Common GST categories
Government entity
A government entity is a department, agency or authority of the Commonwealth, a state, a territory or local government, and it can have GST rights and obligations like other entities.
A government entity, for GST purposes, includes Commonwealth, state and territory departments, agencies, authorities and local councils. These bodies often carry on activities that are similar to those of businesses, such as selling goods, charging for services, leasing property or running facilities, and so GST can apply to them in the same way as it applies to other entities.
Many government entities are registered for GST and charge GST on their taxable supplies, such as hiring out council venues or selling publications. They can also claim credits for the GST on their purchases where they acquire things for a creditable purpose. Some supplies by government entities are GST-free or input-taxed, depending on what they are, for example certain education, health or child care supplies.
Taxes, fees and charges imposed by governments are a special area. Many government charges, such as certain licence fees and stamp duty, are not treated as consideration for a taxable supply, due to determinations made under the GST law. That is why most state and territory taxes and many council rates do not include GST. Which charges are covered depends on the specific determination, so each charge should be checked.
Government schools and some other public bodies can also qualify for concessions similar to those available to charities, such as treating non-commercial supplies as GST-free. Government related entities might also be able to use special arrangements for GST reporting. These arrangements often involve whole-of-government coordination, which is beyond the typical small business situation.
For a small business dealing with government, the main practical issues are tax invoices, ABNs and payment terms. Government agencies are usually required to pay suppliers who give them a valid ABN and tax invoice, and they will withhold tax from payments if an ABN is not provided. Contractors should include their ABN on invoices and show GST clearly.
A common misunderstanding is that government agencies are exempt from GST or that all government charges include GST. Some do and some do not. Another is assuming that a payment to a government body is deductible or claimable without checking the invoice. If you are unsure, ask the agency to confirm the GST treatment and check with the ATO or a registered tax professional. This content is general information only.
Worked example
A local council hires out a community hall for $330 including GST, which is a taxable supply by the council. GST included is $330 / 11 = $30. A business that hires the hall for a staff event, and holds a valid tax invoice, can claim the $30 credit if the hire is for a creditable purpose.
Practical tips
- Always put your ABN on invoices to government agencies, otherwise tax may be withheld from the payment.
- Check each government fee or charge on its own terms. Some include GST, while many taxes and statutory charges do not.
- Allow for slower payment cycles when invoicing government, and make sure your tax invoice meets all requirements so it is paid first time.