ATO and administration
A New Tax System (Goods and Services Tax) Act 1999
This is the federal Act that created the goods and services tax in Australia, setting out who must register, what is taxable, how credits work and how GST is reported.
The A New Tax System (Goods and Services Tax) Act 1999 is the Commonwealth law that established GST in Australia. It took effect when the tax commenced on 1 July 2000 and remains the main source of the rules about what GST applies to, who is responsible for it and how it is accounted for. People commonly refer to it simply as the GST Act.
The Act is built around a few central ideas. A registered entity must pay GST on taxable supplies it makes in the course of an enterprise connected with Australia. Some supplies are GST-free, meaning no GST is charged but the supplier can still claim credits on related purchases, and others are input-taxed, meaning no GST is charged and credits generally cannot be claimed on related purchases. Businesses that are registered can claim input tax credits for GST included in the price of things they acquire for their enterprise.
The Act also covers the mechanics. It deals with registration and cancellation, the time at which GST is payable and credits are claimed, tax invoices, adjustment events such as returns and discounts, and special rules for areas such as property, imports, margin scheme sales, groups and joint ventures. The rate of 10% and the idea of GST being calculated on a GST-exclusive price come from this framework.
The Act does not deal with every detail alone. Regulations made under it add further rules, and the Commissioner of Taxation issues rulings and determinations explaining how the ATO interprets provisions. Other legislation, such as the Taxation Administration Act, supplies much of the administrative machinery, including penalties and interest, so a full picture of your GST obligations comes from several sources.
For a small business owner, you rarely need to read the Act directly, but it is useful to know that your obligations come from it. When you decide whether you must register at the turnover threshold, whether a product is GST-free, or whether you can claim credits on a mixed-use purchase, the answer ultimately depends on how the Act's definitions apply. ATO guidance is usually the easier way into those definitions.
A frequent misunderstanding is thinking the Act sets one simple rule that applies the same way to every transaction. In practice there are many exceptions and special cases, and they are changed from time to time by amending legislation. Another is quoting provision numbers from memory. If the point matters, check the current compiled version of the Act and the relevant ATO guidance. This is general information only, so confirm how it applies to you with the ATO or a registered tax professional.
Worked example
Priya starts a consulting business and her annual GST turnover reaches the registration threshold. Under the GST Act she must register. In her first quarter she invoices $22,000 plus GST, so she charges $2,200 GST, and she pays $660 of GST on business software, which is a credit. Her net GST for the quarter is $2,200 less $660, giving $1,540 payable.
Practical tips
- Use ATO guidance as your starting point and read the Act itself only if you need the detail. Professional advice helps for unusual transactions.
- Remember the Act has special rules for areas such as property, imports and groups, so do not assume the ordinary sales rules apply to them.
- Check for recent amendments before relying on an older description of a rule.