Understanding the Basics of GST and How it Works

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Robin Lamb | Published 16 January 2023 | Updated 2 February 2023

GST, or Goods and Services Tax, is the taxation system used in Australia to account for the consumption of goods and services. Understanding how GST works can help you keep track of your taxes and ensure you're paying the right amount. In this article, we'll explain the basics of GST so you can be better informed when it comes time to pay your taxes.

What is Goods and Services Tax (GST)?

Goods and Services Tax (GST) is a broad-based tax of 10% that applies to most goods and services supplied in Australia. It is paid by consumers, business owners, and companies to the government. GST is also applied to imports of goods and services into Australia. GST is charged on top of the goods or services price, meaning businesses must add GST to their prices at the time of sale.

Who Has to Register for GST?

Generally, businesses with an annual GST turnover of $75,000 or more have to register for GST and charge it to their customers. Regardless of the size of their turnover, all businesses must register for GST if they provide taxable goods and services. Businesses that do not register for GST will not be able to claim back the GST they incur on purchases related to their business activities. For example, a small business may choose to stay under the $75,000 threshold but still need to register for GST and charge it on any taxable goods and services provided by them.

How Does GST Work?

GST applies to taxable goods and services provided by registered businesses in Australia. GST is calculated at 10% of the taxable supply's value, meaning that the buyer must pay 10% more than they would have had they not purchased those products or services. The customer pays this amount to the business, which collects and forwards it to their respective state government. The state government then pools all that money collected from GST payments. It redistributes it to every state in Australia for public spending purposes such as education, healthcare and other social services.

Which Items Are Exempt From GST?

There are some items and services that are exempt from GST. These exemptions include basic food items, specific medical supplies and health services, childcare, and other things. Exemptions may also apply when the government prescribes the item or service as GST-free for particular purposes. For example, a school textbook may be exempt from GST if the educational institution provides it to their student free of charge.

What are the Types of GST Rates in Australia?

GST rates in Australia vary according to the type of goods or services supplied. The standard rate for GST is 10%, with an adjusted 'reduced' rate of 5% for some essential items such as fresh food, pharmaceuticals and some medical appliances. Some additional 'special' GST rates can also apply to specific transactions. These include things like exports and sales of residential property over the threshold of $750,000.

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