeds from the
sale of that plant and equipment are not to be included in that calculation.
Illustration - sale of capital land not included in projected turnover
Paul is an employee accountant who bought a block of land in the country a number of years ago on
which he one day hoped to build a holiday home. However, due to moving interstate, he believes
that will no longer be feasible, so he therefore decides to subdivide the land and build two
townhouses to sell with a hope of making a large profit (estimated proceeds from selling the
properties would be $900,000).
While Paul is not in business as a property developer, he believes from researching MT 2006/1 that
due to the extent of the building work before sale the Tax Office might consider that he has
embarked on an adventure or concern in the nature of trade and therefore has an enterprise. While
he believes he has done no more than enterprisingly realise a capital asset, to be on the safe side he
examines the GST issues more closely. He determines that, even if he has an enterprise, in the month
he starts to build the townhouses, while he has no current annual turnover, his projected annual
turnover appears to be $900,000. However, using ordinary concepts regarding capital and revenue
assets, he determines that the land (with the two townhouses attached) will still be capital in nature
(i.e. not trading stock), given that he acquired the land for a private purpose and has held it for a long
while. Because of this capital treatment of the land and townhouses, under s 188-25 Paul's projected
annual turnover will also be treated as being nil because the entire $900,000 relates to a capital asset
and is therefore excluded from GST turnover.
Reference
See GST Ruling GSTR 2001/7 for a discussion on how s 188-25 affects the calculation of
projected GST turnover.
The value of non-taxable supplies

For the purposes of Division 188, the value of a supply that is not a taxable supply is calculated in the
same way that the taxpayer would work out the value of the supply if it was a taxable supply, but
without any discount for the amount of GST (if any) payable on the supply.

June 2014 13
GST Fundamentals
Illustration - Superannuation Fund not required to register
The Meltdown Superannuation Fund is a large superannuation fund with turnover of $5 million each
year. Consequently its current and projected annual turnover would at first glance be expected to
meet (be >) the $75,000 registration turnover threshold.
However, the $5 million turnover is made up entirely of listed share sales and acquisitions
(input taxed supplies) and interest on funds on deposit (also input taxed), which are excluded from
both current and projected GST turnover under Division 188, such that the Meltdown Fund
effectively has GST turnover of nil. The fund is consequently not required to register and need only
register if they choose to do so.
Voluntary or compulsory registration

If a taxpayer carries on an enterprise, that taxpayer may be registered even if the taxpayer’s turnover
is below the registration turnover threshold (s 23-10). The consequence of being registered when
turnover is below this threshold is that the taxpayer is required to pay GST in respect of taxable
supplies and claim input tax credits in the normal manner and subsequently submit a GST return.
This may avoid potential problems with customers who, for ease of record keeping, may only want to
deal with registered suppliers.
A taxpayer may also be registered if that taxpayer intends to carry on an enterprise from a particular
date. The registration turnover threshold is generally $75,000 or, if the taxpayer is a non-profit body,
$150,000 (s 23-15).
However, the following types of entities must register regardless of their turnover:
Special rules relating to compulsory requirement to be registered
Representatives of incapacitated entities Division 58
Government entities Division 149
Non-profit sub-entities Division 63
Resident agents acting for non-residents Division 57
Taxis Division 144
Registration is not technically compulsory for Government entities under the GST Act, but has been
made so under quasi-legislative directives.
Section 23-1 contains the following summary of who is required to be registered and who may be
registered:

14 June 2014
GST Fundamentals
Are you carrying on You can't be
NO
an enterprise? registered
Yes
Does your GST

turnover meet the You may be
NO
registration turnover registered
threshold?
Yes
You are required to

be registered
The registration procedure

If a taxpayer is not registered and is required to be, the taxpayer must apply in the approved form
within 21 days of becoming required to be registered.
The Commissioner must register the taxpayer if:
 the taxpayer has applied for registration in an approved form; and
 the Commissioner is satisfied that the taxpayer is carrying on an enterprise, or intends to carry
on an enterprise from the particular date specified in the application.
Even if the taxpayer has not applied for registration, the Commissioner must register the taxpayer if
he is satisfied that the taxpayer is required to be registered.
Note
Registration can be backdated.
Cancellation of registration
If a taxpayer is registered and is no longer carrying on an enterprise, that taxpayer must apply to the
Commissioner in the approved form for cancellation of registration. The application must be lodged
within 21 days after the day on which the taxpayer ceased to be carrying on any enterprise (s 25-50).
The Commissioner must cancel a taxpayer’s registration if:
 the taxpayer has applied for cancellation of registration in the approved form; and
 at the time the taxpayer applied for cancellation of registration, the taxpayer had been
registered for at least 12 months; and
 the Commissioner is satisfied that the taxpayer is not required to be registered.
Even if a taxpayer has not applied for cancellation of registration, the Commissioner must cancel the
registration if he is satisfied that the taxpayer is not carrying on an enterprise and believes, on
reasonable grounds, that the taxpayer is not likely to carry on an enterprise for at least 12 months.

June 2014 15
GST Fundamentals
Many entities choose to register for GST even though GST turnover is expected to be less than
$75,000. In hindsight, perhaps the cost/benefit analysis of being registered has caused the taxpayer
to re-think registration. Therefore s 25-57 allows the Commissioner the discretion to cancel GST
registration within 12 months where the application is made on the correct form and the
Commissioner is satisfied that the taxpayer is not required to be registered.

16 June 2014
GST Fundamentals
Small business concessions
Summary
Entities carrying on a business that qualify for Small Business Entity (SBE) status for income tax
purposes receive concessions on the method they can use to account for GST, when they need to
apportion credits as a result of private use and the timing and amount of GST payments.
The three GST concessions available to small

businesses
The following concessions are available to GST taxpayers with < $2 million turnover determined
either using GST turnover noted above or (if a business for tax purposes) by satisfying eligibility for
Small Business Entity (SBE) status. The relevant concessions are:
1. Accounting for GST on a cash basis;
2. Annual apportionment of input tax credits; and
3. Payment of GST by instalments.
<$2 Million Aggregated turnover test - carrying on a business

An entity (that is a business) will satisfy the $2 million aggregated turnover test if the ordinary
income of the entity and any associated entities are less than $2 million (Subdivision 328-C of the
ITAA 1997). If this aggregated turnover test is satisfied, the entity will be a small business entity and
qualify for the GST related concessions available for small businesses.
There are three alternative ways of satisfying the $2 million aggregated turnover test:
 the first depends on the aggregated turnover of the previous income tax year; and
 the second and third tests depend on the estimated or actual aggregated turnover of the
current income tax year.

June 2014 17
GST Fundamentals
TEST YEAR
P re v io u s C u rre n t
1 /7 /2 0 1 4 3 0 /6 /2 0 1 5
1 3 /1 4 Y e a r 1 4 /1 5 Y e a r
T e st 1 T e st 2 – p ro je c te d T e st 3 – a c tu a l
c u rre n t y e a r c u rre n t y e a r
T h e ta x p a y e r’s a g g re g a te d T h e ta x p a y e r’s a g g re g a te d T h e ta x p a y e r’s a g g re g a te d
tu rn o v e r fo r th e p re v io u s tu rn o v e r fo r th e c u rre n t tu rn o v e r fo r th e c u rre n t
in c o m e y e a r w a s in c o m e y e a r, w o rk e d o u t in c o m e y e a r , w o rk e d o u t
< $ 2 m illio n a s a t th e 1 st d a y o f th e a s a t th e e n d o f th e in c o m e
in c o m e y e a r , is lik e ly to b e y e a r is a c tu a lly
< $ 2 m illio n < $ 2 m illio n
Important
An entity that is a small business entity solely by virtue of the actual turnover at the end of the
year test will not be able to access any of the GST concessions in the first year of compliance.
This is because the GST concessions are used throughout the year, and compliance will not be
determined until year-end.
Aggregated turnover for an income tax year is:

 the sum of the entity's annual turnover and the annual turnover of any connected (as defined
in s 328-125 of the ITAA 1997) or affiliate (as defined in s 328-130 of the ITAA 1997) entities;
but, pursuant to s 328-115(3) of the ITAA 1997, does not include income that is:
 derived by the entity from dealing with a connected or affiliate entity; or
 derived by a connected or affiliate entity from a dealing with another connected or affiliate
entity.
Note
If an entity carries on two separate businesses, the aggregated turnover test will be applied to
the aggregate turnover of both businesses and not to the turnover of each business separately.
Annual turnover is an entity's total ordinary income (GST-exclusive) derived in an income tax year in
the ordinary course of carrying on a business (s 328-120 of the ITAA 1997).
Note
If an entity carries on business for only part of the income tax year, its annual turnover is
calculated based on a reasonable estimate (e.g. considering seasonal demand or market
downturns) of what it would have been if the business were carried on for the whole income
tax year.

18 June 2014
GST Fundamentals
Accounting for GST on a cash basis: types of business
A decision whether to account on the cash or accruals basis for GST purposes is generally affected by
the nature and size of the enterprise and the nature of its accounting system.
Based on these factors, the following entities would usually account for GST on a cash basis where
the requirements are satisfied:
 hairdressers, convenience stores and hot bread shops whose vast majority of sales are made
for cash and have a high cash turnover;
 convenience stores and ice cream vendors having supplies of a high volume, but of low value8;
 entities with less complex business structures not relying on its circulating capital,
consumables or capital assets to produce supplies; and
 entities who do not usually provide credit (e.g. dentists).
Note
Entities that qualify for the cash basis of accounting, but have formal procedures for extending
credit and collecting debts (e.g. accountants and lawyers), may identify a cash flow advantage
in adopting a cash basis for GST purposes.
Advantages - accounting for GST on a cash basis

A taxpayer's choice of accounting method (i.e. cash or accruals) will determine the tax period in
which GST taxable supplies and input tax credits are recognised. The method adopted can therefore
affect a taxpayer's cashflows.
The following table and illustration illustrate the main differences between accounting for GST on a
cash or accruals basis:
If a taxpayer accounts for GST on a cash If a taxpayer accounts for GST on an

basis: accruals basis:
 A GST liability will arise in the tax period in  A GST liability will arise in the tax period
which consideration is actually received for when the taxpayer receives any of the
the supply, but only to the extent of actual consideration for the supply. The GST
consideration received in that period liability will be on the total consideration.
(s 29-5(2)). If an invoice is issued before consideration is
received, a GST liability will arise in the tax period
For example, if there is a part payment for a sale
the invoice was issued (s 29-5(1)).
only the GST on the part payment is recognised.
8
Paragraph 57 of GSTR 2000/13.

June 2014 19
GST Fundamentals
If a taxpayer accounts for GST on a cash If a taxpayer accounts for GST on an
basis: accruals basis:
 A taxpayer will be entitled to input tax  A taxpayer will be entitled to input tax
credits in the tax period in which credits in the tax period in which
consideration is provided for the consideration is provided for the
acquisition, but only to the extent of actual acquisition. The taxpayer will be entitled
consideration provided in that period to full input tax credits when any
consideration is provided.
(s 29-10(2)).
If an invoice is issued before consideration is
For example, if there is a part payment for a
provided, a taxpayer will be entitled to input tax
purchase only the GST on the part payment is
credits in the tax period the invoice was issued
recognised.
(s 29-10(1)).
Note that with input tax credits, there is an additional requirement that the credit cannot actually be
claimed until a tax invoice is held (unless the acquisition was for less than $75 on a GST-exclusive
basis).
Annual apportionment of input tax credits

This concession is typically relevant for taxpayers conducting a business from premises which have a
business and non-business use or any other enterprise where business assets are also used for
private purposes.
Under s 131-5, an entity is eligible to make an annual apportionment election if either:
 they are a small business entity for the income tax year in which they make the election
(unless they used the aggregated turnover method worked out at the end of that year, under
s 328-110(4) ITAA 1997); or
 they do not carry on a business and their GST turnover does not exceed the annual
apportionment turnover threshold (being $2 million or such higher amount as specified in the
GST Regulations).
Important
Additionally, the entity must not have made any election under s 162-15 to pay GST by
instalments, and must not have made any annual tax period election.
An entity can only claim an input tax credit to the extent an acquisition/importation was made for a
creditable purpose. An entity acquires or imports an item for a creditable purpose to the extent the
item was acquired/imported in carrying on its enterprise (ss 11-15 and 15-10). There are some
exclusions (see "Creditable acquisitions").

20 June 2014
GST Fundamentals
Advantages - annual apportionment of input tax credits
The general effect of an election to undertake annual apportionment of input tax credits is that
where an acquisition or importation was made during a tax period:
 a full input tax credit can be claimed in the Business Activity Statement (BAS) for that tax
period, even though the acquisition was not fully creditable (e.g. part private use) (ss 131-40
and 131-45); and
 any necessary adjustment for the private portion of the acquisition/importation can be made
in a later tax period in which the next annual income tax return is due to be lodged with the
Tax Office (ss 131-55 and 131-60).
This concession is therefore aimed at reducing compliance obligations as a taxpayer will only have to
account for private acquisitions at the end of the year (instead of each time a BAS is lodged).
Note
 If no tax return is required to be lodged, the adjustment is made in the BAS for the tax
period ending 31 December after the end of the income tax year in which the tax period
occurred.
 If an entity revokes or the Commissioner disallows an election during an income tax
year, the entity will attribute the increasing adjustment for the tax period in which the
revocation or disallowance takes effect, or earlier if the entity elects.
Important
The BAS incorporates the GST return for a tax period. While the GST Act uses the term GST
return, the BAS is a wider document that includes other items such as PAYG withholdings,
PAYG instalments and FBT instalments.
The following illustration shows the effect of an annual apportionment election and how to calculate
the increasing adjustment.
Illustration - effect of annual apportionment election
In March 2014, Boris, a quarterly GST payer, pays $1,100 for telephone services, including $100 GST.
He uses the services partly for his business and partly for private purposes. He has made a valid
election to make an annual apportionment, so he claims the full $100 as an input tax credit in his BAS
for the March 2014 quarter.
It turns out that Boris has applied the telephone services 80 per cent for business purposes during
the 2014 income tax year. Boris is liable for an increasing adjustment of $20, calculated as follows:
Input tax credit originally claimed $100
Less: credit allowable on basis of actual business use (80% x $100) $80
Increasing adjustment $20
Assuming that Boris' income tax return is due by 31 October 2014, the adjustment must be made in
the BAS for the tax period ending 31 December 2014, which itself is required to be lodged by
28 February 2015 .

June 2014 21
GST Fundamentals
Taxable Supplies
Summary
A taxable supply must meet the following criteria:
 A supply
 For consideration
 Made in the course or furtherance of an enterprise
 Connected with Australia
 Supplier is registered, or required to be registered.
A supply is not a taxable supply to the extent that it is GST-free or input taxed.
A tax invoice (containing certain required information) should be issued for a taxable supply with a
GST-exclusive value exceeding $75.
Criteria for taxable supplies
Determine if the taxpayer has made a supply

It is important to determine whether the taxpayer has made a supply both for purposes of
determining their turnover (refer above) and to determine when and whether GST may become due.
A supply is defined in s 9-10 to include any form of supply whatsoever, both legal and illegal, and
includes:
 a supply of goods or services;
 a provision of advice or information;
 a grant, assignment or surrender of real property;
 a creation, grant, transfer, assignment or surrender of any right;
 a financial supply;
 an entry into, or release from, an obligation:
 to do anything; or
 to refrain from an act; or
 to tolerate an act or situation.
However, the definition specifically excludes a supply of money, unless it is in return for a supply of
money.

22 June 2014
GST Fundamentals
Taxable Supply
Sells bottle of Coke for $2.20
Supply
$2.20 consideration
= TAXABLE SUPPLY
Garry
Sells carton of milk for $3.00
Owns a local
milkbar GST-free
(enterprise) = NOT A TAXABLE SUPPLY
Important
The concept of ‘supply’ was examined recently by the High Court in Commissioner of Taxation
v Reliance Carpet Co Pty Limited [2008] HCA 22. This case involved the GST treatment of a
forfeited deposit pursuant to a contract to sell real property which was rescinded. The Court
held that the payment of the deposit by the purchaser to the taxpayer was in connection with
a supply by the taxpayer.
From this decision, we know that:
 a very broad approach should be taken when defining a 'supply' for GST purposes;
 the signing of the contract in respect of the land resulted in the taxpayer making a
supply by way of obligations which arose pursuant to the contract;
 the supply occurred before the provision of consideration, which arose when the
deposit was subsequently forfeited (s 99-5); and
 the GST was attributable to the tax period in which forfeiture took place (s 99-10).
Important
It is also very important to identify exactly what the supply is for which the taxpayer is
providing consideration. In FCT v Qantas Airways Ltd [2012] HCA 41, the High Court examined
in detail the contract under which Qantas had retained an amount paid for a cancelled non-
refundable airline reservation. The High Court held that, under that contract, Qantas was not
agreeing to supply the customer with a particular flight, merely to use their best endeavours
to get the customer on the flight. This supply, and therefore a taxable supply, had been made.
This overruled the decision of the Full Federal Court in Qantas Airways Ltd v FCT [2011] FCAFC
113, which had held that the only relevant supply was the flight (as this was the supply for
which the consideration was paid) – if the flight did not occur, there was no taxable supply –
any other supplies (such as rights on entering into the contract) were ancillary to the relevant
supply and not for consideration themselves.
The High Court approach highlights the importance of correctly identifying the supplies being
made under a contract.

June 2014 23
GST Fundamentals
Illustration
Franca and Pat own a series of milk bars. On 1 August of the relevant income year, Franca and Pat
enter into an agreement to sell one of their milk bars. Included in the sale price is an amount of
$10,000 representing a restrictive covenant ensuring that Franca and Pat will not operate another
milk bar in a 2km radius within two years of the disposal.
On the basis that Franca and Pat are registered, s 9-10(2)(g)(ii) operates to include the entry into an
obligation to refrain from an act within the definition of a supply. It would probably also constitute a
supply under s 9-10(2)(e) as a creation of a right in the other party to enforce the restrictive
covenant.
Franca Pat
Restrictive
Franca Pat
covenant
Own $10k
GST
2km
Sale
GST by Milk Bar 3

Franca
& Pat
Milk Bar 1 Milk Bar 2 Milk Bar 3
Important
While supply is an extremely broad concept, not all supplies are necessarily taxable supplies
nor will they necessarily count towards a taxpayer's turnover based on the rules and
exceptions above.
Is the supply in the course or furtherance of an enterprise?

To be within the GST system (i.e. a s 9-5 taxable supply potentially subject to GST) a supply must be
made in the course or furtherance of an enterprise that the taxpayer carries on. The term 'in the
course or furtherance' is not defined, but the Explanatory Memorandum states that the term is
broad enough to cover any supplies made in connection with a taxpayer’s enterprise.
Accordingly, an act done for the purpose or object of furthering an enterprise, or achieving its goals,
is a furtherance of an enterprise although it may not always be in the course of that enterprise.
It will not, however, cover a supply of private commodities by a business operator, e.g. a car dealer
sells his own private car.

24 June 2014
GST Fundamentals
Illustration - in the course or furtherance of an enterprise
Jerry is a director of Acme Toy Company Limited. As he is subject to withholding under the PAYG
provisions, his activities do not constitute an enterprise. Joan is also a director of the company,
however her appointment is in her capacity as a partner in the partnership which acts as
accountants for the company.
Joan's directorship is treated as part of the enterprise carried on by the partnership. Accordingly,
any payments for Joan’s services could fall within the definition of taxable supply.
PAYG Joan Partners

withholding Representing
Accountants
Enterprise
Jerry Joan
No
Enterprise
enterprise
ACME
Toy Company
Note that s 195-1 does, however, specifically extend the meaning of "carrying on" an enterprise to
include doing anything in the course of the commencement or termination of the enterprise. This is
designed to avoid arguments that have sometimes arisen in an income tax context that something is
too early or too late.
Determine whether a supply is for consideration

A second requirement of a s 9-5 taxable supply requires that it be for consideration.
This requires that not only must consideration exist, but that there must be a nexus between the
supply and the consideration.
Consideration is defined in s 9-15 to include any payment, or any act or forbearance:
 in connection with a supply of any thing; and
 in response to or for the inducement of a supply of any thing.
However if a right or option to acquire a thing is granted, then:
 the consideration for the supply of the thing on the exercise of the right or option is limited to
any additional consideration provided either for the supply or in connection with the exercise
of the right or option; or
 if there is no such additional consideration – there is no consideration for the supply; and
 a payment made as a gift to a non-profit body is not the provision of consideration.

June 2014 25
GST Fundamentals
Illustration - non-cash consideration
Jim, an accountant, provides Angela with taxation advice to the value of $200. Angela then provides
Jim with petrol from her service station in exchange for the advice.
Even though $200 in cash is not exchanged, the $200 petrol is still considered to be consideration
for GST purposes.
Tax Advice
(value $200)
Petrol
Jim Angela
(value $200)
Accountant Consideration
Owns petrol
station
Note
If any supply is made to an associate for nil or inadequate consideration, Division 72 may
impose a GST obligation on the supplier based on market value despite the lack of actual
consideration.
Is the supply connected with Australia?

A third requirement of a s 9-5 taxable supply is that it meets the requirements of s 9-25. Section 9-25
provides that a supply of goods is connected with Australia if the goods are delivered, or made
available, in Australia to the recipient of the supply and includes goods being removed from
Australia. For example, this would include:
 goods imported and delivered to a location in Australia;
 parts brought into Australia and the goods are installed or assembled in Australia; and
 goods sold in Australia for exporting out of Australia.
A supply of goods that involves the goods being removed from Australia is connected with Australia.
A supply of goods that involves the goods being brought to Australia is connected with Australia if
the supplier either:
 imports the goods into Australia; or
 installs or assembles the goods in Australia.
A supply of real property is connected with Australia if the real property or the land to which the real
property relates is located in Australia, e.g. a non-resident acquiring a commercial rental property in
Brisbane is a supply connected with Australia as the property is physically located within Australia.

26 June 2014
GST Fundamentals
A supply of any thing other than goods or real property is connected with Australia if either:
 the thing is done in Australia; or
 the supplier makes the supply through an enterprise that the supplier carries on in Australia.
An enterprise is carried on in Australia if the enterprise is carried on through a permanent
establishment. Therefore, the transactions of the branch would be within the GST system.
Illustration
Joe is an accountant who operates his practice in Katoomba. Joe provides verbal advice to his client,
Mike, a New Zealand resident, relating to the acquisition of a commercial rental property in Leura.
In accordance with s 9-25(5), the supply of information is a supply connected with Australia as the
'thing', being the provision of information, is done in Australia. In any event, the supplier, being Joe,
makes the supply through an enterprise he carries on in Australia.
Australian
Three Sisters Office
(Blue Mountains) building
(possible
Australian enterpise purchase)
Advice
Joe Connected with

Accountant Australia Mike
(NZ resident client)
Is the supply a GST-free supply?

Suppliers are not required to pay GST in respect of supplies that are specifically identified as GST-free
supplies (s 9-30(1) and Division 38).
The supplier, however, remains entitled to a credit for GST in respect of business inputs
(e.g. purchases) that relate to the GST-free supply.
The area of GST-free supplies is dealt with on page 88 of this paper.
Is the supply an input taxed supply?

Suppliers are also not required to pay GST in respect of supplies that are specifically identified as
input taxed (s 9-30(2) and Division 40).

June 2014 27
GST Fundamentals
The input taxed supplier, however, will not be entitled to claim an input tax credit for GST in respect
of business inputs (e.g. purchases) that relate to making input taxed supplies. It is this inability to
claim credits which provides the difference in treatment to a GST-free supply, even though no GST is
payable on either.
Input taxed supplies are dealt with on page 81.
Notes in relation to input taxed supplies
1. It should be noted that if a supply is potentially both GST-free and input taxed, the GST-free
status of that supply overrides it being treated as input taxed.
2. A supply is taken to be a supply that is input taxed if it is a supply of anything that the taxpayer
has used solely in connection with supplies that are input taxed but are not financial supplies.
Special taxable supply rules

Special rules relating to taxable supplies are as follows:
Checklist of special rules

Division 153 Agents and insurance brokers
Division 72 Associates
Division 102 Cancelled lay-by sales
Division 90 Company amalgamations
Division 79 Compulsory third party schemes
Division 99 Deposits as security
Division 126 Gambling
Division 49 GST religious groups
Division 110 Income tax-related transactions
Division 78 Insurance
Division 84 Offshore supplies other than goods or real property
Division 81 Payments of taxes, fees and charges
Division 66 Second-hand goods
Division 80 Settlement sharing arrangements
Division 156 Supplies and acquisitions made on a progressive or periodic basis
Division 82 Supplies in return for rights to develop land
Division 105 Supplies in satisfaction of debts
Division 96 Supplies partly connected with Australia
Division 113 Supply under arrangement covered by PAYG voluntary agreement
Division 85 Telecommunication supplies
Division 100 Vouchers
Tax invoice issues

Once it has been determined that a taxable supply has occurred, it is necessary to provide a tax
invoice.

28 June 2014
GST Fundamentals
For each taxable supply for greater than $75 (GST-exclusive value), a tax invoice must be issued
(while technically it only has to be issued if requested by the recipient of the supply, almost all
businesses will supply a tax invoice as a matter of course where it is possible that it could be
requested and many suppliers making business supplies will automatically supply them even for
items costing less than $75 GST-exclusive).
Important
The requirements as to the information required to shown on a document for it to constitute a
valid tax invoice were made significantly less prescriptive for tax periods starting on or after 1
July 2010.
Tip
Most businesses had already set up their systems to meet the former requirements and
continue to issue their tax invoices in accordance with those requirements and simply use the
new less prescriptive requirements as a safety fall back should they have inadvertently not
complied with an aspect of the former rules
As the new rules as less prescriptive, in all cases compliance with the old rules will
automatically mean the new rules have been met — for this reason, the former requirements
are still set out below.
Former requirements (still used by most businesses)

The conditions relating to a tax invoice for a taxable supply were that the invoice must be issued by
the supplier, unless it is a recipient created invoice (in which case it must be issued by the recipient);
and it must:
 set out the ABN of the entity that issues it; and
 set out the price for the supply; and
 contain such other information as the regulations specify; and
 be in the approved form.
Former Regulation 29-70.01 complemented s 29-70 and provided the bulk of the detail that was
required on a tax invoice.
Tax invoice – Former Regulation 29-70.01
If the total amount, including GST,  the words 'tax invoice' stated prominently;
payable for the supply or supplies to
 the date of issue of the tax invoice;
which the tax invoice relates is $1,000 or
more, the tax invoice must provide:  the name of the supplier;
 the name of the recipient;
 the address or the ABN of the recipient;
 a brief description of each thing supplied; and
 for each description, the quantity of the goods or
the extent of the services supplied.

June 2014 29
GST Fundamentals
Tax invoice – Former Regulation 29-70.01
If the total amount, including GST,  the words 'tax invoice' stated prominently;
payable for the supply or supplies to
 the date of issue of the tax invoice;
which the tax invoice relates is less than
$1,000, the tax invoice must provide:  the name of the supplier; and
 a brief description of each thing supplied.
If the tax invoice is for 1 or more taxable  a statement to the effect that the total amount
supplies only and the amount of GST payable includes GST for the supply or supplies; or
payable on the supply or supplies is
 the total amount of GST payable.
exactly 1/11th of the total price for the
supply or supplies, the tax invoice must
contain:
If the tax invoice is for 1 or more taxable  the amount, excluding GST, payable for the taxable
supplies only, and the amount of GST supply or supplies; and
payable on the supply or supplies is less
 the amount of GST payable on the taxable supply or
than 1/11th of the total price for the
supplies.
supply or supplies, the tax invoice must
contain:
If the tax invoice is for 1 or more taxable  clearly identify each taxable supply; and
supplies and any of the following
 contain the following information:
supplies:
 the total amount of GST payable; and
 a supply that is GST-free or input
taxed; or  the total amount payable.
 a supply that was made before
1 July 2000;
the tax invoice must:
If the total amount of GST payable for  if the fraction is 0.5 cent, the amount is to be
the taxable supply or supplies to which rounded up to the nearest whole cent; and
the invoice relates is an amount that
 in any other case, the amount is to be rounded to
includes a fraction of a cent:
the nearest whole cent.

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GST Fundamentals
Example of tax invoice (former requirements – but also meets current requirements)
Supplies of less than $1,000
TAX INVOICE
Date: 15 September 2008

25 Hampton Street
BRIGHTON VIC 3186
Bull and Bear
ABN: 25 123 456 789
Description of Supply Total
Printer $343
TOTAL PRICE INCLUDING GST $343
Supplies of $1,000 or more
TAX INVOICE
Date: 15 September 2008

25 Hampton Street
Bull and Bear BRIGHTON VIC 3186
ABN: 25 123 456 789
To: AGC Warehouse

45 Page Street
ALBERT PARK VIC 3206
Qty Description of Supply Price Total
10 Printers $343.00 $3,430.00
TOTAL $3,430.00
Total price includes GST
The supplier of a taxable supply must, within 28 days after the recipient of the supply requests it,
give to the recipient a tax invoice for the supply, unless it is a recipient created tax invoice
(s 29-70(2)).
A recipient created tax invoice is a tax invoice belonging to a class of tax invoices that the
Commissioner has determined in writing may be issued by the recipient of a taxable supply
(s 29-70(3)). As with the above table in relation to tax invoices, Regulation 29-70.02 outlines the
detail to be provided on a recipient created tax invoice.

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GST Fundamentals
Illustration
Assume an abattoir handles the sale of cattle by the primary producer, with the price being
determined by reference to the weight, slaughter, grade and other costs, such as levies and the like.
As the abattoirs will be in the best position to provide the information that a tax invoice is required
to contain, it is more practical for the abattoir to issue the tax invoice rather than the primary
producer.
Tax Office rulings and determinations relating to tax invoices

Ruling Number Topic
GSTR 2000/3 Entitlement to input tax credit without a tax invoice
GSTR 2000/10 Recipient created tax invoices
GSTR 2000/17 Tax invoices – Withdrawn (replaced by GSTR 2013/1)
GSTR 2000/26 Corporate credit card statements
GSTR 2000/34 What is an invoice for the purposes of the GST Act?
GSTR 2002/4 Recipient created tax invoices and foreign currency conversions
GSTD 2005/1 Can a recipient created tax invoice be an invoice for attribution purposes under
Division 29 of the GST Act?
GSTD 2005/2 Is an invoice that is posted on a website 'issued' for the purposes of Division 29
of the GST Act?
GSTR 2013/1 Tax invoices
Current requirements (less prescriptive)

The new requirements, being less prescriptive than the former requirements, are now contained in
full in s 29-70 itself, rather than in a combination of the GST Act and Regulations.
On 27 March 2013, the Commissioner issued Goods and Services Tax Ruling GSTR 2013/1 titled
"Tax Invoices" (this final ruling replaced two previous draft versions and former ruling
GSTR 2000/17).
GSTR 2013/1 provides the Commissioner's views on the following:
 The minimum information requirements for a tax invoice under subsection 29-70(1) of the
GST Act as well as when a document is in the approved form of a tax invoice;
 When a recipient can treat a document as a tax invoice under section 29-70(1A) even in
circumstances where all the required conditions are not satisfied;
 The general principles that the Commissioner will consider in deciding whether to treat a
document that has not yet been issued as a tax invoice for the purposes of section 29-70(1B)
of the GST Act which permits the Commissioner to treat a particular document as a tax invoice
even when all the required conditions are not satisfied;
 The application of subsection 29-80(1) of the GST Act to determine whether the threshold for
low value transactions such that a tax invoice is not required is met; and
 Circumstances where the Commissioner has determined that a tax invoice does not have to be
held to attribute an input tax credit to a tax period.
The main points discussed by the Commissioner are summarised below.

32 June 2014
GST Fundamentals
An approved form
In order for a document to be a tax invoice, it must be in the approved form under
subsection 29-70(1) of the GST Act and include any additional information required. This also extends
to a recipient created tax invoice.
Clearly ascertained
Under paragraph 29-70(1)(c) of the GST Act, specific information must be clearly ascertainable from
the document to indicate that it is a tax invoice.
The information specified does not have to be specifically stated or be in any particular form.
However, it must be able to be determined from the document. Obtaining it from an external source
will not satisfy the requirements.
Identity of the supplier or recipient

A tax invoice must include information to establish the identity of the supplier and, if applicable,
the recipient. The information that is adequate to determine the supplier or recipient includes, but is
not limited to, the legal name of the entity, the registered business name or the registered trading
name.
What is supplied
A tax invoice must identify the thing being supplied, including the quantity and the price.
If the supply consists of multiple taxable items that are separately identifiable on a tax invoice, the
price for each supply does not have to be shown, only sufficient information to determine the price
of each taxable supply or category of taxable supply must be indicated.
The extent to which a supply is taxable

A tax invoice must contain sufficient information to determine the extent to which a supply is a
taxable supply, which can be satisfied if the tax invoice includes the following:
 The amount of GST payable for each taxable supply; or
 A statement to the extent to which the supply is a taxable supply; or
 Asterisking each taxable supply with a corresponding statement of the extent to which the
supply is a taxable supply.
Document intended to be a tax invoice or recipient created tax invoice

It must be clear from the document itself that it was intended to be a tax invoice or recipient
created tax invoice.
This requirement may be satisfied by including the words "Tax Invoice" or "GST Invoice" or
"Recipient Created Tax Invoice", "Tax Invoice Issued by Recipient" or "Recipient Created GST Invoice"
in the heading of the document. Alternatively, a statement in the body of the document will also
suffice. If the document is unclear, other documents may be used to evidence the intention.

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GST Fundamentals
When a recipient can treat a document as a tax invoice
Where the document issued by the supplier does not satisfy all the required conditions in order to
be a tax invoice, the recipient can treat the document as a tax invoice where:
 It would be a tax invoice but for missing information; and
 All the missing information can be clearly ascertainable from other documents provided by the
supplier to the recipient.
Missing information can include the display of an incorrect ABN on the document.
Recipient created tax invoice – other documents cannot correct deficiencies

A recipient cannot treat a document that does not meet the RCTI requirements as a tax invoice by
relying on other documents. This is because s. 29-70(1A) allows only the entity that receives a
document to treat it as a tax invoice (in the case of RCTIs, this is the supplier).
Circumstances in which the Commissioner may exercise his discretion to treat a

document as a tax invoice
Provided the supplier or recipient (in the case of a recipient created tax invoice) can demonstrate
that the particular circumstances are appropriate, the Commissioner can exercise his discretion to
treat a document as a tax invoice when all the requirements for a tax invoice are not met. The
Commissioner will determine this on a case by case basis having regard to factors outlined in
PS LA 2004/11.
If the Commissioner exercises his discretion to treat a document as a tax invoice, it will be a
tax invoice in the hands of both the supplier and recipient.
Review rights if the Commissioner does not exercise the discretion

In circumstances where the Commissioner does not exercise the above discretion to treat a
document as a tax invoice, the supplier or recipient can request an informal review under the
Taxpayers' Charter, or seek a review of the decision under the Administrative Decision
(Judicial Review) Act 1977.
Special rules that affect tax invoices

Special rules exist in relation to certain taxable supplies that affect tax invoices. These include:
 Subdivision 153-A - Agents and brokers;
 Division 58 - Representatives of incapacitated entities;
 Division 156 - supplies made on progressive or period basis;
 Division 123 - Simplified accounting methods;
 Division 111 - Reimbursement of employees;
 Division 60 - Pre-establishment costs;
 Division 48 - GST groups;
 Division 54 - GST branches; and
 Division 66 - Second hand goods.
Circumstances in which a tax invoice is not required

Circumstances in which a tax invoice will not be required to claim an input tax credit include:

34 June 2014
GST Fundamentals
 The value of a taxable supply that is less than $75 or a higher amount as prescribed by the
regulations;
 The GST is reverse charged such as under Division 83, which deals with supplies made by
non-residents;
 The recipient is claiming an input tax credit for a creditable importation;
 The GST on the taxable supply is payable by the recipient because of section 15C of Division 2
of the A New Tax System (Goods and Services Tax Transition) Act 1999;
 A determination by the Commissioner under subsection 29-10(3) applies to the particular
circumstances;
 A recipient is claiming for second-hand goods acquired for the purposes of sale or exchange in
accordance with Division 66.
SUMMARY
GST – TAXABLE SUPPLY
Decision Chart
Are you registered or required to be No

registered?
Yes
Have you made a supply? No
Yes
Did you make the supply in the course,

No
or furtherance, of your enterprise?
No GST
Yes
payable
Was the supply made for
consideration?
Yes
Was the supply connected with

No
Australia?
Yes
Is it wholly GST-free or input taxed? Yes
No
You have made a taxable supply. GST GST is

Yes
is payable. payable
Note
It is important to consider supplies and acquisitions separately as their GST treatment will not
always align.

June 2014 35
GST Fundamentals
Creditable Acquisitions
Summary
A taxpayer makes a creditable acquisition if:
 the taxpayer acquires anything (including expenses or goods) for a creditable purpose;
 the supply to the taxpayer was a taxable supply;
 the taxpayer provides consideration for the acquisition; and
 the taxpayer is registered, or required to be registered.
A taxpayer acquires a thing for a creditable purpose:
 to the extent that the taxpayer acquired it in carrying on an enterprise;
 but not to the extent that the acquisition relates to making input taxed supplies is of a private
or domestic nature.
Special rules apply to:
 allow input tax credits in whole or in part in respect of acquisitions related to making some
financial supplies (where the financial acquisitions threshold is not exceeded, certain
borrowing expenses are involved or reduced input tax credits are available);
 deny input tax credits for certain expenses that are made specifically non-deductible for
income tax purposes;
 allow employers to claim input tax credits for expenses reimbursed to employees.
Introduction
Section 11-5 provides that the availability of input tax credits depends on whether or not the
acquisition is a creditable acquisition.
Creditable acquisition
Definition - s 11-5
A taxpayer makes a creditable acquisition if:

 the taxpayer acquires anything solely or partly for a creditable purpose;
 the supply of the thing to the taxpayer is a taxable supply;
 the taxpayer provides, or is liable to provide, consideration for the supply; and
 the taxpayer is registered, or required to be registered.

36 June 2014
GST Fundamentals
Has the taxpayer made an acquisition?
An acquisition is defined in s 11-10 to mean any form of acquisition whatsoever and includes:
 an acquisition of goods;
 an acquisition of services;
 a receipt of advice or information;
 an acceptance of a grant, assignment or surrender of real property;
 an acceptance of a grant, transfer, assignment or surrender of any right;
 an acquisition of something the supply of which is a financial supply;
 an acquisition of a right to require another person:
 to do anything; or
 to refrain from an act; or
 to tolerate an act or situation.
An acquisition does not include an acquisition of money unless the money is provided as
consideration for a supply that is a supply of money.
Illustration
David purchases stationery to use in his business. In accordance with s 11-10, this is an acquisition of
goods.
Peter rents his factory premises, from which he operates his motor repair business. As he has
accepted the entitlement to occupy the premises under the terms of his lease over the premises, he
has made an acquisition.
Is the acquisition for a creditable purpose?

The availability of GST credits is dependent, in part, on the reasons or purposes behind an
acquisition, i.e. it must be an acquisition for a creditable purpose. Section 11-15 provides that a
taxpayer acquires a thing for a creditable purpose to the extent that the taxpayer acquired it in
carrying on or for the furtherance of the taxpayer's enterprise.
However, a taxpayer does not acquire a thing for a creditable purpose to the extent that:
 the acquisition relates to making supplies that would be input taxed; or
 the acquisition is of a private or domestic nature.
All creditable acquisitions that a taxpayer makes generate input tax credits. The amount of that
credit is an amount equal to the GST payable on the supply of the thing acquired, to the extent that
the item is creditable.
Illustration
As the stationery purchased by David in the above example is to be used in carrying on his enterprise,
it is for a creditable purpose.

June 2014 37
GST Fundamentals
Note
The Commissioner released GSTR 2008/1 on 5 March 2008 which contains his views on the
principles to be applied in determining whether an acquisition or importation is acquired for a
'creditable purpose'.
Note
Division 189 provides that in certain circumstances, even though an acquisition relates to
making financial supplies (which are input taxed), an input tax credit may nevertheless be
obtained.
Provided the supplier does not exceed the financial acquisitions threshold (FAT), an input tax credit
will be available. Section 189-5 provides that a supplier exceeds the threshold at a time during a
particular month, if, assuming that all the financial acquisitions he or she makes during the
12 months ending at the end of that month were made solely for a creditable purpose, either
(or both) of the following would apply:
 the amount of all the input tax credits to which the supplier would be entitled to for those
acquisitions would exceed $150,000 (prior to 1 July 2012 the figure was $50,000);
 the amount of the input tax credits would be more than 10% of the total amount of the input
tax credits which the supplier would be entitled to for all his or her acquisitions and
importations during that 12 months (including the financial acquisitions).
Illustration
Jamie has financial supply income of $60,000. Acquisitions made in order to earn this amount total
$16,500. Assume that the input tax credits attached to those acquisitions total $1,500 and the total
input tax credits available in respect of all of Jamie’s acquisitions total $22,000. Provided that the
input tax credit amount relating to the financial supply acquisitions (being $1,500) is not more than
$150,000 and/or is not more than 10% of the total credits for the year ($2,200 being 10% of
$22,000), Jamie is able to claim the $1,500 input tax credits.
Non-deductible expenses
An acquisition is not a creditable acquisition to the extent that it is a non-deductible expense
(as defined). The concept of a non-deductible expense is defined in Division 69 as follows:
An acquisition is a non-deductible expense if it is not deductible under Division 8 of the Income Tax
Assessment Act 1997 (ITAA 1997) because of one of the following:
 s 26-5 (Penalties);
 s 26-30 (Relatives travel expenses);
 s 26-40 (Maintaining your family);
 s 26-45 (Recreational club expenses);
 s 26-50 (Expenses for a leisure facility);
 Division 32 of ITAA 1997 (Entertainment expenses);
 Division 34 of ITAA 1997 (Non-compulsory uniforms); or
 s 51AK (Agreements for provisions of non-deductible non-cash business benefits).

38 June 2014
GST Fundamentals
Hence, it is only these specifically listed non-deductible expenses for income tax purposes that do not
give rise to input tax credits. General non-deductibility, such as for capital expenditure excluded from
s 8-1, does not affect the ability to claim input tax credits.
Note that if an expense falls within one of the above provisions but remains deductible because of an
exception within the provision itself, input tax credits also remain available (e.g. entertainment
expenditure incurred by an employer which remains deductible because it gives rise to an FBT
liability).
An acquisition is also a non-deductible expense to the extent that it is not deductible under Division 8
of the ITAA 1997 because of one of the following:
 meal entertainment – election to use the 50/50 split method;
 meal entertainment – election to use the 12 week register method; or
 entertainment facility – election to use the 50/50 split method.
Subdivision 69-B also contains provisions relating to elections that can be made linking the ability to
access an entertainment related input tax credit with the income tax deductibility of the underlying
expense.
Reimbursements
If one or more of the following applies:
 a taxpayer reimburses an employee or agent for an expense he or she incurs that is related
directly to his or her activities as the taxpayer's employee or agent;
 the taxpayer is a company and that company reimburses an officer for an expense he or she
incurs that is related directly to his or her activities as the taxpayer's officer;
 a taxpayer reimburses an employee (or an associate of an employee) for an expense that the
employee (or associate) incurs, and the reimbursement constitutes an expense payment
benefit;
 the taxpayer is a partnership and reimburses a partner for an expense he or she incurs that is
related directly to his or her activities as a partner in the partnership;
the reimbursement is treated as consideration for an acquisition that the taxpayer makes from the
employee, associate, agent, officer or partner.
The fact that the deemed supply to the taxpayer is not a taxable supply does not stop the acquisition
being a creditable acquisition (s 111-5(2)). However, the acquisition:
 is not a creditable acquisition to the extent that:
 the employee, associate, agent, officer or partner is entitled to an input tax credit for
acquiring the thing acquired in incurring the expenses; or
 the acquisition would not, because of Division 69, be a creditable acquisition if you
made it; and
 is not a creditable acquisition unless the supply of the thing acquired, by the employee,
associate, agent, officer or partner in incurring the expense, was a taxable supply.
The amount of the input tax credit for a creditable acquisition, being a reimbursement, is generally
1/11 of the amount of the reimbursement. However, this amount is reduced to the extent that the
acquisition is not for a creditable purpose and that private component of the reimbursement is not
subject to fringe benefits tax.
For input tax credit purposes, the taxpayer is taken to hold a tax invoice if such an invoice is provided
to the employee, etc.

June 2014 39
GST Fundamentals
The broad effect of these provisions is to put the taxpayer (employer etc) in the same position in
relation to claiming input tax credits that would have applied had the taxpayer directly incurred the
underlying expense that is being reimbursed.
Illustration
If David reimbursed Karen, an employee, for the acquisition of the stationery, that reimbursement is
treated as consideration for the acquisition of stationery from Karen. Provided that the supply of
stationery to Karen is a taxable supply and Karen is not entitled to an input tax credit, the acquisition
by David is treated as a creditable acquisition.
The amount of the input tax credit available to David is 1/11 of the amount of the reimbursement.
For example, if the stationery cost Karen $55 and David reimbursed Karen that $55, the input tax
credit is:
$55 x 1/11 = $5
If the stationery was to be used by David to the extent of 50% in his business and 50% private, then
the $5 input tax credit must be reduced accordingly.
Partly creditable acquisitions

The amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable
on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the
acquisition is only partly creditable (s 11-25)
An acquisition is partly creditable if it is a creditable acquisition that a taxpayer makes that is:
 only partly for a creditable purpose; or
 the taxpayer is liable to provide only part of the consideration for the acquisition.
Illustration
Helen, a registered person, buys a new vacuum cleaner for her office at a cost of $500. At the time
of purchase, Helen intends to use the vacuum cleaner 50/50 for home/work. Therefore, Helen is
only entitled to 50% of the credit which would have otherwise been available.
The amount of the input tax credit on an acquisition that a taxpayer makes that is partly creditable is
as follows:
Full input tax credit x extent of creditable purpose x extent of consideration
Where:
 full input tax credit is what would have been the amount of the input tax credit for the
acquisition if it had been made solely for a creditable purpose and the taxpayer had provided,
or had been liable to provide, all of the consideration for the acquisition.
 extent of creditable purpose is the extent to which the creditable acquisition is for a creditable
purpose, expressed as a percentage of the total purpose of the acquisition.

40 June 2014
GST Fundamentals
 extent of consideration is the extent to which you provide, or are liable to provide, the
consideration for the acquisition, expressed as a percentage of the total consideration for the
acquisition.
Illustration cont'd
Helen is entitled to an input tax credit as follows:
 full input tax credit is $500 x 1/11 = $45.45
 extent of the creditable purpose is 50%
 extent of the consideration is 100%
Therefore, the input tax credit available to Helen is:
$45.45 x 50% x 100% = $22.73
Note
Where the creditable purpose changes in subsequent tax periods, Division 129 may require
adjustments to prior input credit claims.
Is the supply a taxable supply to the purchaser?

Input tax credits are intended to offset the GST indirectly included in the price paid for an acquisition
if that acquisition is for use in a taxpayer’s enterprise. GST will generally be passed on to the
consumer in the form of a higher price in situations where the person from whom the thing is
acquired is required to pay GST in respect of the supply. This means the acquisition would have to
have been a taxable supply. An exception is provided for acquisitions from the Commonwealth
Government, or an agency of a State or Territory government, where notional GST credits are
available.
As stated earlier, s 9-5 provides that a taxable supply is:
 a supply for consideration; and
 a supply is made in the course of furtherance of an enterprise carried on; and
 a supply connected with Australia; and
 the vendor is registered, or required to be registered.
In addition, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

June 2014 41
GST Fundamentals
Illustration
Jonathon runs a newsagency. The stationery that he acquires for sale in his enterprise is a taxable
supply to him by the distributor. Jonathon’s sales of stationery to his customers are taxable supplies
by him.
As Jonathon has acquired the goods under a taxable supply for use in the course or furtherance of his
enterprise, the acquisition constitutes a creditable acquisition. He is entitled to claim his GST input
credits.
Has the taxpayer provided consideration?

The amount of input credit is linked to whether the purchaser provides or is liable to provide all or
only part of the consideration for the acquisition. As stated earlier, consideration is defined in s 9-15.
Section 11-25 provides the input tax credit for a creditable acquisition is an amount equal to the GST
payable on the supply. The amount of GST on a taxable supply is 10% of the value of that supply (s 9-
70).
The value of a supply is calculated in accordance with s 9-75 as follows:
Price x 10/11
Where:
price is the sum of:

 so far as the consideration for the supply is consideration expressed as an amount of money-
the amount (without any discount for the amount of GST (if any) payable on the supply); and
 so far as the consideration is not expressed as an amount of money - the GST inclusive market
value of that consideration.
Section 11-30 provides for the entitlement to such an input tax credit is pro-rated in accordance with
the following formula:
Consideration you provide or are liable to provide

X 100%
Total consideration for acquisition
Illustration
Jamie makes a creditable acquisition for $3,000, however, he is only liable to pay $2,700 of that
purchase price. His entitlement to input tax credits is:
$3,000 x 1/11 = GST of $272.72 x (2,700/3,000) = $245.45 credit

42 June 2014
GST Fundamentals
SUMMARY
GST- CREDITABLE ACQUISITION - Decision Chart
Are you registered or required

No
to be registered?
Yes
Have you made an

acquisition? No
Yes
Was the acquisition solely or

partly for a creditable No input tax credit
No
purpose? available
Yes
Was the supply to you a

No
taxable supply?
Yes
No
Are you providing, or liable to

provide, consideration for the
Input tax credit
acquisition? Yes
available

June 2014 43
GST Fundamentals
Simplified Accounting Methods
Summary
Certain small retailers or small enterprise entities can use simplified methods to approximate the
split of their supplies between taxable and GST-free and their acquisitions between creditable and
non-creditable.
Certain retailers and small enterprise entities

To reduce compliance costs for certain eligible small business/small enterprise taxpayers,
simplified accounting methods provide alternative methods for working out GST liabilities
and/or input tax credit entitlements where the taxpayer makes mixed supplies (i.e. both
taxable and GST-free) or has mixed acquisitions.
These methods remove the need to establish whether:
 particular supplies are taxable or GST-free; and
 particular acquisitions are creditable, or are not creditable because they relate to the
acquisition of supplies that are GST-free (and hence do not have GST included in the
price).
As originally enacted, these simplified accounting methods applied only to eligible small
retailers whose mixed supplies involved food supplies to some extent (but not necessarily
exclusively). The availability of the simplified methods has been gradually extended so that
they are no longer limited to either food suppliers or retailers, but a "small" criteria remains.
The concessions now extend to entities that either carry on a business or conduct an
enterprise that does not constitute a business. In order to qualify for the extended
concessions, a business must be a small business entity for the year of income (aggregated
turnover less than $2 million) or alternatively an entity that does not carry on a business but
meets the $2 million 'small enterprise turnover threshold'. This ensures that all GST registered
entities that meet the qualifying criteria can potentially access a simplified accounting method.
Under the extended law, the Commissioner can make determinations for qualifying small
enterprise entities. The definition of 'small enterprise entity' has been inserted into the
Dictionary in Division 195 of the GST Act. Under the definition both of the following qualify as
small enterprise entities:
 a small business entity (see below at page 36); and
 an entity that does not carry on a business but has an annual turnover that does not
exceed $2 million as calculated under the GST turnover test.
However, a business that only qualifies as a small business entity because its turnover as
worked out at the end of the income year (but not at the beginning of the income year) is less
than the $2 million threshold, is excluded from eligibility for a simplified accounting method.
Retailers whose supplies include food can still qualify for concessions even if they do not meet
the small enterprise entity criteria, but the Commissioner's requirements generally include a
smallness criteria and the lack of point of sale equipment that can automatically distinguish
between taxable and GST-free supplies.

44 June 2014
GST Fundamentals
Attribution of GST and credits to
tax periods
Summary
 Taxpayers will generally have monthly or quarterly tax periods for paying GST (or receiving
refunds). Monthly returns are compulsory if the taxpayer's GST turnover is $20 million or
more. Otherwise, the taxpayer can choose between monthly or quarterly tax periods. In very
limited circumstances for voluntarily registered taxpayers, annual GST tax periods may apply.
 GST liabilities and input tax credit entitlements will be attributed to tax periods on the basis of
either the cash or non-cash (accruals) method. The accruals method is compulsory unless one
of a number of specified circumstances are satisfied allowing the use of the cash method (the
most common of which is being a SBE).
 If the accruals basis is applicable, GST liabilities and input tax credit entitlements are attributed
in full based on the earliest of issue/receipt of an invoice or payment of any part of the
consideration.
 If the cash basis is applicable, attribution of GST liabilities and input tax credit entitlements is
on the basis of consideration paid/received, but only in respect of the particular amount
paid/received.
 A tax invoice is required to be held by the time a GST return is lodged for a particular tax
period to attribute any input tax credit on an acquisition exceeding $75 (GST-exclusive) to that
tax period, regardless of the attribution method used. Otherwise, the claim is deferred until a
tax invoice is held. A taxpayer can also voluntarily defer a claim for credit.
Introduction
Once a taxpayer has decided that he or she has a taxable supply and/or a creditable acquisition, it is
necessary to consider how much GST is payable or how much of a refund the taxpayer is entitled to
and the timing of this payment or refund. In order to determine this, the following issues must be
considered:
 The applicable tax period.
 The method of attribution.
 How much GST is payable on a taxable supply.
 How much is the input tax credit for a creditable acquisition.
 The net amount.
 The occurrence of any adjustment events.
 Any change in creditable purpose required to be accounted for.
 The GST remittance amount.
 The lodgement of the GST return.
 The method of payment or refund as a result of the GST return.

June 2014 45
GST Fundamentals
For the purposes of the discussion in this section, the issue of whether a supply was GST-free or input
taxed has been ignored.
Determine the tax period

The tax periods that apply are each period of 3 months ending on 31 March, 30 June, 30 September
or 31 December in any year, except if an election for monthly tax periods is made or the
Commissioner determines otherwise (s 27-5).
The following step analysis assists in determining the relevant tax period for a particular taxpayer.
Compulsory 1 month tax periods

The Commissioner must determine that the tax periods that apply to a taxpayer are each individual
month if:
 the Commissioner is satisfied that the taxpayer’s GST turnover meets the tax period turnover
threshold ($20 million); or
 the Commissioner is satisfied that the period for which the taxpayer will be carrying on an
enterprise in Australia is less than 3 months; or
 the Commissioner is satisfied that the taxpayer has a history of failing to comply with his or her
obligations under a taxation law.
Illustration
Kobi and Jasper operate their business with a turnover of $25 million. As a result, s 27-15(1)(a)
provides that their enterprise must use monthly tax periods.
Election to use 1 month tax periods

Any remitter may, at their discretion, elect to remit GST on 1 month tax periods. The election takes
effect on the day specified in the election notice. However, the first date the taxpayer can move to
1 month tax periods must be either a 1 January, 1 April, 1 July or 1 October.
With the Commissioner’s approval, a taxpayer can elect at any time to move back to tax periods of
3 months each. However, the first of the 3 month tax periods cannot commence until the next
1 January, 1 April, 1 July or 1 October.
Illustration
Tara and Adam are predominantly in a GST refund situation. For cash flow reasons, they believe that
it would be beneficial to revert to one month tax periods. If Tara and Adam forward such an election
to the Commissioner on 15 February, the election will take effect from the next 1 April.

46 June 2014
GST Fundamentals
Note
If the nominated tax period end date does not fit well with the financial accounting of the
enterprise, a taxpayer can apply for a substituted GST accounting period. The Commissioner
may determine a substituted period applies, as long as each year contains at least 12 periods
which match to the commercial accounting periods of the enterprise. The Commissioner’s
determination is a reviewable decision.
Thus, for example, an Australian subsidiary of an overseas company that closes off its books a
few days before the end of each month, to enable results to be remitted to the parent
company in time for preparation of monthly consolidated financial accounts of the group,
could use the same cut-off dates for its monthly GST returns.
Withdrawing elections of one month tax periods

If a taxpayer has elected to use monthly tax periods, that taxpayer may withdraw the election
provided that the taxpayer’s GST turnover is less than the tax period turnover threshold of
$20 million. The withdrawal takes effect on the day specified in the withdrawal election, however,
the day specified:
 must be 1 January, 1 April, 1 July or 1 October, or any day occurring before the election takes
effect; and
 must not be a day occurring earlier than 12 months after the election took effect.
Illustration
Rachel and Emma have operated their business using monthly tax periods for 15 months. On
10 November they withdraw their election to use monthly tax periods. The withdrawal may take
effect on 1 January of the following year.
Section 27-22 provides that the Commissioner may, if requested on the approved form, revoke a
monthly election prior to the '12 month minimum' requirement provided that the registration
turnover threshold is not met. Given the criteria that the Commissioner looks at this would be most
relevant for a newly registered GST taxpayer who did not realise that most of their supplies would be
input taxed (hence was more likely to apply when GST was first introduced e.g. a SMSF that
registered when GST was announced but found it was mostly making input taxed supplies when GST
started).
Revoking determinations of one month tax periods

The Commissioner must revoke a determination of one month tax periods relating to a taxpayer if
that taxpayer requests him to do so, unless the Commissioner is satisfied that any of the grounds for
making that one month tax period determination apply to the taxpayer, i.e.
 the Commissioner is satisfied that the taxpayer’s GST turnover meets the tax period turnover
threshold ($20 million); or
 the Commissioner is satisfied that the period for which the taxpayer will be carrying on an
enterprise in Australia is less than 3 months; or
 the Commissioner is satisfied that the taxpayer has a history of failing to comply with his or her
obligations under a taxation law.

June 2014 47
GST Fundamentals
Illustration
Provided that Rachel and Emma's:

 GST turnover is less than $20 million;
 they will be carrying on their enterprise for at least 3 months; and
 they have a good track record with the payment of taxes.
on request, the Commissioner must revoke the election to use monthly tax periods.
Annual lodgement and payment

Some entities have the option of an annual tax period. The annual tax period will be available for
entities that are voluntarily registered for GST and are not paying GST by instalments. In other
words, an entity will be eligible to make an annual tax period election if its GST turnover does not
meet the registration turnover threshold at the time of its election.
An entity must notify the Commissioner of its election. Generally, an election must be made on or
before:
 21 August for entities with monthly tax periods; and
 28 October for entities with quarterly tax periods.
If an entity does not make its election within those dates, it cannot make a valid annual tax period
election until the next financial year. A valid election will generally take effect from the start of a
financial year.
Once a valid annual tax period election has been made, it will continue to apply unless:
 the entity revokes the election;
 the Commissioner disallows the election (because he is satisfied the entity has failed to comply
with one or more of its tax obligations);
 the entity is required to be registered for GST on 31 July in a financial year (and entities must
annually determine whether they are required to be registered); or
 the entity is the representative member of a GST group and the membership of the GST group
changes.
An annual tax period election will also cease to have effect at the end of an entity’s concluding tax
period.
These rules apply from:
 1 October 2004 for entities with quarterly tax periods; and
 1 November 2004 for entities with monthly tax periods.
Note
Taxi operators will not be eligible to have an annual tax period because they are required to be
registered for GST purposes, regardless of their GST turnover.

48 June 2014
GST Fundamentals
Changing the days on which a taxpayer's tax period ends
Section 27-35 provides that a taxpayer may change the day in each year on which a tax period would
otherwise end. However:
 the day must be no more than 7 days earlier or 7 days later than a day on which one of the tax
periods that applies to that taxpayer would otherwise end if the days were not changed; and
 the change must be consistent with the commercial accounting periods that apply to that
taxpayer.
If the day on which a tax period ends is changed, the next tax period starts on the day after that day.
Illustration adapted from EM
Joan runs a hairdressing salon. Joan’s accounting practice is to balance her accounts each Friday.
Joan has three monthly tax periods. 30 September falls on a Wednesday. Joan ends her tax period
on Friday 2 October so that she does not have to make a special balance on the Wednesday. Joan’s
next tax period starts on Tuesday 3 October rather than on 1 October. Her return for the tax period
ending on 2 October is due on 28 October.
Reference
TD 2000/54 carries this provision into the PAYG system.
Special rules on tax period ends

Sections 27-39 and 27-40 in combination provide that, if:
 an individual dies, becomes an incapacitated entity (e.g. bankrupt) or ceases to carry on any
enterprise; or
 any other entity becomes an incapacitated entity (e.g. goes into liquidation or receivership),
ceases to carry on any enterprise or for any reason ceases to exist;
the individual's or entity's tax period at the time is taken to have ceased at the end of the day before
the death, bankruptcy, liquidation, receivership or otherwise ceasing to exist or, in the case of
ceasing to carry on an enterprise, the end of the day on which cessation occurred. Likewise, if any
entity's registration is cancelled, the entity's tax period at the date of the cancellation
(the cancellation day) ceases at the end of the cancellation day.
Illustration
John, a transport business owner, passed away on 10 November. John’s tax period is taken to have
ceased at the end of the day before his death, being 9 November.
Special rules relating to tax periods

There are also special rules relating to tax periods in the following situations. These rules are dealt
with in more detail later in these notes.

June 2014 49
GST Fundamentals
Special rules relating to tax periods
Annual tax periods (see above) Division 151
Changes in the extent of creditable purpose Division 129
GST groups Division 48
Payment of GST by instalments Division 162
Representatives of incapacitated entities Division 58
Resident agents acting for non-residents Division 57
The method of attribution

There are two ways to account for GST – either the 'cash basis' or the 'other than cash basis', usually
referred to as the accruals basis. It is important to note that although cash and accruals accounting
for GST involves some similar concepts to cash and accruals accounting for income tax, they are not
the same and GST accounting has some significantly different aspects (each GST accounting
methodology is statutorily defined, whereas income tax accounting is based around common law
concepts).
The provisions require taxpayers to adopt the accruals basis, unless they are entitled to use or are
granted permission to use the cash basis. Accordingly, the cash basis will apply to certain entities
only (and even if an entity is entitled to use the cash basis it is not compulsory that it do so).
METHOD OF ACCOUNTING FOR GST
ACCRUALS Generally if turnover exceeds $2m (and an exception allowing use of the cash basis
does not apply).
CASH The entity is a small business entity (unless the business only qualifies as a small
business entity because its turnover as worked out at the end of the income year is
actually less than the $2 million threshold i.e. where it cannot satisfy the prior year
or current year likely turnover tests - see below).
The entity does not carry on a business but has GST turnover that does not exceed
$2 million (the ‘cash accounting turnover threshold’).
Taxpayers accounting on a cash basis for income tax purposes are eligible to
account on a cash basis for GST without having to seek special permission.
Any endorsed charitable institution, any endorsed trustee of a charitable fund or
any gift-deductible entity may also choose to account on a cash basis, irrespective
of GST turnover.
On application, special permission may also be granted to other taxpayers to enable
a cash basis to be utilised.

50 June 2014
GST Fundamentals
Note
The ‘small business entity’ concept was introduced with effect from 1 July 2007. Formerly, the
taxpayer was subject to a $1 million annual turnover threshold.
Small business entity

A taxpayer will be a small business entity if it:
 carries on a business for all or part of the income year; and
 has less than $2 million aggregated turnover.
Aggregated turnover
A taxpayer can meet the aggregated turnover test in one of three ways:
1. It can use aggregated turnover for the previous income year;
2. It can estimate aggregated turnover for the current year as at the beginning of the current
year (this method can only be used if aggregated turnover was less than $2 million for one of
the last two income years); or
3. It can use actual aggregated turnover for the current year as at the end of the current year.
Aggregated turnover includes the annual turnover of:
 the taxpayer;
 connected entities; or
 affiliates.
Annual turnover
Annual turnover includes all ordinary income for the income year earned in the ordinary course of
business. It excludes:
 GST collected as part of its turnover;
 ordinary income that is not earned as part of its business
 statutory income; and
 dealings with connected entities and affiliates.
Connected entity
An entity is connected with another entity if:
 either entity controls the other; or
 both entities are controlled by the same third entity.
The control rules are summarised in the table below:

June 2014 51
GST Fundamentals
Control rules
Company An entity controls a company if it, its affiliates, or both together have:
 shares that give at least 40% of the voting power in the company; or
 the right to receive at least 40% of any income or capital the company
distributes.
Partnership An entity controls a partnership if it, its affiliates, or both together have the right to
40% or more of the partnership’s net income or capital.
Fixed trust An entity controls a fixed trust if it, its affiliates, or both together have the right to
40% or more of any income or capital the trustee distributes.
Discretionary An entity controls a discretionary trust if either one of the following two tests is
Trust met:
 in any of the previous four income years (excluding the current year), the
entity, its affiliates or both together received a trust distribution of 40% or
more of the total income or capital the trustee distributed for that income
year; or
 the trustee either acts, or might reasonably be expected to act, according to
the directions or wishes of the entity, its affiliates or both.
Affiliate
An 'affiliate' means an individual or company that acts, or could reasonably be expected to act, in
accordance with the directions or wishes, or in concert with, the taxpayer in relation to the affairs of
the business of that individual or company.
The Commissioner considers that whether a person acts, or could be reasonably expected to act, in
accordance with another person's directions or wishes or in concert with that other person is a
question of fact dependent on all the circumstances of the particular case9. The key consideration is
the actions of the parties. Factors which may support such a conclusion include:
 where the parties act together in pursuit of a common goal or purpose;
 where the taxpayer is able to direct the other person in relation to the carrying on of the
business (not merely where the person is involved in, connected to or participating in the
business);
 the likelihood that the way the parties act, or could reasonably be expected to act, in relation
to each other would be based on the relationship between the parties rather than formal
agreements. Relevant factors may include the existence of a close family relationship or
friendship between the parties; and
 any agreement or common understanding between the parties about how the parties are to
act in relation to each other.
Important
From 1 July 2007, the definition of 'affiliate' does not automatically include a spouse or child
under age 18.
9
From TD 2006/79 – which dealt with the concept of ‘small business CGT affiliate’ in former s 152-25(1).

52 June 2014
GST Fundamentals
Accounting on an accruals basis
Generally, remitters will adopt an accruals attribution method for GST. Under this method, the GST
payable on a taxable supply is attributable to:
 the tax period in which any of the consideration is received for the supply; or
 if, before any of the consideration is received, an invoice is issued relating to the supply
(this need not be a tax invoice) - the tax period in which the invoice is issued (s 29-5(1)).
Illustration
Geoffrey, a licensed plumber, forwards an invoice on 30 September 2014 to a local supermarket for
roofing repairs carried out. The supermarket does not pay Geoffrey until 15 November 2014.
As Geoffrey operates his business on an accruals basis, he must include the relevant amount in his
GST return in respect of the tax period ending 30 September 2014, irrespective of when he actually
receives payment.
On the same basis, the input tax credit a taxpayer is entitled to for a creditable acquisition is
attributable to:
 the tax period in which any of the consideration is provided by the taxpayer; or
 if, before any of the consideration is provided, an invoice is issued relating to the supply – the
tax period in which the invoice is issued (s 29-10(1)).
Illustration cont'd
Following on from the previous example, if Geoffrey received a tax invoice from the plumbing supply
shop (invoice issued 30 September) for materials used in repairing the supermarket's roof, he is
entitled to an input tax credit in that tax period irrespective of when the account is paid.
Accounting on a cash basis

If a taxpayer accounts on a cash basis for GST, then remittance is required as follows:
 if, in a tax period, all of the consideration is received for a taxable supply –
GST on the supply is attributable to that tax period.
 If, in a tax period, part of the consideration is received –
GST on the supply is attributable to that tax period, but only to the extent that the
consideration is received in that tax period.
 If, in a tax period, none of the consideration is received –
None of the GST on the supply is attributable to that tax period (s 29-5(2)).
Under the cash basis, the time that an invoice is issued has no bearing on attribution of GST.

June 2014 53
GST Fundamentals
Illustration cont'd
If Geoffrey prepared his accounts on a cash basis, he would not be required to include an amount in
his GST return until the tax period ending 31 December 2014.
On the same basis, the input tax credit (ITC) a cash basis taxpayer is entitled to for a creditable
acquisition is attributable:
 if, in a tax period, all of the consideration is provided for a taxable supply –
ITC on the acquisition is attributable to that tax period.
 If, in a tax period, part of the consideration is provided –
ITC on the acquisition is attributable to that tax period, but only to the extent that the
consideration is provided by the taxpayer in that period.
 If, in a tax period, none of the consideration is provided –
None of the ITC on the acquisition is attributable to that tax period (s 29-10(2)).
Illustration cont'd
Again, following on from previous example, if Geoffrey prepared his accounts on a cash basis, he
would not be eligible to claim an input tax credit until the tax period in which he pays the
outstanding amount to the plumbing supplies shop.
While receipt of an invoice also does not impact on the tax period to which input tax credits are
initially attributed under the cash basis, a tax invoice may be required to be held before the credit
can actually be claimed (see below).
Requirement for a tax invoice in order to attribute input tax credits

If the taxpayer does not hold a tax invoice for a creditable acquisition (which exceeds the threshold
at which a supplier must issue a tax invoice) when a GST return for the tax period to which the input
tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
 the input tax credit (including any part of the input tax credit) is not attributable to that tax
period; and
 the input tax credit (or part) is attributable to the first tax period for which the taxpayer gives
to the Commissioner a GST return at a time when the taxpayer holds that tax invoice.
However, the Commissioner has discretion to allow a credit in circumstances of a kind determined in
writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not
apply.
A taxpayer also has a general discretion to defer claiming a credit until a later tax period than the one
to which it is correctly attributable. However, an overall general time limit of 4 years applies to
claiming input tax credits regardless of whether deferral has been because of not holding a tax
invoice or at the option of the taxpayer (there are some limited exceptions).

54 June 2014
GST Fundamentals
Illustration cont'd
If Geoffrey operates on a cash basis and paid the plumbing account in full, an input tax credit will be
available in that tax period provided a tax invoice is received by Geoffrey. If the invoice is not
provided to Geoffrey in that tax period, the input tax credit will be attributable to the tax period in
which the invoice is provided, irrespective of that fact that the account was paid in a previous tax
period.
Attributing adjustments
Increasing or decreasing adjustments may be required in a subsequent tax period to the net GST
payable in an earlier period (the adjustment is made in the subsequent period, the original GST
return is not amended). The circumstances in which adjustments may apply are explained later.
Accruals basis
Under an accruals system, an adjustment that a taxpayer has is attributable to the tax period in
which the taxpayer becomes aware of that adjustment.
Illustration cont'd
If Geoffrey was operating on an accruals basis and offered the supermarket a 5% discount if the
account was paid within 30 days, then the adjustment is attributable to the tax period in which
Geoffrey becomes aware of that adjustment, i.e. when the supermarket pays the account and
becomes eligible for the discount.
As Geoffrey had already included the full value in his taxable supplies for the tax period ending
30 September, the adjustment is to be taken up in his next GST return.
This clearly is of a disadvantage to Geoffrey from a cash flow perspective. He may wish to consider
whether the offering of the discount causes him to be further out of pocket from a cash flow
perspective than the early payment justifies.
All of the increasing or decreasing adjustments for an adjustment event are attributed to the tax
period in which the taxpayer knows about the adjustment event (s 29-20(1)). However, a decreasing
adjustment cannot be attributed unless the taxpayer has an adjustment note when the GST return is
lodged for that period (s 29-20(3)).
Section 29-75 provides that an adjustment note for an adjustment that arises from an adjustment
event relating to a taxable supply:
 must be issued by the supplier of the taxable supply, unless any tax invoice relating to the
supply would have been a recipient created tax invoice (in which case it must be issued by the
recipient of the supply); and
 must set out the ABN of the entity that issues it; and
 must contain such other information as the Commissioner determines in writing; and
 must be in the approved form.

June 2014 55
GST Fundamentals
The minimum requirements for adjustment notes are as follows.
 An adjustment note must show prominently the following words:
 'adjustment note'; or
 'tax invoice' (where the adjustment to the price is shown as a negative or credit amount
to the recipient).
It must also include the following information:
 names of the supplier and the recipient;
 address or ABN or where applicable, the GST branch registration number, of the recipient
(or agent);
 issue date of the note;
 difference between the price of the supply before the adjustment event and the new price of
the supply;
 a brief explanation of the reason for the adjustment; and
 the amount of the adjustment to the GST payable or a statement to the effect that the
difference in price includes GST.
If:
 the taxpayer has a decreasing adjustment arising from an adjustment event; and
 that taxpayer does not hold an adjustment not for the adjustment when the GST return for the
tax period to which the adjustment (or any part of the adjustment) would otherwise be
attributable is given to the Commissioner;
then:
 the adjustment (including any part of the adjustment) is not attributable to that tax period;
and
 the adjustment (or part) is attributable to the first tax period for which the taxpayer gives to
the Commissioner a GST return at a time when the taxpayer holds that adjustment note (s 29-
20).
The impact of these provisions is to defer the decreasing adjustment until such time as the relevant
paperwork is on hand.
Illustration cont'd
Geoffrey operates on an accruals basis for GST purposes. The supermarket pays his invoice to them
early, so that they qualify for the early payment discount. The granting of the discount is a decreasing
adjustment for Geoffrey.
No decrease is available to Geoffrey until he has issued an adjustment note to the supermarket.

56 June 2014
GST Fundamentals
Cash basis
Alternatively, if a taxpayer accounts on a cash basis and the adjustment arises from an adjustment
event as a result of which the taxpayer is liable to provide consideration, then:
 if, in a tax period, all of the consideration is provided – the adjustment is attributable to that
tax period; or
 if, in a tax period, part of the consideration is provided – the adjustment is attributable to that
tax period to the extent that consideration is provided; or
 if, in a tax period, none of the consideration is provided – none of the adjustment is
attributable to that tax period.
Illustration cont'd
If Geoffrey was operating on a cash basis and there was an error in the account forwarded to
Geoffrey by the plumbing shop, resulting in an additional amount payable, the adjustment is
attributable to the tax period in which the additional consideration is provided by Geoffrey.
Illustration
For income tax purposes, a barrister or doctor may declare income on a cash basis. This does not
prevent expenses from being claimed on an accruals basis.
For GST purposes, if the taxpayer accounts on a cash basis, they are only entitled to an input tax
credit in respect of consideration actually paid. This will necessitate dual record keeping for those
concerned.

June 2014 57
GST Fundamentals
Net Amounts
Summary
 GST is payable if the net amount for a tax period is positive and a refund is obtainable if the
net amount is negative.
 The net amount is basically the difference between GST tax liabilities and input tax credit
entitlements for a tax period.
 GST liabilities are calculated as 10% of the value of a taxable supply, which is defined as 10/11
of the price. Therefore, the shorthand method is to divide the price by 11. Input tax credits
correspond to the GST included in the price, subject to the extent of the taxpayer's creditable
purpose.
 The net amount may be increased by increasing adjustments or decreased by decreasing
adjustments.
 The most common form of adjustments are adjustment events (e.g. where the consideration
for a supply has changed because of a subsequent discount or the supply has been cancelled
because the good has been returned) or annual adjustments for change in creditable purpose
(where the actual use of an item for private/business purposes or in making input taxed
supplies has varied from the estimate used in claiming the original credit).
 Further adjustments may apply when an item is disposed of for private purposes or as a
taxable supply.
 The net amount is self-assessed when the GST return is lodged for each tax period. The GST
return is incorporated in the business activity statement (BAS) for a tax period. There are a
number of alternative methods for paying GST apart from precise calculations in respect of
each tax period, subject to satisfying qualifying criteria and subsequent annual reconciliations.
Introduction
How to determine the net amount
Step 1 Determine the amount of GST payable on a taxable supply.
Step 2 Determine the amount of the input tax credit.
Step 3 Determine the net amount.
Step 4 Do any adjustment events occur? i.e. any event:

 cancelling a supply or acquisition; or
 changing the consideration for a supply or acquisition; or
 causing a supply or acquisition to become, or stop being, a taxable supply or
creditable acquisition.
Step 5 Have any bad debts been written off or previously written off bad debts recovered?
Step 6 Has there been a change in the creditable purpose of an acquisition?

58 June 2014
GST Fundamentals
Step 7 Adjust the net amount for any increasing or decreasing adjustments to determine the GST
remittance amount.
Determine the amount of GST payable on a taxable

supply
Subdivision 9-C provides that the amount of GST on a taxable supply is 10% of the value of the
taxable supply. The value of a taxable supply is as follows:
Price of the item x 10/11
Illustration
Jack sells an item for $1,000 in the course of carrying on an enterprise. The value of the taxable
supply is :
$1,000 x 10/11 = $909.10
The GST on the supply is, therefore, $90.90 (i.e. 10% of $909.10).
As GST payable is Value x 10/100, and Value is Price x 10/11, then combining the two results in GST
payable being Price x 10/11 x 10/100 = Price x 1/11. Hence a shorthand method of calculating GST is
simply to divide the price actually charged by 11.
If a supply is partly a taxable supply, and partly a supply that is GST-free or input taxed, the value of
the part that is a taxable supply is the proportion of the total value of the actual supply (worked out
as if it were solely a taxable supply) that the taxable supply represents.
Illustration
Timothy sells a high pressure cleaner to Rupert for $1,000. 50% of the cleaner’s use relates to
Timothy’s concreting business (an enterprise) whilst the remaining 50% relates to Timothy’s
residential rental properties (which are input taxed).
The value of the whole supply is 10/11 x $1,000, which is $909.10.
The concreting business use represents 50% of this amount. Therefore GST that has been charged to
Rupert is calculated as follows:
$909.10 x 50% = $454.55 taxable supply x 10% = GST of $45.45
Timothy charges GST of $45.45 on the whole supply. The $1,000 paid to Timothy represents:
 $454.55 for the concreting business proportion;
 $45.45 GST; and
 $500 for the input tax proportion.

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GST Fundamentals
In most instances, the provision of Subdivision 9-C will adequately determine the amount of GST
payable on any taxable supply. However, in certain circumstances, special rules are required. The
following table outlines the Divisions of the Act which deal with those special rules.
Special rules relating to the amount of GST on taxable supplies
Agents and insurance brokers Division 153
Associates Division 72
Company amalgamations Division 90
Compulsory third party schemes Division 79
Gambling Division 126
Long-term accommodation in commercial residential premises Division 87
Non-residents making supplies connected with Australia Division 83
Off-shore supplies other than goods or real property Division 84
Sale of freehold interests etc Division 75
Supplies partly connected with Australia Division 96
Transactions relating to insurance policies Division 78
Valuation of taxable supplies of goods in bond Division 108
Determine the amount of the input tax credit

As previously noted, s 11-25 provides that the input tax credit for a creditable acquisition is an
amount equal to the GST payable on the supply. The amount of GST on a taxable supply is 10% of the
value of that supply (s 9-70).
Illustration
If, for example, Claire purchased from Jack an item for $1,000 in the course of carrying on her
enterprise. The value of the taxable supply is:
$1,000 x 10/11 = $909.10
The GST on the supply is, therefore, $90.90 (i.e.10% of $909.10).

In accordance with s 11-25, the maximum input tax credit available to Claire is $90.90, being the GST
payable by Jack.
Once again, a shorthand method for determining the maximum credit is simply to divide the price by
11.

60 June 2014
GST Fundamentals
It is also necessary to bear in mind that this maximum input tax credit may need to be reduced to the
extent that the acquisition is only partly for a creditable purpose.
Illustration cont'd
If Claire purchased the item from Jack for $1,000 and used that item to the extent of 50% in the
course of carrying on her enterprise, the maximum input tax credit of $90.90 must be reduced
accordingly, i.e. the value of the taxable supply is:
$90.90 x 50% = $45.45
Therefore, the $45.45 not claimed by Claire is effectively borne as a cost to the final consumer, being
Claire.
Determine the net amount

The basic GST remittance amount is adjusted for any input credit entitlements, so that a net amount
is worked out for each tax period that applies to the taxpayer. Entitlement to input credits should be
determined using the same timing rules as applicable to attribution of GST payable.
This net GST amount is the amount payable by the taxpayer to the Commonwealth, or payable to the
taxpayer by the Commonwealth, for the tax period. Adjustments can be made to the net amount.
Calculation of net GST amount

The basic net amount for a tax period applying to a taxpayer is worked out using the following
formula:
GST – Input tax credits
Where:
 GST is the sum of all of the GST for which the taxpayer is liable on the taxable supplies that are
attributable to the tax period.
 Input tax credits is the sum of all of the input tax credits to which the taxpayer is entitled for
the creditable acquisitions and creditable importations that are attributable to the tax period.
Illustration
James is a self-employed mechanic and is a registered person for GST purposes. James replaces the
engine in a car for $1,200. James is also required to pay GST of $120, being 10% of the sales value.
Therefore, an amount of $1,320 (being $1,200 + $120) is deposited into James’ bank account. In
doing his bookkeeping, James will include $1,200 in his sales and $120 in GST.
James purchases parts for use in his workshop for a total of $750. The GST component is calculated
as $750 x 1/11, being $68.18. The cheque paid by James is therefore for $750. In updating his cash
payments, James will include $681.82 as purchases and $68.18 as GST paid.
In preparing his GST return, James will show $120 as GST payable and $68.18 as an input tax credit.
As the amount of GST collected is greater than the amount of GST paid, the difference between the
two, being $51.82, is therefore payable to the Tax Office by James.

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GST Fundamentals
Note
As a part of the BAS simplification process, taxpayers have a number of options in reporting
the GST. Some of the methods do not require a net amount to be stated (s 31-15(1).)
The occurrence of any adjustment events

The net amount for the tax period may be increased or decreased if the taxpayer has any
adjustments for the tax period. An increasing adjustment arises if the taxpayer has received too
much input tax credit or paid too little GST. A decreasing adjustment arises if the taxpayer received
too little input credits or paid too much GST. Some of the adjustments contemplated in the
provisions include:
 the consideration for a supply is altered, e.g. a discount or volume rebate is granted;
 all or part of a supply is cancelled or the relevant goods are returned;
 the supply ceases to be a taxable supply, or the acquisition ceases to be a creditable
acquisition;
 GST has been remitted in relation to a tax invoice which is subsequently written off as a bad
debt or has remained outstanding for 12 months or more; or
 a GST adjustment has been made for a bad debt, where some of the debt is subsequently
recovered, or the consideration for an acquisition has remained unpaid for 12 months or more.
An adjustment event is any event which has the effect of:
 cancelling a supply or acquisition; or
 changing the consideration for a supply or acquisition; or
 causing a supply or acquisition to become, or stop being, a taxable supply or creditable
acquisition.
Section 19-10(2) provides that adjustment events include the following:

 the return to a supplier of a thing, or part of a thing, supplied (whether or not the return
involves a change of ownership of the thing);
 a change to the previously agreed consideration for a supply or acquisition, whether due to the
offer of a discount or otherwise; and
 a change in the extent to which an entity that makes an acquisition provides, or is liable to
provide, consideration for the acquisition (unless the entity accounts on a cash basis).
An adjustment event can arise in relation to:
 a supply even if it is not a taxable supply; and
 can arise in relation to an acquisition even if it is not a creditable acquisition.

62 June 2014
GST Fundamentals
Illustration
Phillip and Dylan are brothers and currently own and operate a supermarket. On acquisition of a box
of rat traps for a total of $110, an input tax credit of $10 was included in the GST return for that tax
period.
Several months later, as a result of another box of rat traps being ordered, the supplier reduced the
price of the second box to $99 in addition to providing an $11 rebate in respect of the first box
acquired.
The overall GST liability is as follows:
1st tax period:

Input tax credit on initial box of traps ($110 x 1/11) $10
Less: Amount refunded by Tax Office $10
Remaining liability nil
2nd tax period:

Input tax credit on second box of traps ($99 x 1/11) $9
Less: increasing adjustment (rebate) ($11 x 1/11) $1
Remaining liability $8
That is, the input tax credit on the original acquisition decreased as a result of a volume rebate. An
increasing adjustment operates in the relevant tax period.
Illustration
Rosie and Violet are sisters and operate a fashion store. On the sale of a garment for $110, a GST
liability of $10 arose and was subsequently included in the GST return for that tax period.
During the following tax period, the garment was returned to the store as the material was flawed. A
full refund was provided to the customer.
The overall GST liability is as follows:
1st tax period:

GST liability on sale of garment ($110 x 1/11) $10
Less: Amount forwarded to Tax Office 10
Remaining liability nil
2nd tax period:

Decreasing adjustment (refund ) ($110 x 1/11) $10
Refund due $10

June 2014 63
GST Fundamentals
Illustration
That is, the GST remitted by Rosie and Violet in respect of the original sale has now changed as a
result of the refund to the customer. Consequently, a decreasing adjustment of $10 arises to Rosie
and Violet.
As the material was flawed, Rosie and Violet proceeded to return the garment to the manufacturer
for a refund. During the following tax period, a full refund of the purchase price of $55 was
forwarded to Rosie and Violent.
The GST situation again changes as follows:
3rd tax period:

Increasing adjustment (return of item) ($55 x 1/11) $5
Outstanding liability $5
That is, the input tax credit available to Rosie and Violet in respect of the original acquisition has now
changed as a result of the garment being returned to the manufacturer. As a result of this, an input
tax credit of $5 has been claimed in excess of that actually available. Consequently, an increasing
adjustment of $5 arises to Rosie and Violet.
Bad debts
Where a debt is written off, an adjustment is required in order to calculate the net amount of GST a
taxpayer has to pay. Adjustments are required by both the supplier and the purchaser and can arise
in respect of amounts written off and/or the recovery of amounts previously written off. An
adjustment cannot be made under this section if the taxpayer accounts on a cash basis.
The amount of the adjustment is 1/11 of the amount written off, or 1/11 of the amount that has
been overdue for 12 months or more, as the case requires.
Illustration
Accounting Co-operates on an accruals basis. During the quarterly tax period ending 30 September,
an account for $110 was raised. GST in respect of the account was paid on 28 October
(i.e. $110 x 1/11 = $10).
In February of the following income year this account is written off as a bad debt. Accounting Co is
entitled to a decreasing adjustment of:
$110 x 1/11 = $10
This decreasing adjustment neutralises the GST implications of the transactions.
Bad debts recovered

Where a taxpayer has previously had a decreasing adjustment in respect of a bad debt written off
and subsequently recovers all or a part of that bad debt, an increasing adjustment is required in
respect of the amount recovered.

64 June 2014
GST Fundamentals
Illustration
Following on from the previous example, if AccountingCo received $55 as part payment of the bad
debt written off, a further GST adjustment is required as follows:
$55 x 1/11 = $5
Annual apportionment of initial creditable purpose

An entity that satisfies the eligibility criteria outlined below can elect to claim full input tax credits at
the time of attribution for certain partly creditable acquisitions and importations. The entity will
make a later single adjustment to the input tax credits it has claimed during the financial year to
account for the application of the acquisitions or importations for an other than creditable purpose.
The election only applies where the creditable purpose is affected by non-enterprise (i.e. private
use). Apportionment is still required in the actual tax period to which the credit is attributable for any
input taxed use or where only part of the consideration is payable by the taxpayer.
An entity will be eligible to make an election if, at the time of the election:
 The entity is a small business entity (unless the business only qualifies as a small business
entity because its turnover as worked out at the end of the income year is actually less than
the $2 million threshold i.e. where it cannot satisfy the prior year or current year likely
turnover tests); or
 The entity does not carry on a business but has GST turnover that does not exceed $2 million
(the 'annual apportionment turnover threshold').
(see above for a discussion on ‘small business entity’)
In addition to one of the above, it is also required that the entity is not subject to either the GST
instalment or annual tax period options (because these options do not involve lodging GST returns on
a quarterly or monthly basis).
Once a valid annual apportionment election is made, it will continue to apply unless:
 the entity revokes the election;
 the Commissioner disallows the election; or
 the entity's GST turnover exceeds the annual apportionment turnover threshold on 31 July in a
financial year.
These rules apply from:
 1 October 2004 for entities with quarterly tax periods; and
 1 November 2004 for entities with monthly tax periods.
Change in creditable purpose

Where the creditable purpose changes in subsequent tax periods, Division 129 may require that
adjustments be made to prior input tax credit claims. Adjustments for changes in creditable purpose
are only made on an annual basis, in GST returns covering a tax period ending 30 June or the closest
to that end date.

June 2014 65
GST Fundamentals
An adjustment cannot arise for an acquisition (or importation) that relates to business finance unless
the acquisition or importation had a GST exclusive value of more than $10,000 (refer to
GSTR 2006/3). Similarly, an adjustment cannot arise for an acquisition (or importation) that does not
relate to business finance, unless the acquisition (or importation) had a GST exclusive value of more
than $1,000 (s 129-10).
Division 129 Adjustments for change in creditable purpose

Division 129 Adjustments can become relevant where a taxpayer changes their creditable purpose
(e.g. an asset used in a business such as a car becomes privately used after a full input tax credit has
been claimed would require an increasing adjustment). A more recent example has involved
GSTR 2009/4 where a townhouse or unit built for sale as a taxable supply subsequently becomes
rented as an input taxed supply requiring repayment of some of the input tax credits originally
claimed.
Adjustment periods
Identifying when an adjustment period begins and ends is critical to applying the Division 129 to an
earlier acquisition. Under s 129-20 GSTA, an adjustment period must:
 End on 30 June (i.e. a month or quarter ended 30 June); and
 Start > 12 months after the end of the tax period (month or quarter) in which the acquisition
occurred.
Illustration - Adjustment Period commencement and end (quarterly taxpayer)
C re d ita b le A c q u isitio n A d ju stm e n t A d ju stm e n t

A c q u isitio n Q u a rte r e n d P e rio d 1 P e rio d 2
1 /7 /2 0 1 4 3 0 /6 / 2 0 1 4 3 0 /6 / 2 0 1 5 3 0 /6 / 2 0 1 6 3 0 /6 / 2 0 1 7
NOT NOT IS
> 1 2 m o n th s > 1 2 m o n th s > 1 2 m o n th s
a fte r 3 0 /6 / 1 4 a fte r 3 0 /6 / 1 4 a fte r 3 0 /6 / 1 4
Illustration - Adjustment Period commencement and end (monthly taxpayer)
C re d ita b le A cq u isitio n A d ju stm e n t A d ju stm e n t A d ju stm e n t

A cq u isitio n M o n th e n d P e rio d 1 P e rio d 2 P e rio d 3
1 /4 /2 0 1 4 3 0 /4 /2 0 1 4 3 0 /6 /2 0 1 4 3 0 /6 /2 0 1 5 3 0 /6 /2 0 1 6 3 0 /6 /2 0 1 7
NOT IS
> 1 2 m o n th s > 1 2 m o n th s
a fte r 3 0 /4 /1 4 a fte r 3 0 /4 /1 4

66 June 2014
GST Fundamentals
Division 129 adjustments
Input tax credits may be claimed by a GST registered taxpayer for creditable acquisitions made for a
creditable purpose. While an intention to sell new residential premises would generally constitute a
creditable purpose, any intention to rent out such premises prior to their sale is not creditable. Due
to the current economic downturn, such changes of intention are becoming more common, resulting
in the issuance of the Ruling referred to above.
A Division 129 increasing adjustment to an earlier input tax credit claim will be required under
s 129-40 to the extent the taxpayer's actual creditable purpose at the end of a particular adjustment
period (period end purpose) differs from either of the following applicable creditable purpose:
 for the first adjustment period after acquisition, the planned creditable purpose at acquisition
time (acquisition purpose); or
 for the second and subsequent adjustment periods after acquisition, the period end purpose
for the most recent adjustment period end (prior period purpose).
Note
A period end purpose always relate to the entire creditable/non-creditable use since original
acquisition (i.e. not simply since the end of the previous year).
Illustrations - Division 129 Increasing Adjustment
A cq u isitio n
M o n th /Q u a rte r e n d
31/3/09 30/6/10 30/6/11
A cq u isitio n a n d In p u t T a x E n d o f A d ju stm e n t p e rio d E n d o f A d ju stm e n t p e rio d 2

C re d it C la im (M o n th /Q u a rte r) (M o n th /Q u a rte r)
(A cq u isitio n p u rp o se 1 0 0 % ) (P e rio d e n d p u rp o se 9 5 % ) (P e rio d e n d p u rp o se 9 3 % )
5 % x In p u t T a x C re d it C la im
1 9 /0 6 / 2 0 1 4 - 2 6 /0 6 / 2 0 1 4
2 % x In p u t T a x C re d it C la im
1 9 /0 6 / 2 0 1 4 - 2 6 /0 6 / 2 0 1 4
= =
In cre a sin g A d ju stm e n t in 3 0 /6 /1 0 B A S In cre a sin g A d ju stm e n t in 3 0 /6 /1 1 B A S
The above adjustment testing must generally occur at the end of each period for between 2 and 10
adjustment periods depending on the GST exclusive value of the supply as shown below (a different
scale applies to adjustments relating to business finance):
GST-exclusive value of acquisition Number of Adjustment Periods to be tested
< $1,000 Testing/increasing adjustment not required
$1,001 to $5,000 2
$5,001 to $499,999 5
> $500,000 10

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GST Fundamentals
Warning
The number of adjustment periods shown above will not generally be a
precise number of years after the original acquisition (e.g. 10 adjustment
periods will often extend for more than 10 years after acquisition).
Tip
While the creditable purpose percentage each period is based upon the new
premises as a whole, the adjustment period rules above will apply separately
to each separate creditable acquisition made regarding those premises (e.g.
the rules could apply separately to acquisition of bricks compared with
acquisition of property's front door due to different acquisition dates and
values of each acquisition). In a similar manner, separate construction
progress payments would be dealt with separately.
If an acquisition (or importation) is disposed of, lost, stolen or destroyed, (excluding financial supply
acquisitions), the following adjustment period after the disposal, loss or destruction is the last
adjustment period. See also GSTR 2000/24.
Method statement
The legislation provides the following summary to be used in determining whether or not a taxpayer
has an increasing or a decreasing adjustment for an adjustment period relating to changes in
creditable purposes.
Method Statement
Step 1 Work out the extent to which the taxpayer has applied the thing acquired (or imported)
for a creditable purposes during the period of time:
 Starting when the taxpayer acquired (or imported) the thing; and
 Ending at the end of the adjustment period.
This is the actual application of the thing.
Step 2 Work out:

 If the taxpayer has not previously had an adjustment under Division 129; the
extent to which the item was acquired for a creditable purpose; or
 If the taxpayer has previously had an adjustment under Division 129, the actual
application of the thing in respect of the last adjustment.
This is the intended or former application of the thing.
Step 3 If the actual application of the thing is less than its intended or former application, the
taxpayer has a decreasing adjustment for the adjustment period.
Step 4 If the actual application of the thing is greater than its intended or former application,
the taxpayer has a decreasing adjustment for the adjustment period.

68 June 2014
GST Fundamentals
Method Statement
Step 5 If the actual application of the thing is the same as its intended or former application,
the taxpayer has neither an increasing nor decreasing adjustment for the adjustment
period.
The amount of an increasing or decreasing adjustment

Increasing adjustment
If the above method statement indicates that the taxpayer has an increasing adjustment, the amount
of that adjustment calculated as follows:
full input tax (intended or former

adjustment = x - actual application)
credit application
Decreasing adjustment
If the method statement indicates that the taxpayer has a decreasing adjustment, the amount of that
adjustment calculated as follows:
adjustment = full input tax credit x (actual application - intended or former application)
Attribution of adjustments
Any adjustment arising in respect of an adjustment period is attributable to the tax period that is the
adjustment period (s 129-90). This will generally be in the GST return covering the month of June.
Illustration from EM
Louise buys a truck for her enterprise for $220,000 for the truck ($200,000 + $20,000 GST). Louise
has five adjustment periods in relation to the acquisition. The full input tax credit for the acquisition
is $20,000. Louise acquires the truck for 60% creditable purpose. In her return for the tax period to
which the acquisition is attributable, Louise is entitled to an input tax credit of $12,000.
At her first adjustment period her actual application since acquisition is 70%. Her intended
application is 60%. Louise has a decreasing adjustment of $20,000 x 10% = $2,000.
At her second adjustment period her actual application since acquisition is 75%. Her former
application is 70%. She has a decreasing adjustment of $20,000 x 5% = $1,000.
At her third adjustment period her actual application since acquisition is 60%. Her former application
is 75%. Louise has an increasing adjustment of $20,000 x 15% = $3,000.
At her fourth adjustment period her actual application since acquisition is 55%. Her former
application is 60%. Louise has an increasing adjustment of $20,000 x 5% = $1,000.
At her fifth adjustment period her actual application since acquisition is 65%. Her former application
is 55%. Louise has a decreasing adjustment of $20,000 x 10% = $2,000.

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GST Fundamentals
Louise’s use of the truck since acquisition has been 65% for a creditable purpose (her actual
application at her fifth adjustment period) for a creditable purpose over the whole of those five
years. The total input tax credit Louise should be entitled to in relation to the acquisition of the truck
is 65% of $20,000, which is $13,000. The total input tax credit Louise actually received over the five
years can be determined by adding Louise’s adjustments to her original input tax credit i.e.
$12,000 + $2,000 + $1,000 - $3,000 - $1,000 + $2,000 = $13,000
If a taxpayer subsequently makes a taxable supply of something that an entity has used in its
enterprise, the input tax credit the entity has received, taking into account adjustments, at the time
of supply may not accurately reflect the input tax credit it should have received. Division 132
(discussed later) provides for an adjustment at the time of sale to ensure that the entity receives the
input tax credit it should have in respect of financial supplies (but not input taxed supplies) or
supplies that were only partly creditable because of private use.
This adjustment is made in the tax period in which the taxpayer makes the taxable supply of the
thing or the tax period to which the supply would have been attributable if it had been a taxable
supply. Division 132 does not affect the operation of Division 129.
Illustration from EM (cont'd)
Louise sells the truck 8 years after she bought it. The sale is a taxable sale. Louise sells it for
$110,000. Her actual application since acquisition is 80%.
The consideration for the supply is less than the consideration for the acquisition.
Louise works out:
1. the total input tax credit she has had so far
= 1/11 of consideration for acquisition x actual application at most recent adjustment period.
= 1/11 x $220,000 x 65%
= $13,000
2. the total input tax credit she should have had
= 1/11 of (consideration for acquisition less consideration for supply) x actual application since
acquisition
= 1/11 x ($220,000 - $110,000) x 80%
= $8,000
As 1 is greater than 2, Louise has an increasing adjustment. The increasing adjustment is the
difference between 1 and 2, which is $5,000.
Louise has used $110,000 worth of value of the truck in her enterprise. She has used it 80% for
creditable purpose. She should have received an input tax credit of $8,000. She has in the past
received a total input tax credit in respect of the thing of $13,000. She has received too much
input tax credit. She therefore has an increasing adjustment of the difference between what
she has received and what she should have received.

70 June 2014
GST Fundamentals
Note
The anti-avoidance provisions contained in Division 165 may operate to negate any aggressive
tax planning undertaken in this area, where an arrangement is entered into or carried out after
2 December 1998, for the principal reason of obtaining a GST benefit.
Goods applied solely to private or domestic use

Division 130 provides for an increasing adjustment where goods for which a full input tax credit was
obtained are later put to private or domestic use.
The amount of the increasing adjustment is the amount of the input tax credit entitlement for the
acquisition or importation, taking account of any adjustments for the acquisition or importation.
The adjustment is not necessary, however, if an adjustment has previously been made under Division
129 for the acquisition or importation.
Supplies of things acquired etc. without full input tax credits

Division 132 provides for a decreasing adjustment where a supply is made of something that was
earlier acquired or imported, or subsequently applied, to make financial supplies or for a private or
domestic purpose.
Specifically, the decreasing adjustment applies where:
 an entity makes a taxable supply of a thing (or a supply of a thing that would have been a
taxable supply had it not been GST-free);
 the supply is a supply by way of sale; and
 the acquisition, importation or subsequent application of the thing, related solely or partly to
making financial supplies, or was solely or partly of a private or domestic nature.
The amount of the decreasing adjustment is:
1 Adjusted ITC
x Price x 1-
11 Full ITC
where:
adjusted input tax credit is:
 the amount of any input tax credit that was attributable to a tax period in respect of the
acquisition or importation; minus
 the sum of any increasing adjustments, under Subdivision 19-C or Division 129, that were
previously attributable to a tax period in respect of the acquisition or importation; plus
 the sum of any decreasing adjustments, under Subdivision 19-C or Division 129, that were
previously attributable to a tax period in respect of the acquisition or importation.
full input tax credit is the amount of the input tax credit to which the entity would have been
entitled for acquiring or importing the thing for the purpose of the entity's enterprise if:
 the acquisition or importation had been solely for a creditable purpose; and

June 2014 71
GST Fundamentals
 in the case where the supply to the entity was a taxable supply only because of s 72-5 or 84-5 -
the supply had been a taxable supply under s 9-5.
price is the price of the taxable supply.
However, if the amount worked out under the formula above is greater than the difference between
the full input tax credit and the adjusted input tax credit, the amount of the decreasing adjustment is
an amount equal to that difference.
The decreasing adjustment is attributable to the same tax period as the taxable supply to which it
relates; or if it relates to a supply that is not a taxable supply - the tax period to which the supply
would be attributable if it were a taxable supply.
The GST remittance amount

As previously noted, the net amount for a tax period applying to a taxpayer is worked out using the
following formula:
GST - Input tax credits +/- adjustments
Where:
 GST is the sum of all the GST for which the taxpayer is liable on the taxable supplies that are
attributable to the tax period.
 Input tax credits are the sum of the input tax credits to which the taxpayer is entitled for the
creditable acquisitions and creditable importations that are attributable to the tax period.
In order to ascertain the GST remittance amount, this net amount must be amended in order to take
into account of any increasing or decreasing adjustments.
Illustration
Peter's GST summary for the relevant tax period is as follows:
Taxable supplies ($11,000 x 1/11) $1,000
Creditable acquisitions ($5,500 x 1/11) $500
Increasing adjustment $100
Decreasing adjustment $200
Net amount – GST remittance amount $400
Peter must pay this amount no later than the 21st day of the month following the end of the tax
period, if he uses monthly tax periods. If Peter uses quarterly tax periods the amount is due by the
28th day of the month following the end of the tax period, except for December quarter, which is due
by the 28th of February. [Due dates are discussed later].
GST payment options

Division 162 deals with the payment of GST by instalments.

72 June 2014
GST Fundamentals
Subdivision 162-A - Electing to pay GST by instalments
A taxpayer is eligible to elect to pay GST by instalments if:
 The entity is a small business entity (unless the business only qualifies as a small business
entity because its turnover as worked out at the end of the income year is actually less than
the $2 million threshold i.e. where it cannot satisfy the prior year or current year likely
turnover tests); or
 The entity does not carry on a business but has GST turnover that does not exceed $2 million
(the 'instalment turnover threshold').
(see above at page 36 for a discussion on ‘small business entity’)
In addition to one of the above, it is necessary that:

 The current tax period applying is not affected by:
 An election under s 27-10 (election of one month tax periods); or
 A determination under s 27-15 (determination of one month tax periods); or
 A determination under s 27-37 (special determination of tax periods on request); and
 The taxpayer's current GST lodgement record is at least 4 months; and
 The taxpayer has complied with all obligations to give GST returns to the Commissioner; and
 Is not in a net refund position.
Section 162-5(2) provides that the instalment turnover threshold is $2 million or such higher amount
as the regulations specify.
The table in s 162-5(3) outlines when a taxpayer is in a net refund position.
When a taxpayer is in a net refund position

Item If the taxpayer’s current GST Take into account this period to work out whether
lodgement record is… the taxpayer is in a net refund position:
1 at least 13 months the 12 months preceding the current tax period
2 at least 10 months, but less than the 9 months preceding that current tax period
13 months
3 at least 7 months, but less than the 6 months preceding that current tax period
10 months
4 less than 7 months the 3 months preceding that current tax period

June 2014 73
GST Fundamentals
Stop Press
The Tax and Superannuation Laws Amendment (2013 Measures No. 2) Act 2013 received Royal
Assent on 28 June 2013. It provides that, with effect for GST instalment quarters starting on or
after 1 July 2013, entities that are paying their GST by instalments, and subsequently move
into a net refund position, may continue to pay their GST by instalments if they choose to do
so.
A deemed instalment amount of zero will apply where it would otherwise be less than zero.
An election to pay GST by instalments must be lodged with the Commissioner on the approved form
(s 162-15).
The election must be made on or before 28 October in the financial year to which it relates and is to
take effect for the entire financial year (s 162-30).
Note
From 1 July 2005, the former annual election to pay GST by instalments was substituted with a
general rule that an election remains in force until:
 It is revoked by the entity;
 disallowed by the Commissioner;
 ceases to have effect because the entity ceases to be a small business entity or exceeds
the instalment turnover threshold (as the case may be); or
 entity is in a net refund position (for the first tax period in a financial year) (subject to
'Stop Press' above).
Murtons Pty Ltd commences operations on 1 January 2004. The company has an annual turnover of
$1 million and lodges quarterly GST returns. Murtons would like to pay its GST liability using the
instalment system. The company will meet the lodgement requirement to elect to pay GST by
instalments when it has lodged GST returns for at least 4 months preceding its current tax period.
For the company, the earliest it could make an election would be after it has lodged its second
quarterly GST return (i.e. quarter 4 return, due 28 July 2004).
Subdivision 162-B – Consequences of electing to pay GST by instalments

A GST instalment payer must provide an annual GST return to the Commissioner by the due date for
lodgement of tax return or 28 February of following financial year, whichever is earlier
(s 162-60).
The advantage of electing to be a GST instalment payer is that during the course of the year, the
taxpayer is required to make quarterly remittances of GST, but rather than remitting GST based on
actual calculations, the figure is based on a percentage of the previous year's GST remitted. On
completion of the annual GST return, the difference is made up.

74 June 2014
GST Fundamentals
When instalments must be paid – s 162-70
Item If the GST instalment quarter ends on this Pay the GST instalment to the
day… Commissioner on or before this day:
1 30 September the following 28 October
2 31 December the following 28 February
3 31 March the following 28 April
4 30 June the following 28 July
Certain entities pay on two GST instalments for each year

Primary producers and taxpayers with special professional income who choose to pay GST by
instalments are only required to make two payments during the course of the year (s 162-80).
General interest charge is payable on any late payment. The interest is calculated from the day on
which the instalment was due to the day on which the amount is actually paid (s 162-100).
Subdivision 162-C – GST instalments

The GST instalment for the first GST instalment quarter is based on either:
 the instalment amount notified by the Commissioner; or
 a varied instalment amount.
The GST instalment for any other GST instalment quarter is:
 if the taxpayer has a notified instalment amount for the GST instalment quarter, whichever of
the following that the taxpayer chooses:
 the notified instalment amount; or
 the varied instalment amount.
 If the taxpayer does not have a notified instalment amount, whichever of the following that
the taxpayer chooses:
 25% of the estimated annual GST amount relating to the preceding GST instalment
quarter; or
 the varied instalment amount for the GST instalment quarter.
Section 162-135 provides that a notified instalment amount for a GST instalment quarter is the
amount that is:
 worked out by the Commissioner; and
 notified by the Commissioner to the taxpayer before the day on which the GST instalment is
due.
The Commissioner is not to work out or notify a notified instalment amount for a GST instalment
quarter if a taxpayer has a varied instalment amount for an earlier GST instalment quarter of the
same instalment tax period.

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GST Fundamentals
A taxpayer may notify the Commissioner a substituted or varied instalment amount for the GST
instalment quarter. This substituted amount must not be less than zero. The notice must be given to
the Commissioner on or before the day on which the GST instalment for the GST instalment quarter
is due. An estimate of the annual GST liability must be included in the variation notice.
The annual GST liability for the year is the amount that would have been the GST liability had the
instalment system not been introduced, i.e. actual GST payable for the year (s 162-145).
Subdivision 162-D - Penalty payable

Subdivision 162-D provides penalties if a varied instalment amount is too low as a result of:
 payments being too low in proportion to the taxpayer's annual GST liability;
 estimated annual GST amount being too low in proportion to the annual GST liability; or
 the varied instalment amount is too low a proportion of the taxpayer's estimated annual GST
amount.
The penalty is based on the general interest charge rate, and the machinery provisions of
Division 298 in Schedule 1 to the Taxation Administration Act 1953 apply.
The penalty generally applies if the total of a taxpayer's varied instalment amounts for the year is less
than 85% of the annual GST liability. The penalty is based on the amount of GST payable in a quarter
less the GST actually paid, i.e. the shortfall for each quarter is calculated separately with the general
interest charge being applied to each shortfall.
Penalties may be remitted if a "top up" payment is made (s 162-200).
Lodgment of the GST return

If a taxpayer is registered or required to be registered, they must forward to the Commissioner a GST
return for each tax period (s 31-5). The taxpayer must give the return whether or not:
 the taxpayer’s net amount for the tax period is zero; or
 the taxpayer is liable for the GST on any taxable supplies that are attributable to the tax
period.
Illustration
Melissa and Zack operate a child-care centre and are currently on monthly tax periods. Irrespective
of whether or not an amount of GST is payable or refundable, Melissa and Zack must lodge a GST
return for each tax period.
The date that a taxpayer must furnish the Commissioner with a GST return for a tax period is
dependant upon which tax periods the taxpayer is using. If the taxpayer uses quarterly tax periods
they must lodge their GST return for the tax period to the Commissioner:
 as provided in the following table; or
 within such further period as the Commissioner allows.

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When quarterly GST returns must be given
If this day falls within the quarterly tax period Give the GST return to the Commissioner on or
before this day:
1 September the following 28 October
1 December the following 28 February
1 March the following 28 April
1 June the following 28 July
Where the taxpayer uses another tax period, they must lodge their GST return:
 on or before the 21st day of the month following the end of that tax period; or
Where the taxpayer uses another tax period and the tax period ends during the first 7 days of a
month, the taxpayer must give the GST return to the Commissioner:
 on or before the 21st day of that month; or
Illustration cont'd
Melissa and Zack must lodge each return with the Commissioner on or before the 21st day of the
month following the end of each tax period. As they are on monthly tax periods, a return must be
lodged by the 21st of each month.
The GST return for a tax period must be in the approved form. In effect, as stated earlier, the
approved form of GST return is incorporated within the taxpayer's business activity statement (BAS)
for monthly or quarterly lodgers.
Electronic lodgment of GST returns

Section 31-25 provides that a taxpayer may choose to give the required GST returns to the
Commissioner by lodging them electronically. However, mandatory electronic lodgement will be
required if the taxpayer’s GST turnover meets the electronic lodgement turnover threshold
(being $20 million). In these circumstances, the taxpayer must give their GST returns to the
Commissioner by lodging them electronically.
Illustration
Cassandra operates a hairdressing salon. Her tax agent handles all of her dealings with the Tax Office.
Cassandra has decided that all of her GST returns will be lodged electronically by her accountant.

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Annual GST return
In addition, those taxpayers choosing an instalment system must lodge an annual GST return by the
earlier of the due date for lodgment of their income tax return or 28 February of the following
financial year (s 162-60).
Recent Development
The Indirect Tax Laws Amendment (Assessment) Act 2012 received Royal Assent on 15 April
2012. With effect from 1 July 2012, it harmonises the previous GST self-actuating system with
the self-assessment system used for income tax (for companies and superannuation funds).
All GST taxpayers will be taken to have a deemed assessment and deemed notification of
assessment on the date they lodge their GST return for a tax period, with amendment time
periods commencing to run from that date.
It also formalises the current administrative system whereby the Commissioner allows certain
minor errors from past GST returns to be corrected in the current GST return. A legislative
instrument titled GST: Correcting GST Errors Determination 2013 was registered to implement
this aspect on 10 May 2013.
From a practical point of view, this will have no effect on how taxpayers currently lodge their
GST returns.
Payment of GST liability or refunds
Payments
When quarterly GST payments must be made
If this day falls within the quarterly tax period Pay net amount to the Commissioner on or
before this day:
1 September the following 28 October
1 December the following 28 February
1 March the following 28 April
1 June the following 28 July
Note
The Commissioner has introduced administrative measures which provide for an extension of
the 1st, 3rd and 4th activity statement lodgement dates, where the activity statement is lodged
electronically by a tax agent. The lodgement dates for these quarters will be extended to the
28th of the month following the usual due date, i.e. the 1st quarter activity statement will be
due on 28 May. These measures apply from 1 July 2003.

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If the net amount for a tax period (other than a quarterly tax period) applying to a taxpayer is greater
than zero, the taxpayer must pay the net amount to the Commissioner on or before the 21st day of
the month following the end of that tax period. However, if the tax period ends during the first
7 days of a month, the net amount must still be paid to the Commissioner on or before the 21st day
of that month.
Illustration
Kelsey operates on monthly tax periods. For the month of March, in accordance with s 27-35, Kelsey
decides to end that particular tax period on the 2nd April as it is a Friday and coincides with Kelsey's
balancing of her sales.
As the tax period ends within 7 days of the beginning of a month, Kelsey is still required to pay
outstanding GST to the Tax Office by the 21st of that month.
General notes in relation to payments

1. This amount may be paid in any form accepted by the Commissioner, or electronically, if the
electronic lodgement turnover threshold of $20 million is reached.
2. GST payable in respect of taxable importations is to be paid by the importer to the
Commonwealth:
 At the same time, at the same place, and in the same manner, as customs duty is
payable on the goods in question (or would be payable if the goods were subject to
customs duty); or
 In the circumstances specified in the regulations, within such further time specified in
the regulations, and at the place and in the manner specified in the regulations.
3. The Commissioner may defer the time at which a net amount is due and payable (s 255 -10(1)
of Schedule 1 to the Taxation Administration Act 1953) 'TAA'. If the due date is amended, any
general interest charge will be calculated from the amended due date (s 204(3)(a)
ITAA 1936).
4. The Commissioner may also permit a taxpayer to pay an amount by instalment. This
arrangement does not alter the date due and payable and, therefore, may attract the general
interest charge from the original due date (s 255-15 Schedule 1 TAA).
5. If the Commissioner believes that a taxpayer may leave Australia before the due date for
payment, that due date may be brought forward. The Commissioner must notify the taxpayer
in writing of such a change (s 255-20 Schedule 1 TAA).
Refunds
If the net amount for a tax period is less than zero, the Commissioner must refund that amount to a
taxpayer within a reasonable time (originally the period was 14 days) after the taxpayer gives to the
Commissioner, under Division 31, the GST return for that tax period. Late refunds will accrue
interest.
However, if a taxpayer has a liability to the Commonwealth arising under or because of an Act of
which the Commissioner has the general administration, the Commissioner may:
 apply that net amount against that other liability; and
 pay to the taxpayer any part of that net amount not so applied.

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If the taxpayer has not nominated a financial institution account for the purposes of this section and
a direction has not been made relating to the taxpayer, the Commissioner is not obliged to pay any
refunds to that taxpayer until he or she nominate an account for the purposes of this section.
Illustration
If Kelsey lodges her GST return by the 21st of January and that return indicates a refund situation, and
the Commissioner has no reason to doubt the veracity of Kelsey's claim, the Commissioner must
refund Kelsey within a reasonable time of the date of receipt of the return, provided that Kelsey has
nominated a financial institution account.
Recent Developments
Tax and Superannuation Laws Amendment (2012 Measures No. 1) Act 2012, which received
Royal Assent on 27 June 2012, allows the Commissioner to withhold GST refunds pending
integrity checks, with effect from the date of Royal Assent. The legislation was in response to
the Full Federal Court decision in Multiflex v FCT [2011] FCAFC 142 (from which the High Court
refused special leave to appeal), which held that the reasonable time implied by the current
law within which the ATO had to issue a GST refund was limited to the time taken to process
the refund and could not include time to undertake an audit or other probity checks.
In addition, on 30 May 2014 the Tax Laws Amendment (2014 Measures No. 1) Act 2014
Received Royal Assent. This amendment, which applies from Royal Assent, allows the
Commissioner to withhold a refund of overpaid GST to which a taxpayer is otherwise entitled
unless the overpaid GST has been passed back to the customer.

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Input taxed supplies
Summary
 Input taxed supplies are specifically identified categories of supplies on which the supplier has
no GST liability but also cannot claim input tax credits (with some exceptions) for acquisitions
used in making such supplies.
 The most common categories of input taxed supplies are financial supplies (as defined
including loan and share transactions), residential rent (other than for commercial residential
premises) and disposal of residential premises (other than new or commercial residential
premises).
Introduction
Input taxed activities are supplies in respect of which suppliers are not required to pay GST but
credits are not available for tax paid on purchases or inputs to that enterprise to the extent related
to the input taxed activities (s 9-30(2) and Division 40). The following table outlines the provisions
contained in Division 40.
Division 40 - Input taxed supplies

Table of Subdivisions
40-A Financial supplies
40-B Residential rent (and also Div 87)
40-C Residential premises
40-D Precious metals
40-E School tuckshops and canteens
40-F Fund-raising events conducted by charitable institutions etc
This module will only examine Subdivision 40-C, the sale of residential premises.

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Note
While financial supplies are beyond the scope of this paper, they can be relevant to many
superannuation funds or any taxpayer buying or selling shares, partnership interests or similar
(even on a once-off basis) as well as the traditional supplies of banks and similar institutions.
They are a form of input taxed supply meaning GST is not payable nor are input tax credits
generally claimable. However, for financial supplies only there are special rules which can
allow a full or partial input tax credit claim if conditions are met for concessional treatment
such as the Financial Acquisitions Threshold or Reduced Input Tax Credit rules. For all other
types of financial supplies, input tax credits cannot be claimed (refer below).
Sale of residential premises
Introduction
'Residential premises' is defined in s 195-1 to mean land or a building that:
 is occupied as a residence or for residential accommodation; or
 is intended to be occupied, and is capable of being occupied, as a residence or for residential
accommodation;
(regardless of the term of the occupation or intended occupation) and includes a floating home.
Floating home is further defined to mean a floating platform with a building attached to be occupied as a
residence and does not have means of, or is not capable of being readily adapted for, self-propulsion.
Subdivision 40-C specifically deals with the GST treatment of the sale or supply of residential premises.
Sale of used residential premises

A sale of real property is input taxed, but only to the extent that the property is residential premises
to be used predominantly for residential accommodation. However, the sale is not input taxed to
the extent that the residential premises are commercial residential premises or new residential
premises.
Illustration
Gordon and Yvonne sell a tenanted property that used to be their family home. As this is the sale of
residential premises, the sale is input taxed. Therefore, no GST is to be remitted in respect of the
sale of the home. In addition, no input tax credits arise in respect of any expenses incurred in selling
the home. [Had they sold their home while they were still living in it they would not have had an
enterprise so the sale would have been outside the GST system in event].
Sale of new residential premises

As a result of this Subdivision, the sale of new residential houses by registered businesses (such as
builders and developers) and the sale of commercial residential premises will be subject to GST.
Section 40-75 provides that new residential premises means residential premises that:
1. have not previously been sold as residential premises (other than commercial residential
premises) and have not previously been the subject of a long-term lease; or

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2. have been created through substantial renovations of a building; or
3. have been built, or contain a building that has been built, to replace demolished premises on
the same land.
However, the premises are not 'new' if for at least five years since being built or renovated, the
premises have been used as rental accommodation (and for no other purpose). Substantial
renovations are discussed in GSTR 2003/3.
Illustration
Aaron, a builder, builds a house and lives in that house for a period of two years after which the
house is sold for residential accommodation. Is Aaron liable to pay tax in respect of this sale?
The definition of 'new residential premises' as provided by s 195-1 states that the term means
'residential premises that have not previously been sold as residential premises and have not
previously been subject to a long-term lease'.
The sale of Aaron’s house quite clearly fits within this definition. Does this mean that GST is payable?
Consideration would need to be given to whether Aaron’s private use of what was his trading stock
constitutes the taking of goods for own use. Where this occurs, a supply is taken to have arisen, with
the triggering of the relevant GST liability.
If Aaron has previously been subject to GST on these premises, the subsequent sale of the premises
after he has occupied them for two years would not fall within the supply of new residential
premises.
Note
Aaron would need to also give consideration to the income tax implications of the change of
status of the premises from trading stock to his private residence.
In some circumstances it might be possible for Aaron to establish that the building of this
particular house for his own use was outside his enterprise and therefore not part of his
trading stock.
Supplies of residential premises by way of long-term lease

A supply is input taxed if:
 the supply is of real property but only to the extent that the property is residential premises to
be used predominantly for residential accommodation; and
 the supply is by way of long-term lease, defined as a lease etc., for a period of greater than
50 years.
However, the supply is not input taxed to the extent that the residential premises are commercial
residential premises or new residential premises.
Note
If the supply of residential premises is not input taxed, i.e. a taxable supply, the vendor may
choose to utilise Division 75, which deals with the margin scheme (discussed below), in
calculating GST payable on the supply. See also GSTR 2000/21 and GSTR 2006/8.

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Illustration
Sharon and Robert grant a long term lease (greater than 50 years) on their home. This too is subject
to input taxed treatment and, therefore, no GST is payable and no input tax credits are available.
Important
GSTR 2012/5 (residential premises), GSTR 2012/6 (commercial residential premises) and
GSTR 2012/7 (long-term accommodation in commercial residential premises), all released on
19 December 2012, examine, amongst other things, the meaning of 'residential premises' and
'commercial residential premises' for the purposes of Subdivision 40-B (residential rent),
Subdivision 40-C (residential premises) and Division 87 (long term accommodation in
commercial residential premises) of the GST Act.
Note
The rulings do not consider the issue when a sale of real property is a sale of new residential
premises. Refer GSTR 2003/3 for examination of that issue.
The Commissioner takes the view that the requirement in ss 40-35, 40-65 and 40-70 that premises
are residential premises to be used predominantly for residential accommodation is to be
interpreted as a single test that looks to the physical characteristics of the property.
The factors discussed below assist in determining whether the premises are residential premises for
the purposes of the ss 40-35, 40-65 and 40-70. NB The following discussion is not based entirely on
the language used in the rulings.
Physical characteristics and objective intention

In determining whether the residential premises are to be used predominantly for residential
accommodation, the objective intention for which the premises are designed, built or modified is
relevant, not the subjective intention or use of by a particular person. Further, the physical
characteristics of the premises, such as whether the premises are suitable for occupation, is relevant
in determining whether the premises are residential.
Living accommodation provided by shelter and basic living facilities

'Residential premises' is not limited to premises suited to extended or permanent occupation.
Residential premises provide 'living accommodation', which does not require any degree of
permanence. It includes lodging, sleeping or overnight accommodation.
In order to meet the definition of 'residential premises', the premises must provide shelter and basic
living facilities. Where the physical characteristics indicate that the premises are not intended to
provide living accommodation, the premises would not be residential premises.
Fit for human habitation

The premises must be fit for human habitation to be capable of residential occupation. Residential
premises will not be suitable for human habitation when they are in a dilapidated condition which
prevents occupation as residential accommodation. Residential premises in a minor state of disrepair
remain residential premises. Contractual or legal prohibitions against residential occupation do not
prevent premises from being suitable to provide residential accommodation. A partially built
building is not residential premises until it becomes fit for human habitation.

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Garages and car parking spaces
If the physical characteristics of residential premises to be used predominantly for residential
accommodation indicate that a garage or car-parking space is part of the premises being supplied,
the garage or car-parking space forms part of the residential premises to be used predominantly for
residential accommodation.
Other premises
It should be noted that not all premises possessing basic living facilities are residential premises to be
used predominantly for residential accommodation. If it is clear from the physical characteristics of
the premises that any suitability for the provision of living accommodation is ancillary to the
premises' primary function, the premises are not residential premises to be used predominantly for
residential accommodation.
Premises requiring apportionment

The value of a supply of premises which includes residential premises to be used predominantly for
residential accommodation needs to be apportioned to the extent that part of the premises is not
residential premises to be used predominantly for residential accommodation.
Illustration - residential premises with apportionment
Julia acquires a residence from Kevin and subsequently modifies it to use in her profession as a
doctor. Julia renovates an area of the house to provide office and consulting room space, an
operating theatre, a waiting room and storage for the business. A sealed car park is also added to
the property. Significant modifications are made to these areas including lighting, hygiene facilities
and security to meet industry standards.
Objectively, part of the house is still designed predominantly for residential accommodation,
comprising bedrooms, bathroom, kitchen, living room and gardens.
If Julia later sells or leases the house, the commercial part, being the area modified for use in her
business (office, consulting room, operating theatre, waiting room, storage and car park) is excluded
from input taxed treatment.
In this case, an apportionment of the consideration for the supply is required.
However, the bedroom that Julia uses, without modification, for storage and doing her accounts
retains its character as part of the residential premises, and is included in the input taxed portion of
the supply.
Illustration - residential premises no apportionment
Wayne is an accountant, who resides in a terrace house that is not new residential premises and
decides to convert a room at the front of the house into an office for his accountancy practice.
Wayne arranges the installation of an electricity point and telephone line for the place in the room
where he intends to set-up a printer and facsimile machine. He has book shelves; filing cabinets; a
desk; a table for the printer and facsimile machine; suitable floor coverings laid, and chairs brought in
to fit-out the room. He also has an advertising sign placed outside the front door of his house.
Wayne does not modify any of the other rooms in the house.

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Illustration - residential premises no apportionment
These changes are not sufficient to modify the physical characteristics of the terrace house into
premises other than residential premises to be used predominantly for residential accommodation.
The furniture and fittings that Wayne has brought into the room do not change the physical
characteristics of the house itself. Also, the installation of an electricity point and telephone line, and
the placement of a sign outside the house are not sufficient modifications to alter the physical
characteristics of the premises so that they are no longer residential premises to be used
predominantly for residential accommodation. If Wayne sells or leases the premises he will be
making a wholly input taxed supply under s 40-65 or s 40-35 respectively.
Land supplied with building

The extent to which land forms part of residential premises to be used predominantly for residential
accommodation depends on the facts of each case. The area of land that is included with a building
is not limited by the definition of residential premises. A factor that may assist in determining this is
the extent that the physical characteristics of the land and building as a whole indicate that the land
is to be used in conjunction with the residential building.
Vacant land
Vacant land is not capable of being occupied as a residence or for residential accommodation as it
does not provide shelter and basic living facilities. As such, vacant land is not residential premises.
Used for residential accommodation before 2 December 1998

New residential premises as referred to in paragraphs 40-65(2)(b) and 40-70(2)(b) will only have
been used for residential accommodation (regardless of the term of occupation) before 2 December
1998 where the premises at the time of use before 2 December 1998 were residential premises but
not commercial residential premises. That is, the prior use for residential accommodation does not
encompass prior use for making supplies of accommodation in commercial residential premises.
Illustration
Hilton Enterprises purchases a hotel in January 1997 and operates it for 15 years. In December 2013,
Hilton Enterprises ceases operation of the hotel, strata titles it and sells one of the strata titled units
to Nick.
Although the hotel was sold as commercial residential premises in 1997, the sale of the strata titled
unit to Nick in December 2013 is a sale of new residential premises. This is because the premises
have not previously been sold as residential premises (other than commercial residential premises).
The hotel was not used for residential accommodation for the purpose of paragraph 40-65(2 )( b) as
it was used to supply accommodation in commercial residential premises
Commercial residential premises

'Commercial residential premises' is defined in s 195-1 of the GST Act as:
 a hotel, motel, inn, hostel or boarding house;
 premises used to provide accommodation in connection with a school;
 a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on
hire;
 a ship that is mainly used for entertainment or transport in the ordinary course of a business of
providing ships for entertainment or transport;

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 a marina at which one or more of the berths are occupied, by ships used as residences;
 a caravan park or camping ground; or
 anything similar to residential premises described in the paragraphs above.
Important
The definition expressly excludes premises to the extent that they are used to provide
accommodation to students in connection with an education institution that is not a school.
Premises may have an overall physical character that establishes them as commercial
residential premises even though they are not, at the time of the relevant supply, being
operated as such.
Hotels, motels, inn, hostel or boarding house and similar residential premises
The characteristics that are common to operating hotels, motels, inns, hostels and boarding houses
are:
 commercial intention;
 accommodation is the main purpose;
 multiple occupancy;
 occupants have the status of guests;
 holding out to the public;
 central management;
 provision of, or arrangement for, services; and/or
 management offers accommodation in its own right.
Whether premises are commercial residential premises as a hotel, motel, inn, hostel, boarding house
or similar to these, is a question of fact and degree involving a weighing up of all of the
characteristics outlined in the ruling. Commonly all of the above characteristics are exhibited by
premises that fall within paragraph (a) of the definition of commercial residential premises in s 195-1.
However, all the above characteristics are not required to be exhibited, rather the extent and
manner to which the characteristics are exhibited and the overall character of the premises should
be considered.
Long term accommodation in commercial residential premises

For an entity to provide commercial accommodation to an individual, the individual must be
provided a right to occupy the whole or any part of the commercial residential premises for living
accommodation. This right to occupy must be conferred at the time of the taxable supply and must
extend for the full duration of the relevant supply.
For commercial accommodation to be provided to an individual as long-term accommodation, it is
only necessary for the supply of commercial accommodation to be made to an entity for 28 days or
more and for the accommodation, under the terms of the agreement, to be able to be taken up by
an individual. It is not necessary for the commercial accommodation to be actually provided to an
individual.
Commercial residential premises are predominantly for long-term accommodation for the purposes
of subsection 87-20(3) where at least 70% of the accommodation supplied in the commercial
residential premises is for a continuous period of 28 days or more and may, under the terms of the
agreement, be taken up by an individual.

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GST – Free Supplies
Summary
 GST-free supplies are specifically identified categories of supplies on which the supplier has no
GST liability but can still claim input tax credits for acquisitions used in making such supplies.
 The most common categories of GST-free supplies are basic food items, most health and
education supplies, exports and sale of a business as a going concern.
Introduction
Once the criteria in the definition of taxable supply have been satisfied, there are only two
possibilities for a supply not to be subject to GST. Firstly, as dealt with earlier, input taxed supplies,
whereby no GST is payable on the income and no input tax credits are available in respect of
acquisitions made in order to earn the input taxed supply income. Secondly, a supply may be
GST-free. This means that the income is not subject to GST, however, input tax credits are still
available in respect of acquisitions made in order to earn such income.
Division 38 – GST-free supplies

Table of Subdivisions
38-A Food
38-B Health
38-C Education
38-D Child care
38-E Exports and other supplies that are for consumption outside Australia
38-F Religious services
38-G Activities of charitable institutions etc.
38-I Water, sewerage and drainage
38-J Supplies of going concern
38-K Transport and related matters
38-L Precious metals
38-M Supplies through inwards duty free shops
38-N Grants of land by governments
38-O Farm land
38-P Cars for use by disabled people
38-Q International mail
This module will only examine the following categories of GST-free supplies:
 food;
 exports; and
 going concerns.

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GST and food
Introduction
Subdivision 38-A provides an exemption from the imposition of GST on food for human consumption.
It should be noted that food includes beverages or drinks.
Section 38-2 states that a supply of food is GST-free, but this in then qualified by subsequent
provisions. At first instance therefore, for the exemption to be available the goods in question will
need to satisfy the definition of food. Some goods have been specifically included or excluded from
the definition. Schedules 1 and 2 to the Act contain detailed listings of categories of foods which are
not GST-free (such as biscuits, prepared meals and bakery products), and beverages which are GST-
free (such as coffee, tea, and some flavoured milk and water products).
In addition, other conditions will apply which require attention to be given to issues such as who is
supplying the food, where the food is to be consumed, whether the food is hot or cold at the time of
the supply, whether the food requires refrigeration, whether the food has been processed, and the
like.
The Tax Office issued a 'GST food guide' which appears on its website to assist retailers and
wholesalers in working out the GST status of food items. This food guide is updated periodically by
the Tax Office.
Definition of food
Section 38-4 defines food to mean any of the items listed in the section, or any combination of those
listed items. The listed items are:
 food for human consumption (whether or not requiring processing or treatment);
 ingredients for food for human consumption;
 beverages for human consumption (s 38-4(2) provides that beverages includes water);
 ingredients for beverages for human consumption;
 goods to be mixed with or added to food for human consumption (including condiments,
spices, seasonings, sweetening agents or flavourings); and
 fats and oils marketed for culinary purposes.
The definition of food excludes the following:

 live animals (except crustaceans and molluscs such as lobsters, oysters and crabs, where they
are sold for human consumption). This means that live animals are treated as if they are not
food, and accordingly, any supply will trigger a liability for GST; or
 unprocessed cow's milk; or
 unprocessed grains, cereal or sugar cane. This is intended to cover sales of these products by
primary producers where the product has not been subject to any process or treatment
resulting in an alteration of its form or condition; or
 plants under cultivation, being plants that are still in a growing medium that could be
consumed as is as food for human consumption.
The definition of food adopted in s 38-4 means that most supplies by a primary producer will be
subject to GST, however, supplies of fresh fruit and vegetables by a primary producer will be
GST-free.

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Illustration
Murray grows lettuces and basil on his farm as well as running sheep. When he picks and sells his
lettuces to the local supermarket, the supply will be GST-free as it is a supply of a fresh vegetable for
human consumption.
If he picks the leaves of the basil plants and sell them in bunches, the supply will be GST-free. If he
sells the basil plants in containers, they will constitute plants under cultivation. Accordingly the
supply will trigger a liability for GST.
As the sheep are sold as live animals, the supply does not fall within the definition of a supply of food
for human consumption. Accordingly, a GST liability would be triggered.
Food for human consumption

The legislation refers to food for human consumption. In the Explanatory Memorandum to this
legislation, it was stated that the exemption would not be available for food marketed for other than
human consumption. For example, food marketed for animals, such as pet food, fodder for animals
and the like, will be subject to GST on supply.
The term 'food for human consumption' is also meant to be interpreted as including only food fit for
human consumption. Accordingly, the Explanatory Memorandum states that food that is rotten or
spoiled would not be able to qualify for the exemption.
Illustration
Jerry operates a wholesale business supplying meat products. He supplies restaurants with premium
cuts of lean meat, whilst waste products are supplied to a local fertiliser manufacturer for conversion
into nursery plant fertiliser products.
Jerry will be liable for GST on his supplies to the fertiliser manufacturer, but his supplies to restaurant
operators will be GST-free supplies of food.
Should Jerry supply any of his waste products to a food manufacturer for further processing to form
a food for human consumption, those supplies would be GST-free.
Food that is not GST-free

Section 38-3 provides that a supply of food will not be GST-free if it is a supply of:
 food for consumption on the premises from which it is supplied;
 hot food for consumption away from the premises from which it is supplied;
 food specified in Schedule 1 to the Act, or food that is a combination containing one or more
of those specified foods;
 a beverage other than those specified in Schedule 2 of the Act; or
 food specified in the Regulations.
Premises used in supplying food

Food for consumption on the premises from which it is supplied or hot food for consumption away
from those premises are not GST-free supplies.

90 June 2014
GST Fundamentals
Section 38-5 defines premises to include:
 a place where the supply of food takes place;
 the grounds surrounding a café or public house, or other outlet for the supply; or
 the whole of any enclosed space such as a football ground, garden, showground, amusement
park or similar area where there is a clear boundary or limit.
Excluded from this definition is any part of a public thoroughfare, unless it is as area designated for
use in connection with supplies of food from an outlet for the supply of food.
Illustration
Jane operates a street café. She provides hot and cold snacks with beverages which can be
consumed inside her café, on the curbside tables or taken away.
Section 38-3 requires Jane to account for GST on all food and drinks sold through her café where her
customers eat in or at the curbside tables which form part of her business premises.
Hot food and drink supplied as takeaways will be taxable supplies (with hot being food heated to
above the room or generally surrounding temperature). Supply of cold food and drink listed in
Schedule 1 of the Act will be subject to GST, supply of cold food which constitutes prepared meals
(such as sandwiches) will be subject to GST. However, supplies of other food (such as a carton of
milk or a loaf of bread) will be GST-free.
Reference
The following Tax Office determinations should be referred to when considering the GST
treatment of food for consumption on premises.
1. GSTD 2000/4 – Meaning of the word 'premises'

GSTD 2000/4 considers the meaning of the word 'premises' in s 38-3(1)(a). 'Premises' is defined in
s 38-5 to include, in relation to a supply of food, 'the whole of any enclosed space such as a football
ground, garden, showground, amusement park or similar area where there is a clear boundary or
limit'. The Commissioner’s view is that the following venues come within the definition of premises:
 football and other sports grounds;
 exhibition halls, galleries and museums;
 theme parks and amusement parks/arcades;
 golf courses, tennis centres, gyms, swimming pools, ice-skating rinks and ten pin bowling
alleys;
 motor racing circuits and racecourses;
 aquariums and zoos;
 cinemas, concert halls, entertainment centres and theatres; and
 air-show venues.
With some venues, the 'premises' are limited to the food supply outlet (together with any associated
surrounding areas connected with the outlet). Those venues are:
 shops in caravan parks or camping grounds - the 'premises' is the shop and not the caravan
park or camping ground;
 school tuckshops - the 'premises' is the tuckshop and not the school;

June 2014 91
GST Fundamentals
 canteens in hospitals, offices or factories - the 'premises' is the canteen and not the hospital,
office or factory; and
 cafes in shopping centres, universities or airports - the 'premises' is the cafe and not the
shopping centre, university or airport.
2. GSTD 2000/5 – When is food supplied for consumption?

GSTD 2000/5 considers when a supply of food is 'for consumption on the premises from which it is
supplied'. The Commissioner’s view is that food is supplied for consumption on the premises if it is
to be consumed:
 at the outlet where the supply takes place;
 in grounds surrounding that outlet; or
 at any venue with defined limits or boundaries associated with leisure, sport or entertainment.
Where suppliers provide food for consumption both on the premises (dine-in) and away from the
premises (take-away), they will need to distinguish food supplied for consumption on the premises
from that which is to be consumed elsewhere. The finalised Determination provides that takeaway
food can be identified from dine-in food where:
 there are separate ordering and/or serving processes for dine-in food and takeaway food;
 different packaging is provided for dine-in food and takeaway food; or;
 there are different menus or product lines for dine-in customers and takeaway customers.
Where the business operations do not identify takeaway supplies from dine-in supplies, food will
remain GST free if:
 it is served in its original or takeaway form; and
 it is not served in circumstances indicating that consumption will take place on the premises.
Meaning of Hot Food

The expression 'hot food' has been included in the section relating to food which is not GST-free.
That expression has not been defined in the law. The EM states that 'hot food' means food which
has been heated above the room temperature or above the generally surrounding air temperature
for consumption. The intention of the law is to apply GST to food supplied in a manner that it is
intended to be and can be consumed while still hot.
Some foods may be hot at the time of supply merely because the item is freshly baked, straight out
of the oven (e.g. freshly baked bread rolls). GST will not apply however, unless it is intended that the
food would be consumed whilst still hot.
Food specified in Schedule 1

Schedule 1 to the Act contains a specified listing of foods which are not GST-free on supply.
The following qualifications should be noted in respect of the foods listed in the Schedule:
1. In determining whether a food falls with the categories of prepared food, bakery products or
biscuit goods, it does not matter whether the food is supplied hot or cold, or it requires
cooking, heating, thawing or chilling prior to consumption.
2. Food marketed as a prepared meal listed at Item 4 will only be subject to GST on supply if the
food requires refrigeration or freezing for its storage.

92 June 2014
GST Fundamentals
3. None of the items in the Schedule listed as biscuit goods are to be taken to include breakfast
food consisting principally of compressed, rolled or flattened cereal.
4. Biscuit goods does not include rusks for infants or invalids, or goods consisting principally of
those rusks.
Beverages specified in Schedule 2

Schedule 2 to the Act contains a specified listing of beverages which are GST-free on supply.
The following qualifications should be noted in respect of the beverages listed in the Schedule:
1. The GST-free status of tea and coffee etc, is removed where the beverage is marketed in a
ready to drink form.
2. For the purposes of Items 11 and 12 in the Schedule, herbage is treated as vegetables.
Combinations of food
Food that is a combination of one or more foods, at least one of which is subject to GST on supply, is
not a product which will be GST-free. Where there is a mix of packaged foods, with the various
goods being packed and sold together, each item will be treated separately for GST purposes.
Any apportionment of value to determine GST liability should use the methodology set out in s 9-80.
Illustration
Marcia sells Christmas hampers which contain a selection of cheeses, savoury biscuits, shortbread
biscuits, lollies, nuts, a Christmas cake and a bottle of champagne. She will be required to assess each
item contained in the hamper, and the hamper itself, individually to determine her ultimate GST
liability on the supply of a hamper.
Packaging of food
Many suppliers of food will package the food prior to its supply to the customer. The packaging
could take the form of a container, wrapping, shrink wrapping, individually wrapped items then
placed into a container, goods placed into a plastic shopping bag at the store checkout and the like.
Section 38-6 provides that the supply of the packaging in which the food is supplied will be GST-free
if the supply of the food is GST-free. It should be noted that the exemption is only available to the
extent that the packaging is necessary for the supply of the food and it is of a type in which food of
that kind is normally supplied.
Illustration
'Best Buy Premium Coffee Grains' is supplied by its manufacturer to the local supermarket in
individual 250g plastic jars, 20 to each cardboard box. The supply of coffee in this form is GST-free.
Accordingly, as the jars are necessary for the supply of the coffee grains and it is normal for coffee
grains to be packaged this way, the supply of the plastic jars will adopt GST-free status.
The supply of the cardboard box will not be GST-free. The mixed supply rule contained in s 9-80
should be applied by the supplier to determine the component of the supply that is subject to GST.

June 2014 93
GST Fundamentals
GSTD 2000/6 provides that the Commissioner’s view is that where the purpose of the packaging is
simply to contain, protect and promote the food within, it will be a 'normal and necessary' part of the
supply of the food.
What is normal and necessary packaging?

For individual items, normal and necessary packaging includes tins, bottles, jars and boxes. For a
group of items, normal and necessary packaging includes the carton or box that contains a number of
individual items.
If packaging usually includes items of relatively small value compared to the food which are included
to assist purchasers to prepare or consume the food (e.g. a disposable thermometer with a turkey or
a straw with a fruit juice pack), they will be normal or necessary.
What is not normal and necessary packaging?
Normal or necessary packaging does not include:
 straws, spoons or similar things that are usually supplied separately (unless they have no
lasting value and are supplied for no consideration); and
 special promotional packaging of food and promotional items accompanying food and
packaging, such as drink containers and recipe cards.
These components of the supply will be taxable.
Note
In Food Supplier and Commissioner of Taxation [2007] AATA 1550, the Administrative Appeals
Tribunal found that a promotional item was supplied for consideration even though it was
marketed as being given away for free. This was despite the package being sold for the same
price as it would normally sell without the promotional item.
Mixed supplies
Where the food component is GST-free and the packaging component is taxable, the supply is a
mixed supply. The Commissioner will, however, apply a de minimis rule to make the packaging
GST-free in circumstances where GST-free food is contained in packaging that might not otherwise
be considered normal and necessary. The de minimis rule will be applied when the packaging of
GST-free food is not charged at a separate price and the cost price of the packaging is the lesser of:
 $3 (excluding GST); or
 20% of the wholesale value of the total supply.
Illustration from GSTD 2000/6
A breakfast cereal is supplied in a plastic container, rather than in the usual cardboard box. Provided
the value of the plastic container satisfies the de minimis rule (that is, it is not charged for separately
and costs the lesser of $3 or 20% of the wholesale value of the total supply), the supply of the
container will be GST-free.

94 June 2014
GST Fundamentals
Reference
See also GSTR 2001/8: apportioning the consideration for a supply that includes taxable and
non-taxable parts.
Export of goods
Introduction
The GST is intended to be a tax on consumption in Australia. Therefore, things that are not for
consumption in Australia, such as exports, are intended to be GST-free. Consequently
Subdivision 38-E excludes exports from the GST. Section 38-185(1) provides a table outlining the
export of goods may be GST-free.
GST-free exports of goods
Item Topic These supplies are GST-free …
1 Export of goods – a supply of goods, but only if the supplier exports them from Australia
general before, or within 60 days (or such further period as the Commissioner
allows) after:
 the day on which the supplier receives any of the consideration for
the supply; or
 if, on an earlier day, the supplier gives an invoice for the supply -
the day on which the supplier gives the invoice.
2 Export of goods - a supply of goods for which the consideration is provided in instalments
supplies paid for under a contract that requires the goods to be exported, but only if the
by instalments supplier exports them from Australia before, or within 60 days (or such
further period as the Commissioner allows) after:
 the day on which the supplier receives any of the final instalment
of the consideration for the supply; or
 if, on an earlier day, the supplier gives an invoice for that final
instalment – the day on which the supplier gives the invoice.
3 Export of aircraft a supply of an aircraft or ship, but only if the recipient of the aircraft or
or ships ship exports it from Australia under its own power within 60 days
(or such further period as the Commissioner allows) after taking physical
possession of it.

June 2014 95
GST Fundamentals
GST-free exports of goods
4 Export of aircraft a supply of an aircraft or ship for which the consideration is provided in
or ships - paid for instalments under a contract that requires the aircraft or ship to be
by instalments exported, but only if the recipient exports it from Australia before, or
within 60 days (or such further period as the Commissioner allows) after,
the earliest day on which one or more of the following occurs:
 the supplier receives any of the final instalment of the
consideration for the supply;
 the supplier gives an invoice for that final instalment;
 the supplier delivers the aircraft or ship to the recipient or (at the
recipient's request) to another person.
5 Export of goods a supply of:

that are to be
 aircraft's stores, or spare parts, for use, consumption or sale on an
consumed on
aircraft on a flight that has a destination outside Australia; or
international
flights or voyages  ship's stores, or spare parts, for use, consumption or sale on a ship
on a voyage that has a destination outside Australia;
whether or not part of the flight or voyage involves a journey between
places in Australia.
6 Export of goods a supply of goods in the course of repairing, renovating, imported goods
used to repair modifying or treating other goods from outside Australia whose
etc. destination is outside Australia, but only if:
 the goods are attached to, or become part of, the other goods; or
 the goods become unusable or worthless as a direct result of being
used to repair, renovate, modify or treat the other goods.
7 Goods exported a supply of goods to a relevant traveller, but only if:

by travellers as
 the supply is made in accordance with the rules specified in the
accompanied
Regulations; and
baggage
 the goods are exported as accompanied baggage of the relevant
traveller.
A supply of any items outlined in Division 38-E is not GST-free if the supplier reimports the goods into
Australia.
Note
A similar table to that above is provided in the legislation for supplies of things, other than
goods or real property, for consumption outside Australia.
Reference
For a comprehensive analysis of exports, refer to the following rulings:
 GSTR 2000/31 Supplies connected with Australia

96 June 2014
GST Fundamentals
 GSTR 2002/6 Exports of goods, items 1 to 4 of the table in s 38-185(1) of the A New Tax
System (Goods and Services Tax) Act 1999
 GSTR 2003/7 What do the expressions 'directly connected with goods or real property'
and 'a supply of work physically performed on goods' mean for the purposes of
s 38-190(1)
 GSTR 2003/8 Supply of rights for use outside Australia - s 38-190(1), item 4,
paragraph (a) and s 38-190(2)
 GSTR 2004/7 When is a 'non-resident' or other 'recipient' of a supply 'not in Australia
when the thing supplied is done'? When is 'an entity that is not an Australian resident'
'outside Australia when the thing supplied is done' – items 2, 3 and 4(b) in the table in
s 38-190(1)
 GSTR 2005/2 - Repair of goods transiting through Australia
 GSTR 2005/6 Supplies of things (other than goods or real property) made to
non-residents that are GST-free under item 2 in the table in s 38-190(1) – the application
of s 38-190(3)
 GSTR 2007/2 – In the application of paragraph (b) of item 3 in the table in s 38-190(1) to
a supply, when does 'effective use or enjoyment' of the supply 'take place outside
Australia'?
 GSTD 2007/3 Supply by an Australian accountant to a non-resident consisting of advice
about rental premises in Australia and tax return preparation – is that supply wholly or
partly GST-free
Exemption for sale of going concern
Introduction
The supply of goods in the course or furtherance of an enterprise by a registered person for
consideration can be included within the supply of the enterprise itself. Without an exemption, the
vendor of an enterprise would otherwise be subject to GST.
Where the price for the supply was calculated on a GST inclusive basis, the purchaser would require
additional funding to cover that higher acquisition price (although where the acquisition is for
creditable purposes, an input credit would be available).
Supply of a going concern

Section 38-325 provides that the supply of an enterprise as a going concern is GST-free. This
exemption means that no GST will be included in the sale price of a going concern.
For a supply of a going concern to be GST-free:
 the recipient of the supply must be registered or required to be registered;
 the supply must be for consideration;
 both parties must have agreed in writing that the supply is of a going concern;
 all of the things for the continued operation of the enterprise must be supplied; and
 the supplier must carry on the enterprise until it is sold.

June 2014 97
GST Fundamentals
Illustration
Peter and Barry operate a hardware store in Perth. They decide to sell the store to the Thomas
Family Trust.
As long as the conditions listed above are satisfied, the sale of the store would access the exemption
from GST.
Where the exemption is not available, Peter and Barry would be liable for GST on the sale of their
store. The purchaser would have to independently determine his entitlement to an input tax credit.
Supply of part of a going concern

The supply of part of a going concern will not be able to access the exemption unless that part would
be capable of operating as a separate going concern in its own right.
GST Ruling GSTR 2002/5 provides that the going concern provisions are to be considered from the
perspective of the supplier. Therefore, in evaluating whether the exemption is available on the sale
of part of an enterprise, the assessment of whether all of the things for the continued operation of
the enterprise have been supplied should be undertaken from the supplier’s perspective.
The ruling states that ‘all things necessary’ does not refer to all conceivable things that would be
used in the enterprise. It incorporates the attributes that are essential for the continued operation
of the enterprise and the necessary things will vary according to the nature of the enterprise and the
core attributes of that enterprise.
Two elements are essential for the continued operation of an enterprise:
 the assets necessary for the continued operation of the enterprise including, where
appropriate, premises, plant and equipment, stock in trade and intangible assets like goodwill,
contracts, licences and quotas; and
 the operating structure and process of the enterprise consisting of the commercial or
economic activity relevant to the type of enterprise being conducted, e.g. ongoing advertising
and promotion.
GSTR 2002/5 considers when the following 'things' are 'necessary':
 premises;
 things brought into existence on the day of the supply;
 statutory licences, permits, quotas or similar statutory authorisations;
 the supply by a lessor of the benefits of covenants under a lease;
 goodwill;
 restrictive covenants;
 intellectual property;
 franchises (with the Commissioner's views now being less restrictive); and
 staff (again, with the Commissioner's views broadening).

98 June 2014
GST Fundamentals
Illustration
Peter and Barry operate two hardware stores in Perth. They decide to sell one of the stores to the
Thomas Family Trust, whilst retaining ownership of the other store.
As long as the conditions listed above are satisfied and that store could constitute an enterprise in its
own right, the sale of one store could access the exemption from GST.
Reference
For further information on supplies of going concerns refer to:
 GSTR 2003/13 General law partnerships
 GSTR 2004/6 Tax law partnerships and co-owners of property; and
a Tax Office fact sheet entitled 'Sale of a Business as a Going Concern - Checklist'.

June 2014 99
GST Fundamentals
Division 75 – The Margin Scheme
Summary
 The margin scheme is an optional concessional scheme for paying GST on taxable supplies of
most mainstream supplies of real property acquired without having paid full GST.
 In broad terms it allows GST to be paid on the difference between the selling price and the
acquisition price (or sometimes the value at a specified date) rather than on the full sales
proceeds.
 A purchaser cannot claim an input tax credit if GST on the sale has been calculated under the
margin scheme.
Division 75 allows a margin scheme to be used to calculate the GST on taxable supplies of freehold
interests in land, of stratum units and of long-term leases.
The margin scheme can be used if a taxable supply of real property is made by:
 selling a freehold interest in land; or
 selling a stratum unit; or
 granting or selling a long-term lease;
The margin scheme is not available, however, if the freehold interest, stratum unit or long-term lease
was acquired by the supplier under a taxable supply which was ineligible for the margin scheme
(s 75-5(2)). A supply is ineligible for the margin scheme if:
 a taxable supply on which GST was worked out without applying the margin scheme;
 a supply of a thing that was inherited from a deceased person and the deceased person had
acquired it through a supply that was ineligible for the margin scheme, because of one or more
previous applications of s 75-5(3); and
 in the case of a member of a GST group, the margin scheme is only available if the member
who originally acquired it could have used the margin scheme if that member had supplied the
property to an entity outside the group.
If the margin scheme is used to calculate the GST on a taxable supply, the amount of GST on the
supply is 1/11 of the margin for the supply.
The margin for the supply is the amount by which the consideration for the supply exceeds the
consideration for the acquisition of the interest, unit or lease in question.
Note
There are a number of special valuation rules available to calculate the margin.
An acquisition of a freehold interest in land, a stratum unit or a long-term lease is not a creditable
acquisition if the supply of the interest, unit or lease was a taxable supply under the margin scheme.
As such there will be no ITC entitlement to an entity that acquires real property for which the GST on
the supply has been calculated using the margin scheme.

100 June 2014
GST Fundamentals
Important
Special integrity rules apply where an acquisition of the real property has previously occurred
under any of the following specified GST-free/non-taxable supplies:
 Going concern exemption (Subdivision 38-J);

 Farmland exemption (Subdivision 38-O); and
 Supplies for no consideration between two GST-registered associates.
Reference
For further information on the margin scheme refer to:
 GSTR 2009/1: General law partnerships and the margin scheme

June 2014 101
GST Fundamentals
Webb Martin Consulting is a specialist tax advisory business that has entered into a
strategic alliance with TaxBanter Pty Ltd. The strategic alliance ensures that
TaxBanter clients can, if required, access the tax consulting expertise provided by
Webb Martin Consulting to hundreds of accounting practices across Australia.
Webb Martin Consulting advises on all areas of Federal and State Taxation with
particular emphasis on tax structuring, CGT including access to the small business
CGT concessions, superannuation, FBT, Division 7A and GST and property issues.
Webb Martin Consulting is widely recognised as a provider of expert, independent

and cost effective tax advice.
To find out more visit www.webbmartinconsulting.com.au
Webb Martin Consulting Pty Ltd

Level 5,
189 Flinders Lane
Melbourne, VIC, 3000
Tel: 03 8662 3200
Fax: 03 8662 3232

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p:\materials\special topics\library\8. gst issues\8b. fundamentals - gst fundamentals\complete\gst fundamentals (v002.2).docx

ENTERPRISE AND REGISTRATION .................................................... 6

SMALL BUSINESS CONCESSIONS ................................................... 17

© TAXBANTER PTY LTD 2014

TAXABLE SUPPLIES ....................................................................... 22

Special taxable supply rules ...................................................................28

CREDITABLE ACQUISITIONS .......................................................... 36

Is the supply a taxable supply to the purchaser? ...................................41

SIMPLIFIED ACCOUNTING METHODS ............................................ 44

ATTRIBUTION OF GST AND CREDITS TO TAX PERIODS ................... 45

© TAXBANTER PTY LTD 2014

The method of attribution .....................................................................50

NET AMOUNTS ............................................................................. 58

© TAXBANTER PTY LTD 2014

INPUT TAXED SUPPLIES ................................................................ 81

GST – FREE SUPPLIES .................................................................... 88

Export of goods .....................................................................................95

Exemption for sale of going concern ......................................................97

© TAXBANTER PTY LTD 2014

DIVISION 75 – THE MARGIN SCHEME .......................................... 100

© TAXBANTER PTY LTD 2014

© TAXBANTER PTY LTD 2014

How to approach the GST

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© TAXBANTER PTY LTD 2014

Garden gnome manufacturer

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Type of Supply Taxable GST-Free Input-Taxed

Example Accounting firm Hospital Bank Selling Shares

Liability to GST – introduction

A taxable supply is:

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Withholding payments covered

MT 2006/1 and the meaning of 'enterprise'

In the form of a business

Entity carrying on a business

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Entity having some characteristics of a business

Adventure or concern in the nature of trade

On a regular or continuous basis, in the form of a lease, licence or

© TAXBANTER PTY LTD 2014

Illustration – camping spot rented on a regular basis constitutes an enterprise

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-11 months CURRENT +11 months

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Illustration – calculation of current GST turnover

Vadim Pty Ltd Input taxed supplies

During the 12 months to 30 September, the company derives income of:

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Members of GST groups

Projected GST turnover

Members of GST groups

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Illustration - sale of capital land not included in projected turnover

The value of non-taxable supplies

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Voluntary or compulsory registration

Special rules relating to compulsory requirement to be registered

Representatives of incapacitated entities Division 58