What is GST
Who must register for GST
Record keeping for GST
Remitting GST to the Taxation Office
Input taxed transactions
Goods and Services Tax (GST)
This Guide contains a short summary only of the application of the GST legislation to churches. An extensive GST Guide for Churches is available which includes a detailed analysis of the GST treatment of specific supplies commonly made by churches and the GST input tax credits that can be claimed on costs incurred by churches. It contains advice on when a church should register for GST, the use of non-profit sub-entities, GST exemptions available to churches, fundraising events, real property transactions, record keeping requirements and the preparation of the Business Activity Statement.
What is GST?
GST is a tax on goods and services in Australia, levied at the rate of 10%. It is not a tax on income, but rather a tax on the consumption of goods and services in Australia.
The GST is paid on nearly all transactions, excluding salary and wages. There are some other special types of transactions that are not subject to GST, such as education, medical services and religious services, however the list of exempt transactions is limited. There are some exemptions that are only available to charities and non-profit entities.
How is it calculated?
GST is an additional 10% 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.
For example, a computer is purchased for $2,200. The price of the computer without GST is $2,000. Adding the 10% GST increases the price to $2,200. The supplier must remit the $200 GST to the Taxation Office.
Prices will generally be shown inclusive of GST. To calculate the amount of GST included in the price, you need to calculate 1/11th of the price. The price of the computer is shown at the GST inclusive price of $2,200. GST can be calculate as $2,200 ÷ 11 = $200.
Who pays the GST?
All purchasers 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.
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. By that process the GST is not a cost to the organisation. 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 must register for GST?
Organisations must register for GST if their turnover exceeds the registration threshold. The registration threshold for not-for-profit organisations (including churches) is currently $150,000. An organisation must consider current annual turnover and projected annual turnover when determining whether it exceeds the registration threshold.
Turnover does not include donations, tithes and offerings. Donations, tithes and offerings are normally the primary source of income for churches. Most churches do not have other income in excess of the registration threshold and, accordingly, most churches do not have to register for GST.
Should the church register for GST?
Many churches still choose to register for GST even though they are below the registration threshold in order to obtain a refund of the GST they pay on goods and services purchased.
When determining whether to voluntarily register for GST, it is important to consider that a registered entity must charge GST on any taxable goods and services it provides. This is a complex area of GST for a church as it must determine which of the goods and services it provides are required to be taxed. A registered church:
- Must charge GST on taxable transactions;
- Can claim input tax credits from the Taxation Office for GST paid on purchases;
- Must keep tax invoices; and
- Must lodge Business Activity Statements.
Listed below are some of the transactions on which a church may need to charge GST. Note that a church may not need to charge GST if the transactions are made by a non-profit sub-entity.
- Hire of the church hall
- Social events
- Bookshop sales
- Charges between a church and the denominational office, such as administrative fees, depending on whether or not the entities are part of a GST religious group
If the church does not charge GST on taxable transactions, the church is still liable to remit 1/11th of the proceeds as GST to the Taxation Office.
Record Keeping for GST
In order to prepare and lodge its Business Activity Statement, a church needs to maintain accurate and timely records of GST transactions. A computerised accounting package will assist in this process.
The church must keep invoices for goods and services purchased. A GST input tax credit can only be claimed if the church holds a valid tax invoice for the purchase (unless the purchase was less than $82.50 GST inclusive). In addition, the church must be able to issue a tax invoice for any transaction where the church charges GST. The church must issue the tax invoice within 28 days of the purchaser asking for one (unless the invoice is for less than $82.50).
The responsibility for maintaining records of GST transactions and keeping invoices must be clearly communicated to those responsible. These people should have appropriate knowledge and expertise to identify and record GST transactions.
Remitting GST to the Taxation Office
Registered entities charge GST on their taxable sales of goods and services and remit the GST they collect to the Taxation Office. They also pay GST on the goods and services they purchase, and claim this GST back from the Taxation Office as input tax credits.
Instead of paying and receiving amounts from the Taxation Office, they will offset their input tax credits against the GST they have collected and remit the net amount to the Taxation Office. If the net amount is negative, the registered entity can obtain a tax refund from the Taxation Office.
For example, a Church registered for GST paid $200 in GST for purchases and collected $150 in GST on the rental of the church hall over a period. The amount of GST refundable is calculated as:
|Less GST paid
|Refund due from the ATO
If a church pays wages to religious practitioners and other employees, it must also be registered for PAYG withholding. Any GST refund will firstly be offset against the PAYG withholding and any balance owing to the Church will then be refunded.
Examples of GST-free goods and services are:
- Medical services
- Basic food
- Child care
- Water rates
- International travel
- Some charitable activities, including non-commercial supplies, and
- Religious services
The supplier does not charge GST when selling GST-free goods or services. A registered supplier can still claim input tax credits from the Taxation Office for the GST paid on the goods and services it has purchased in making the supply.
For example, a church does not charge GST on its offerings. The church however can claim GST credits from the Taxation Office for the GST paid on purchases, such as stationery, medical supplies, computers, rent, etc.
Non-commercial supplies by charities are GST-free. A supply by a charity will be a non-commercial supply if the consideration received is less than:
- 50% of the GST inclusive market value of the good or service (75% if the service is accommodation), or
- 75% of the amount paid by the charity for acquiring the good or service.
A church is generally considered to be a charity as the advancement of religion is a charitable purpose.
GST on second hand goods
The sale of second hand goods is exempt from GST if:
- The sale is by a charity;
- The second hand goods were donated to the charity; and
- The goods retained their character when sold.
As noted with non-commercial activities, a church is usually a charity and therefore can access this exemption.
The exemption is only available if the goods are not substantially altered. For example, if clothes are torn up and sold as rags, GST must be charged. The exemption only applies to donated goods. Goods that are bought are subject to GST when sold (unless the non-commercial activities rules apply). Therefore, opportunity shops will need to be able to separately identify these goods and capture the GST on sale.
Input Taxed Transactions
A small number of transactions are input taxed. No GST is charged to the purchaser on an input taxed transaction and supplier cannot claim input tax credits from the Taxation Office for the GST paid on the goods and services it has purchased in making the supply.
The main categories of input taxed transactions are:
- Financial services (e.g. loans, interest bearing deposits, bank fees);
- Some fundraising events by charities; and
- Residential rent.
If a church has a residential rental property from which it derives market value rent, the church cannot charge the tenant GST as residential rent is an input taxed transaction. The church is not entitled to claim back the GST on expenses relating to the rental property, such as agent’s commission and repairs.
Input taxed fundraising events
Where the fundraising event involves different activities, it is often difficult to determine what supplies are taxable and what supplies are GST-free. In order to limit the administrative difficulties of fundraising events, a church may be able to elect to treat a fundraising event as an input taxed supply. This means the church does not need to charge GST on any supply but it cannot claim back any input tax credits. This is particularly attractive where there are numerous different supplies, e.g. fetes, or there is little input tax credit to be claimed, e.g. trivia night. Note that where significant amounts of input tax credits can be claimed, it may be better to treat the fundraising event as a taxable supply.
When can a fundraising event be input taxed?
In determining whether an event can be treated as input taxed, the following needs to be considered:
- A fundraising event must be a fete, ball, gala show, dinner, performance or similar event. A similar event may include a charity auction, a cake stall, wine tasting or a fashion parade.
- It must be an event comprising the sale of goods for consideration that does not exceed $20, and selling of those goods is not a normal part of the church’s business, e.g. flowers, chocolates, etc.
- An event that involves the sale of alcoholic beverages or tobacco products will not be considered a fundraising event.
- The purpose of the event must be fundraising. For example, if the purpose is evangelism, this input taxed treatment does not apply, e.g. alpha dinner.
- The event must not form part of a series or regular run of like or similar events.
- A fundraising event can be held more often than annually and still considered to be irregular. An event can be held up to fifteen times in any one year and still be treated as input taxed.
- If the event is treated as input taxed, all supplies associated with the event must be input taxed. For example, a church cannot apply the input taxed treatment only to the sale of food at a fete and not to the sale of donated second hand goods (usually GST
- The church records must record the decision to treat an event as a fundraising event, e.g. minutes of the financial committee meeting.
Churches can choose to treat separate activities of their church as non-profit sub-entities. The sub-entity can choose not to register for GST provided its turnover is less than the registration threshold. Consequently, it does not need to charge GST on the sale of its goods or services, but cannot claim input tax credits for GST paid. Sub-entities do not need a separate ABN.
Areas or activities that churches have commonly treated as non-profit sub-entities include:
- Chocolate drives
- Youth groups
- Car wash fundraising
- Sale of cookbooks
- Family camps
- Basketball and other sporting teams
Generally non-profit sub-entities prove most useful where:
- The activity involves many different transactions, some of which are GST-free and some are not e.g. fete;
- Timely collection of funds does not occur and therefore calculation and remittance of the GST collected is difficult e.g. chocolate drives;
- Funds are allocated to a particular group of the organisation and timely record keeping is unlikely to occur e.g. church youth group; and
- The activity involves the use of very few materials or most goods and materials used are donated and therefore the input tax credit to be claimed is small e.g. car wash fundraising.