Published on 30 May, 2023

Understanding Goods and Services Tax (GST) and Maximising GST Credits

Written by:
Thomas S Phabmixay
General Manager

Page Contents

What is GST or Goods and services tax

GST, or Goods and Services Tax, is a type of value-added tax imposed on goods and services in many countries. It is designed to streamline the taxation system by levying a tax at each stage of the supply chain, from production to consumption.

What is a GST Credit

Businesses collect GST from their customers while they pay GST when on things purchased for their business, and they can claim back some of that GST as credits. These credits help businesses by making sure they don’t end up paying tax on the same thing multiple times. It’s like getting a refund for the tax you’ve already paid.

This is important for business owners because it helps them save money, manage their finances better, and stay competitive in the market.

Eligibility for GST Credits

In order to be eligible to claim GST credits, make sure you are registered for GST if necessary, engaged in business activities, and compliant with GST regulations.

How to Maximise GST Credits

Maximising GST credits in Australia requires a strategic approach and adherence to specific guidelines. By following these tips, businesses can optimise their GST credits and effectively manage their financial position. Let’s explore it in detail:

Ensure GST Registration to be eligible for GST credits, businesses must register for Goods and Services Tax with the Australian Taxation Office (ATO) if their annual turnover exceeds the registration threshold. Ensuring proper registration is the first step towards maximising GST credits.

Maintaining detailed records of all business expenses and purchases is crucial. These records should include tax invoices and receipts that clearly show the supplier’s ABN, a description of goods or services, transaction date, total amount paid, and GST amount. Accurate record-keeping is essential for supporting GST credit claims.

Claim Input Tax Credits (ITCs):

Identify business-related expenses that include GST and claim input tax credits on the Business Activity Statement (BAS). This includes GST paid on purchases of goods, services, and capital assets used in business operations. By claiming ITCs, businesses can offset their GST liability.

Input tax credits refer to the GST paid on business expenses and not personal expenses. When you make purchases or incur expenses for goods and services used in your business activities, you generally pay GST on those purchases.

Fuel Tax Credits (FTCs):

Businesses using fuel for eligible activities, such as operating machinery or vehicles, may qualify for fuel tax credits. Accurate record-keeping of fuel purchases and usage is necessary to calculate the credits. Stay updated on the ATO’s fuel tax credit rates to maximise your claim.

FTC allows eligible businesses to claim credits for the fuel tax (excise or customs duty) included in the price of fuel used in their business operations, machinery, plant, equipment, or heavy vehicles.

You may claim for fuel tax credits if you are registered for GST, using the fuel for business operation, and you have the necessary records to support your claims.

Luxury Car Tax (LCT) Credits:

The luxury car tax is an additional tax imposed on the purchase of luxury cars with a value above a certain threshold. The LCT is currently set at 33% of the value above the threshold.

Certain vehicles, such as those designed for primary use as a taxi or for the transportation of disabled individuals, may be eligible for a luxury car tax credit.

To claim for LCT credits, it is not required to be registered for GST. However, there are other criteria you must consider such as:

You have a credit entitlement. Either you overpaid LCT on a purchase of a luxury car or you paid LCT on the purchase or importation of a luxury car which you could have quoted for, except you were not registered for GST purposes at the time.
No one else has claimed the credit, and you haven’t passed the tax onto another person.
Your credit claim is lodged within four years of purchasing or importing the luxury car.
You have kept supporting documentation for the credit claim, which must be retained for five years.
Original documentary evidence must be provided with the application, and it will be returned after processing.

Lodging Business Activity Statements (BAS)

Lodging the BAS requires businesses to report their tax obligations to the Australian Taxation Office (ATO). The BAS form includes various financial information about a business, such as sales, purchases, wages, PAYGW, PAYGI, GST Collected, GST Paid, and GST credits.

The lodgment can be done online through the ATO’s Business Portal or using compatible accounting software. Any GST liability or refund is payable or receivable at the time of lodgment.

Timeframes and due dates

The due date for lodging and paying the BAS varies depending on the reporting period and lodgment frequency. The ATO provides specific due dates for each period, and you must meet these deadlines to avoid penalties or interest charges.

Corrections and adjustments to GST credits

To correct a previously lodged BAS, you need to submit an amended BAS or revise the original BAS using the appropriate channels. Corrections must be made as soon as errors are discovered. The ATO provides specific timeframes within which corrections must be lodged, typically within four years from the original due date of the BAS.

Tax invoices for claiming GST credits

Remember that GST credits are subject to specific rules and conditions, and not all purchases or expenses may be eligible.

Also, you should maintain accurate records of GST paid on purchases, such as invoices and receipts, to substantiate the claims for GST credits. The ATO may request supporting documentation to verify the GST credits reported in the BAS.

GST Audits and Compliance

ATO (Australian Taxation Office) audits

GST audits are conducted by the ATO to verify the accuracy and completeness of a business’s GST-related transactions and records. It’s purpose is to ensure that businesses are complying with the GST laws and regulations, reporting their GST liabilities correctly, and maintaining proper records.

Compliance requirements for GST credits

Key aspects of GST compliance include registration, tax invoicing, record keeping, filing GST returns, and payment of GST. Businesses meeting the GST registration threshold must obtain a GSTIN to collect and remit GST on their supplies. They must issue tax invoices with specific information as prescribed by tax authorities. Detailed records of GST transactions must be maintained for a specified period. Registered businesses need to file periodic GST returns, reporting GST collected on sales, GST paid on purchases, and claiming input tax credits. The GST collected must be remitted to the tax authorities within specified time frames.

Penalties and consequences for non-compliance

Non-compliance with GST obligations leads to penalties, fines, and other enforcement actions by the ATO. Here’s a summarised table of the penalties for suppliers and purchasers related to GST:

An Image of a table summarizing penalties for GST non-compliance by suppliers and purchasers. Offenses and corresponding penalties are listed

GST Credits and Tax Deductions

While GST credits specifically relate to the GST component of purchases, income tax deduction encompass a broader range of expenses that are necessary and ordinary for the business operations. Income tax deductions include expenses such as salaries, rent, utilities, marketing costs, depreciation of assets, and other legitimate business expenses.

Next Step is to Contact TMS Financials

TMS Financials provides you with a team of experienced professionals that help you achieve your financial goals through smart tax structures and financial planning. We’re a one-stop shop for all financial needs and pride ourselves on building strong partnerships with our clients.

Book a free financial health review to see the difference we can make in your financial future.

Book a free accountant consultation with TMS CPA Accountants your specialists in Sydney Australia.

Disclaimer

This outline is for general information only and not as legal, tax or accounting advice. It may not be accurate, complete or current. It is not official and not from a government institution. Always consult a qualified professional for specific advice tailored to your unique circumstances.

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