What is GST?
The GST is a “goods and services tax” at the rate of 10%. It is not a tax on income, but rather a tax on the consumption of goods, services and other things such as creation of rights in Australia.
The GST applied from 1 July 2000. On the introduction of the GST, the sales tax system was repealed.
Who Pays the GST?
The GST is paid on nearly all transactions within Australia including importations but it is not paid on salary and wages. There are some other special types of transactions that are not subject to GST, such as education and medical services, however the list of special transactions is limited.
All buyers pay the GST, irrespective of whether they are private consumers, businesses or not-for-profit organisations. You cannot claim an exemption from GST at the time of purchase.
However, the GST is designed to be borne ultimately by private consumers or unregistered organisations.
Although a registered organisation pays the GST when it buys goods or services, it can claim back that GST from the Taxation Office as a GST input tax credit. Therefore, the GST is not a cost to registered organisations. The term “input tax credit” is used as the GST credits relate to the inputs (purchases) of the organisation.
Private consumers pay the GST, but they cannot claim it back. The GST is a real cost to them. Unregistered businesses and unregistered not-for-profit organisations are treated like private consumers. Therefore, if a church does not register for the GST, the GST it pays on goods and services will be an additional cost.
Who Can be Registered for GST?
In order to be registered for GST, an entity must be carrying on an enterprise. Enterprise includes various types of activities done, and this includes activities done by a religious institution or activities done by a charitable institution or trustee of a charitable fund. However, enterprise specifically excludes certain activities such as activities done as an employee or for as private recreational pursuits or hobby.
Some religious practitioners are not employees at common law. However, where the minister is undertaking activities as a member of a religious institution special rules apply to treat those activities to have been done by the religious institution rather then the minister. Therefore, the minister is taken to not be carrying on an enterprise and is not entitled to register for GST. If the religious practitioner is undertaking activities separate from any religious institution, they may register for GST. If their turnover exceeds $75,000, they must register for GST.
Who Must Register for GST?
Businesses must register for GST if their turnover is more than $75,000. Not-for-profit organisations, including churches, must register if their turnover is more than $150,000. If turnover is less than the threshold, an entity can still choose to register.
Turnover does not include donations, tithes and offerings. Donations, tithes and offerings are the primary source of income for churches and other income is usually small. Therefore, most churches do not have a turnover in excess of the registration threshold of $150,000. Accordingly, most churches do not have to register for GST.
However, most churches still choose to register for GST. Unless the church registers, it cannot obtain a refund (by claiming input tax credits) for the GST it pays on goods and services purchased. Therefore, an unregistered church will pay more for goods and services than a registered church.
A registered entity however, must also charge GST on any taxable goods and services it provides. This is the area of greatest complexity for a church as it must determine which goods and services it provides are required to be taxed.
The Registration Process
The GST registration forms can be obtained from the Taxation Office. Alternatively, they are available on the Taxation Office website.
Even if a church does not wish to register for the GST, it should still ensure that it has an Australian Business Number. The church should also ensure that it has obtained endorsement from the Taxation Office that the church is a tax exempt charity.
A church can choose to remit and claim back GST using either the cash or accruals accounting method. These methods are discussed further in Cash or Accruals.
As a church’s turnover will be less than $20m, it can either lodge GST returns with the Taxation Office on a monthly or quarterly basis. A church which registers for GST on a voluntary basis (i.e. its turnover is less than $150,000) may elect to lodge GST returns on an annual basis. However, a quarterly GST period will apply by default at the time of registration unless an election is made otherwise.
In order to prepare and lodge the GST return, a church needs to keep accurate and timely records. A computerised accounting system can be of great assistance.
There must also be a system for collecting and storing tax invoices for goods and services purchased. A GST input tax credit can only be claimed if the church holds a tax invoice for the purchase. A tax invoice is an invoice in a special format.
All organisations, including churches, need to ensure that a person is nominated to keep the required records. That person will also need to ensure that GST is charged by the church on any relevant transactions.
How is GST calculated?
The GST rate is 10% on the value of a taxable supply and this is added to the sale price. The organisation charging the GST acts as a collection agency and must remit the GST collected to the Taxation Office.
Assume you buy a computer from a retail shop. The price of the computer without GST is $2,000. Adding the 10% GST increases the price to $2,200. You pay the shop $2,200. Of this amount, $2,000 belongs to the retail shop. The retail shop must remit the $200 GST to the Taxation Office.
Prices will generally be shown inclusive of GST. If you wish to know how much GST is included in the price, you need to calculate 1/11th of the price.
The price of the computer is shown as the GST inclusive price of $2,200. To obtain the amount of GST, calculate as follows:
$2,200 ÷ 11 = $200