Learning objectives:

 Understand the basic structural elements of the GST

 Understand and apply the rules relating to the making of a taxable supply
 Understand and apply the rules relating to the making of a GST-free supply
 Understand and apply the rules relating to the making of an input-taxed supply
 Understand and apply the rules relating to the entitlement to a credit for tax on inputs (creditable
acquisitions)
 Understand and apply the rules relating to importations and adjustments

Readings:
 Chapter 25
 All legislative references in lecture slides

Introduction of GST
 1 July 2000
 A New Tax System (Goods & Services Tax) Act 1999
 Reduce reliance on income tax
o 1999-2000 financial year
 Income tax revenue = 74.4% of total tax
 Personal income tax revenue = 73.7% of income tax
o 2018-2019 financial year
 Income tax revenue = 73.3% of total tax
 Personal income tax revenue = 67.5% of income tax
 2018-19: estimated to be $67.5 billion or 14% of total revenue
 Wholesale sales tax (22%) removed
 State taxes removed
o Financial institutions duty;
o Debits tax;
o Stamp duty on marketable securities;
o Conveyancing duties on business property;
o Stamp duties on credit arrangements, instalment purchase arrangements and rental hiring
agreements;
o Stamp duties on leases;
o Stamp duties on mortgages, bonds, debentures and other loan securities;
o Stamp duties on cheques, bills of exchange and promissory notes; and
o ‘Bed taxes‘

 Federal/State relationship – 2 issues

o GST is favourable tax collected by the Commonwealth and tax revenue is distributed to
all State Governments
o Small taxes distort decision
o 2 issues:
 Haven’t removed all taxes they said they would
 The state government are never happy with the tax revenue received by them. New
South Wales & Victoria argue that they have high population thus contributing the
most to the GST, but they never get as much as they contributed.
GST Basics
 Broad-based consumption tax, designed to impose tax on final private consumers, burden on
us not companies
 Main rules:
o 10% tax on supplies and importations unless ‘input- taxed’ or ‘GST-free’
o Only charged, and credits claimed, by entities registered for GST
o Imposed each time the goods/services are supplied or imported
o Borne by consumers
o Remitted by suppliers
 The 10% rate has to be agreed by all the State Governments and Federal Government, thus
difficult to change the 10% rate.
 Only entities that are registered for GST can collect tax
 Suppliers are the ones who collect the tax and send to ATO. They include the tax in the price,
when there is sales of goods or services provided, they collect the tax.
 Exception is input-taxed or GST-free supplies

GST - Regressive Tax

Example:
 Roy earns $30,000 per year
o Assume he spends the entire amount on living expenses
o  pays GST on 100% of his income
 Sheila earns $100,000 per year
o Assume she spends $50,000 on living expenses
o  pays GST on 50% of her income
 NB: Sheila pays more GST in $$ amount but Roy’s burden (percentage) is greater
 The lower the income, the greater the tax burden. In contrast, income tax is a progressive tax,
the higher the income, the greater the tax burden.
 In dollar amounts, a higher income pays more tax. But in the percentage … of the which is the
downside of the GST and the way GST designed.
 Essential items are excluded from GST, so not so much burden on low-income.
 If you have lower income, but spends more on the essential items, then you wouldn’t be paying
for GST that much.

GST - Basics
 Supplier sends $10 to ATO.
 Final consumer bears the burden of GST.

Taxable Supply
 Defined in section 9-5 as:
o A SUPPLY
o Made for CONSIDERATION
o In the course or furtherance of an ENTERPRISE
o Where the supply is connected with AUSTRALIA (indirect tax zone) (in AU)
o By an entity REGISTERED or should be registered for GST
o And is NOT ‘input-taxed’ or ‘GST-free
 What is being taxed is the value-added component (Value-added tax)
  You charge GST when there is taxable supply. You could also get tax refund but consumers do
not get tax refund.

Supply
 “Any form of supply whatsoever”: s 9-10(1)
 Includes: s 9-10(2)
o Supply of goods & services
o Provision of advice or information
o Grant, assignment or surrender of real property or an interest in real property
o Creation, grant, transfer, assignment or surrender of any right
o A financial supply
o Entry into, or release from, an obligation “to do anything, or to refrain from an act, or to
tolerate an act or situation”
 Illegality of supply is irrelevant: s 9-10(3) (e.g. drug dealers)
 Does not include a supply of money unless consideration for a supply that is the supply of
money: s 9-10(4) (when you buy foreign currency)
 Formation of contract and the granting of rights under the contract will constitute a ‘supply’:
p.805
Reliance Carpet (2008) (HCA) [CS 25.1] ; Qantas Airways (2012) (HCA) [CS 25.2]

Consideration
 Any payment or act or forbearance in connection with the supply or for the inducement of the
supply: s 9-15(1)
o Payment = cash or ‘in kind’
 Does not matter whether the payment was voluntary or whether it was by the recipient of the
supply: s 9-15(2)
 Any supply must have consideration

Enterprise
 Any activity conducted in the form of a business under s 9-20(1)(a)
o E.g. Stone ; Ferguson ; TR 97/11; TR 2005/1 [see Topic 7]
 Isolated commercial activities in the form of an adventure or concern in the nature of trade: s
9-20(1)(b) (Isolated transaction if exhibits characteristics of a business, then it will generate
ordinary income under s 9-20(1)(b))
o E.g. Whitfords Beach ; Westfield ; Myer [see Topic 7] p.247
 Leasing property on a regular/continuous basis: s 9-20(1)(c)
 Activities carried out by trustees, charities, religious institutions and government bodies:
s 9-20(1)(d)-(g)
BUT NOT
o The provision of labour as an employee; or
o Private, recreational pursuits or hobbies [s 9-20(2)]

Indirect tax zone (Australia)

 A supply will be “connected with Australia” if:
o Goods are delivered or made available to the recipient in Australia;
o The supply involves those goods being removed from Australia (NB: exemption for
exports);
o Goods are imported into Australia or installation/assembly of goods is in Australia; or
o The supply is of Australian land.
  If not goods / real property the thing is done in Australia or the supply is made through an
enterprise carried on in Australia.
 s 9-25

Registered
 Any entity can register for GST if carrying on an enterprise: s 23-10
 Entities MUST register for GST if “GST turnover” exceeds “registration turnover threshold”:
s 23-5 (GST turnover is sales revenue, not profit)
o GST turnover → ss 188-10; 188-15; 188-20; GSTR 2001/7
o Registration turnover threshold
 Non-profit TPs ≥ $150,000: s 23-15; Regulation 23-15.01
 All other TPs ≥ $75,000: s 23-15; Regulation 23-15.02
o Exception: Taxi drivers: s 144-5; Ride-sharing: Uber BV (2017)
 …means this month and the previous 11 month, do you exceed the threshold?
 …means this month and the next 11 month, do you exceed the threshold?
o If you do exceed, then have to register for GST
 From the first dollar, they have to register for GST, regardless of turnover.
 Federal Court says that the Uber drivers are the same as taxi drivers, so they must register for
GST

‘Exemptions’
 GST-free supplies (Division 38)
o Food
 Sections 38-2; 38-3; Schedule 1;
 Lansell House (2011)
Issue: Bread or Cracker?
Cracker is not GST-free. If it is purely a bread, then it is GST-free.
Federal Court said it is a cracker because it looks like a cracker, also because
of the ingredients. The people who sold in the companies also said that it is
cracker rather than a bread. The taxpayer even tried to appeal to High court,
but High court refused to hear the case.
 One of the concessions is food which is considered essential items (GST-free), but not
all food is GST-free.
 If you dine in a restaurant, this is not seen as essential item, and should be taxed.
 If you get a toasted sandwich, that is not GST-free.
 Refer to the list for Food that is not GST-Free.
 Fresh, unprocessed food is GST-free.
o Health
o Education
o Childcare
o Exports & other supplies for consumption outside Australia
o Religious services
o Activities of charities, etc
o Water and sewarage
o Supplies of going concerns (You sell everything necessary to keep the business ongoing)
o Transport and related matters
o Precious metals
o Supplies through inward duty free shops
o Grants of land by governments
o Farm land
 o Cars for use by disabled people
o International mail (domestic stamps include GST; International GST-free)
o Telecommunication supplies made under global roaming arrangements
o Eligible emission units

 Input-taxed supplies (Division 40)

o Financial supplies (GSTR 2002/2)
 Bank accounts, loans, credit cards etc. has no GST; Because it is too difficult to impose
GST on financial supplies, too difficult the value-added component.
o Residential rent
o Sale of existing residential premises
 Sale of existing house has no GST because input-taxed
 2 issues come up in relation to this is:
Whether it is residential or commercial premises.
- If commercial, it is subject to GST.
- If residential then not subject to GST.
What you are selling is if it is new or existing.
- If new, subjected to GST.
- If existing, then no subject to GST. Substantial renovation is not
considered existing anymore, it is deemed new and therefore subject to
GST.
o Precious metals
o School tuckshops/ canteens
o Fund-raising events conducted by charitable institutions
There are other reasons why they separate input-taxed and GST-free.

[Pringles] – not examinable, so don’t reference this

Issue: Are pringles made from potatoes?
Manufacturer pringles should be exempted from tax in the UK. If it is a savoury snack, it is not
subjected to tax. Manufacturer argued that 42% is not enough for potatoes, but the court deemed that
42% is enough for potatoes, therefore is potato crisps, and is subjected to tax.

Consequences
 TAXABLE SUPPLY (not ‘exempt’)
o GST is payable by the supplier on 10% of the value of the taxable supply:
s 9-70
 Value of taxable supply = 10/11ths of the price: s 9-75
 Price = consideration: s 9-75
o Example: Ben pays $11 for a book
 Consideration (and price) = $11
 Value of taxable supply = 10/11 of $11 = $10
 GST payable = 10% x $10 = $1 (one-eleventh of the price)
o Even if supplier does not charge you for it, they still have to pay 10% GST
 GST-FREE or INPUT-TAXED supplies
o No GST is payable on the supply.

Creditable acquisition (tax refund)

 Defined in s 11-5:
o ACQUISITION solely or partly for a CREDITABLE PURPOSE (s 11-15)– can be
part business purpose and part private purpose; no input-taxed supplies
 o The supply made to you was a TAXABLE SUPPLY
o You have provided or are liable to provide CONSIDERATION for the acquisition
o You are REGISTERED or required to be registered for GST.

 Two general questions:

Is it a creditable acquisition?
Can you get a refund for GST that I paid on acquisition?
There 2 are separate issues, don’t put them together.

 When are you eligible for GST refund?

o You must have paid GST on this acquisition
o You must be registered GST. This is why entities choose to register GST even if they
don’t have to because they want to get a refund.

Acquisitions
 Acquisition in “any form” including [s 11-10]
o Acquisition of goods and services
o Receipt of advice or information
o Acceptance of a grant, assignment or surrender of real property
o Acceptance of a grant, transfer, assignment or surrender of any right
o Acquisition of a financial supply
o Acquisition of a right to require another person to do something, to refrain from an act,
or to tolerate an act

Consequences
 An entity can claim an input tax credit in respect of the amount of GST paid on creditable
acquisitions: sections 11-5 & 11-20
o If you have a creditable acquisition, you can claim for input tax credit (GST refund). If
you pay $110 for something, $10 for refund – which means $10 of input tax credit
 BUT no entitlement to input tax credits if creditable acquisition relates to the provision of input
taxed supplies: ss 11-15 & 15-10
o You cannot get a refund for GST if the provision is related to input-tax supplies because
you don’t have a creditable purpose.
 Assume a retail business paid $110 GST paid for electricity bill and satisfy creditable
acquisition, they will get a refund.
 If however, the business is a bank that provides financial supplies. They cannot get a refund on
GST paid for electricity bill, because it is not creditable purpose, as they are providing input-
taxed supplies (i.e. financial supplies) to the customer.

 ALSO → no entitlement to input tax credits for non-deductible expenses: (Div 69)
o Penalties
o Relatives’ travel expenses (note FBT interaction)
o Entertainment (note FBT interaction)
o Recreational club expenses (note FBT interaction)

SPECIAL RULES
Importations (Division 13)
3 things for taxable importation:
 Must be in Australia for home consumption, not just to transit
  It is not something GST-free or input-taxed
 It must be more than $10,000
*You can get a refund if it is creditable importation

General rule:
o Do you have import tax?
o Do you have creditable importation?

 Importations is subject to GST, regardless of registration or carrying on enterprise (note to s 13-

5)
 Must be a taxable importation (s 13-5)
 Importer liable for GST on importation (s 13-15)
 GST payable is calculated based on the customs value of the goods plus certain other costs (s
13-20)
 Entitled to input tax credits if creditable importation (s 15-5)
 Digital supplies (‘Netflix tax’) and Low-value goods (< $1,000)

We now have GST on digital supplies. low-value goods. The general rule still applies to items more
than $10,000 (where importer pays import tax), but the rule doesn’t apply in this case.
 Digital supplies (Netflix etc.)
o If the supplier meets the registration threshold (have > $75,000 sales in Australia),
then supplier has to charge GST and collect them for ATO.
 Low-value goods (depends on how overseas supplies sold to customers: direct or online platform)
o Option 1: Direct Sales.
The retailer sells directly to customers. If have > $75,000 sales, then subject to GST.
o Option 2: Online sales.
If they use marketplace (ebay, amazon etc.) in Australia, then the online marketplace
has to register for GST, if > $75,000 sales in Australia, then it is subject to GST. Due
to this, ebay threatened to pull out of Australia because they don’t want to meet the
tax obligation.
o Option 3: A redelivery service used.
For example, if you buy something from Malaysia but Malaysia is not shipping you
the goods directly instead use a redelivery service (third party) in Australia to deliver
goods to you. If the redeliver has > 75,000$ supplies, then redeliver is subject to GST.

Adjustments
 Divisions 19, 129, 130
 Adjustment events
o Cancelling a supply or acquisition
o Changing the consideration for a supply or an acquisition
o Causing a supply or acquisition to become, or stop being, a “taxable supply” or
“creditable acquisition”
 Increasing or decreasing adjustments
 GST - you don’t make amendments, unlike income tax.
 Pay more than collected then refund.

GST Administration
 GST is remitted using a Business Activity Statement (BAS)
 Entities that are registered or required to be registered for GST include on its BAS:
 o Entitlement to input tax credits (i.e. GST paid)
o GST payable (i.e. GST collected)
for the period, and is either in a net GST payable/refund position.
 An entity completes and lodges a BAS either quarterly (three months) or monthly (if bad at tax
compliance)

Interaction with other taxes

 Income tax
o Section 17-5 ITAA97
o Section 27-5 ITAA97
 Fringe benefits tax
o Type 1 and Type 2 benefits
 Use GST exclusive amount. Exception: Business not get refund. Income will be GST inclusive;
Business don’t keep tax collect