Nature of GST
3.1 The GST is a broad-based indirect tax, imposed on sales and other dealings in goods, services, property and other supplies at each point in the distribution chain, including the importation of goods. The GST rate is 10 per cent.
3.2 Entities that carry on an enterprise with an annual turnover of $50,000 or more (or $100,000 or more in the case of non-profit bodies) are required to register for, and pay GST.
3.3 Entities who are not required to register for GST may voluntarily register for GST. Entities who may wish to register for GST include very small enterprises, government bodies, charities and other non-profit bodies.
3.4 Generally, registration for GST enables an entity to claim input tax credits for any GST it has incurred (or in some cases paid) for supplies acquired.
3.5 The effect of the GST (in economic terms) is that the tax is levied only on the 'value added' by each entity in the supply chain from producer to consumer.
3.6 Consumers ultimately bear the GST. This is because consumers will pay GST that is charged to them as part of the purchase price of any goods, services or other taxable supplies. Unlike GST registered entities, they cannot claim an input tax credit for this GST.
3.7 Sales or other supplies made by an entity which is registered for GST may be either taxable, GST free, input taxed or outside the scope of the GST.
3.8 Sales or supplies which are taxable are generally subject to GST at the full rate of 10 per cent.1 GST paid on acquisitions associated with these types of supplies may generally be claimed as input tax credits.
3.9 Sales or supplies which are GST free are not subject to GST. GST paid on acquisitions associated with such sales or supplies may still generally be claimed as input tax credits. Examples of goods and services which are GST free include the following:
- certain food which is for human consumption;
- most medical services and particular medical goods;
- most educational services and some goods; and
- most exported goods and services.
3.10 Sales or supplies which are input taxed are also not subject to GST. However, GST amounts paid on acquisitions associated with such activities either do not qualify as input tax credits or only qualify for reduced input tax credit status.
3.11 Input taxed items include:
- most financial supplies;
- sales of non-new residential property, that is, property which has not been newly constructed or substantially renovated; and
- rentals of residential property.
3.12 Items which are outside the scope of the GST include items which are not supplies, as defined in the GST law, and items which do not involve consideration. Such items do not attract GST. However, acquisitions which relate to such items do qualify for input tax credits. An example of an item which is outside the scope of the GST is a gift made to a charity.
3.13 Entities which are required to be registered for GST must lodge a Business Activity Statement (BAS) (also referred to in this report as a GST return) with the Tax Office at the end of each tax (reporting) period. Entities which are voluntarily registered for GST will generally lodge BASs in the same way as compulsorily registered entities.
3.14 The GST operates on a self assessment basis. Taxpayers are required to self-calculate their net GST position on the BAS and make any net payment of GST at the time of lodgment of the BAS. The Tax Office is required to pay delayed refund interest to a taxpayer if a BAS results in a GST refund to the taxpayer and that refund is not made within 14 days of lodgment of the BAS, or within 14 days of the taxpayer providing all information needed for the payment of the refund.
3.15 The tax or reporting period for GST can be monthly, quarterly, or annual. The reporting period mainly depends on the entity's level of turnover. Entities with a turnover of $20 million or more are, for example, generally required to lodge monthly returns.
3.16 The method of lodging a BAS can be either by a paper return or by electronic means. Entities with a turnover of $20 million or more are generally obliged to lodge their BAS by electronic means.
3.17 Entities that are not required to report their GST obligations monthly may choose to prepare monthly returns. Monthly returns may be beneficial to parties whose GST returns will record a net GST amount owing to them by the Tax Office, either for a certain time period or throughout the life of their activities. Monthly GST returns will allow these net refunds to be claimed sooner than would otherwise be the case if a quarterly or annual return were lodged.
Meaning of terms 'GST refunds', 'BAS refunds' and 'activity statement refunds'
3.18 Business Activity Statements also record amounts of tax other than the GST that may be due to be paid by the relevant entity to the Tax Office. These other amounts of tax include wine equalisation tax, luxury car tax, quarterly income tax instalments, Pay As You Go withholding tax, and fringe benefits tax instalments. Therefore, where an entity is entitled to a refund of GST based in its activities during a particular reporting period, it will only receive an actual refund from the Tax Office if the amount of that refund is more than any other tax debts that might be recorded on the same BAS.
3.19 In this report, except where otherwise indicated, the term 'GST refund' refers to the net amount that may be paid to a taxpayer as a result of the lodgment of their BAS, to the extent that it comprises GST. The term 'BAS refund' refers to the total net amount that may be payable to a taxpayer as a result of lodgment of their BAS. These amounts may comprise refunds of tax other than GST.
3.20 As the most common component of the dollar value of BAS refunds is a GST refund, the Tax Office has, in material provided for the purposes of this Review, treated the two terms as being synonymous.
3.21 A Business Activity Statement is one particular type of activity statement which taxpayers lodge with the Tax Office. The other major type of activity statement lodged by taxpayers with the Tax Office is the Instalment Activity Statement. Instalment Activity Statements are lodged by taxpayers who do not pay GST, but who are subject to the Pay as You Go instalment system for income tax.
3.22 The Australian National Audit Office (ANAO) has noted that approximately 65 per cent of all activity statements lodged with the Tax Office are Business Activity Statements, while 35 per cent are Instalment Activity Statements.2
3.23 In this report the term 'activity statement refunds' refers to refunds which arise from the lodgment of either a Business Activity Statement or an Instalment Activity Statement.
Entitlement to GST refunds
3.24 For some parties who lodge a BAS, the GST position will always consist of a net amount of GST owing to them by the Tax Office (that is, they will always be entitled to a GST refund). Examples of entities which fall into this category include:
- entities that make GST free supplies (for example, certain food manufacturers, suppliers of medical services and exporters);
- entities that make financial supplies and who are entitled to reduced input tax credits (such as superannuation funds);
- parties which operate a joint venture for shared expenditure; and
- entities that may be registered for GST but make little or no supplies or supplies which are for no consideration, such as government agencies.
3.25 For other entities, the GST position may consist of a net refund for one or more particular tax periods. Examples of organisations which fall into this category are as follows:
- entities engaged in an industry where large expenses are incurred during a particular time period. Examples of businesses which fall into this category include entities who make large acquisitions of goods during a particular tax period (for example, a retailer who builds up stock prior to Christmas or a food manufacturer who purchases large quantities of food items in the season when those items become available);
- entities who have recently commenced their business activities;
- entities who are winding down their business activities; and
- entities who are engaged in construction or similar projects where large expenses are incurred prior to revenue being derived from the project.
3.26 Entities may also become entitled to a GST refund for a particular period following a revision to an earlier BAS. Where the relevant revision arises because the entity has incorrectly treated an item as being subject to GST, the Tax Office is not obliged to revise the earlier BAS unless certain conditions are met.3 These conditions include a requirement that the entity reimburse the recipient of the supply if that recipient is a consumer.
3.27 For other types of revisions which generate a GST refund entitlement, such as arithmetical errors, the Tax Office is obliged under the law to revise the earlier BAS provided the revision is made within four years of the end of the relevant tax period. However, the Tax Office has indicated in a fact sheet that it will permit a credit revision to an earlier BAS to be made in a later BAS, provided certain time and dollar value limits are not exceeded.4
3.28 This review does not examine the Tax Office's practices in relation to claims for GST refunds based on an item being incorrectly treated as a taxable supply in a prior reporting period.
1 Some taxable supplies effectively attract a concessional GST rate. For example, the supply of a long-term stay in commercial residential premises can effectively attract a GST rate of 5.5 per cent.
2 Australian National Audit Office, The Australian Taxation Office's Collection and Management of Activity Statement Information, Audit Report No. 33, 2003-04 Performance Audit at paragraph 1.6.
3 These conditions are set out in section 39 of the Taxation Administration Act 1953.