Financial Management Practice Manual 732 – Goods and Services Tax (GST)

Definitions (Related Glossary Terms)

Taxation

Procedures

Definition

Goods and Services Tax (GST) is a broad-based tax of 10% on the supply of most goods, services etc consumed in Australia. GST is a tax on transactions and not on entities. Unlike stamp duty an entity cannot be exempted from GST. GST is a tax on private consumption; businesses that are registered for GST can recoup the GST charged on their purchases.

The commencement date 1 July 2000.

Types of Supplies

The concept of “supply” underpins the GST legislation. GST is charged on every taxable supply.

The GST legislation defines three (3) types of supplies, together with the treatment of GST and the ability to claim credits:

Taxable Supplies – A taxable supply will include a charge for GST. A supplier makes a taxable supply if they are registered for GST and the supply is:

• for consideration; and

• in the course of an enterprise carrying on their business;  and

• connected with Australia.

A taxable supply does not include GST free or input taxed supplies.  Where the University generates a taxable supply, GST is levied on the amount charged (e.g. Sale of Equipment).

GST Free Supplies – This type of supply does not include GST (i.e. GST is not levied on the amount charged). Typically, GST free supplies would include exports, health & medical care, education & childcare, non-commercial activities of charitable institutions and most types of food.  The GST levied on expenditure incurred in generating revenue which is GST free, is able to be recouped.

Input Taxed Supplies – This other type of supply also does not include GST. An example of an input taxed supply is residential rental premises. The GST levied on expenditure incurred in generating revenue which is input taxed, is not able to be recouped.

In general, the University generates two (2) types of supply; GST free supplies (e.g. Education) and taxable supplies (e.g. Consultancy). This in turn means the GST charged on purchases that relate to these supplies can be recouped. As most of the purchases the University incurs relates to the delivery of either GST free supplies or taxable supplies any GST charged on these purchases, can be claimed back as an input tax credit refund.

Input Tax Credit

An input tax credit is the GST that has been paid on any creditable acquisition. Input tax credits are claimed by the University with the lodgement of its Business Activity Statement (BAS) each month.

The University must retain a valid tax invoice for an input tax credit to be claimed.

Australian Business Number (ABN)

The Australian Business Number (ABN) was introduced with the GST legislation. It is the single business identifier that allows all businesses to operate within the new legislation. All ABNs are listed on the Australian Business Register.

The above web site is available to verify a business’s registration details. Dealings with an unregistered business require the withholding of 46.5% of the invoiced amount. It’s possible for businesses to have an ABN and not be registered for GST. These businesses would not be able to charge GST and would not be able to claim input tax credits.

The University’s ABN is 46 253 211 955.

GST Registration

Any entity with a turnover greater than $75,000 must register for GST. An entity registered for GST must charge GST on taxable supplies and can claim input tax credits on purchases that relate to either taxable or GST free supplies.

The University is registered for GST.

PAYG Withholding – 46.5% (No ABN)

The Government’s business tax reform package required every business enterprise to obtain an ABN. For GST purposes the ABN acts as the GST registration number and is also required on a supplier’s tax invoice in order to claim an input credit.

Under the Pay As You Go (PAYG) legislation, suppliers are required to quote their ABN on all invoices and, if not quoted, the other business is required to withhold tax from their payment. Any amounts withheld are remitted to the ATO and the supplier is presented with a payment summary. The payment summary shows what tax has been remitted to the ATO on behalf of the supplier. The supplier can then claim this tax, using the payment summary, when lodging their income tax return.

The University must withhold 46.5% tax from any payments (other than employee salaries and allowances) where the payee cannot provide an ABN. Exceptions to withholding are when:

• the payment does not exceed $75 (excluding GST);

• the payment is exempt income for the recipient;

• the recipient is an individual and has made a written, signed statement (Statement by Supplier) that the supply is private or domestic in nature, or relates to a hobby.

Any business that fails to withhold is exposed to possible tax penalties, which will include the tax that should have been withheld. If a payment is to be made to a payee who cannot provide an ABN then the payment MUST be made through accounts payable using a payment request form. There is no mechanism to withhold 46.5% PAYG tax via the Corporate Credit Card or Petty Cash.

Following the supplier’s payment (53.5%), Accounts Payable will:

• forward the 46.5% withholding tax to the ATO; and

• forward a payment summary to the supplier.

Tax Invoices

A tax invoice contains specific information needed for the operation of the GST legislation. All businesses registered for GST must issue a tax invoice when charging GST. The tax invoice details the type of acquisition and, if GST has been charged, allows the purchaser to claim back the GST. Different requirements apply to tax invoices for taxable supplies if the total value, including GST, is:

• greater than $1,000;

• between $1,000 and $82.50;

• less than $82.50.

Additional information is required if the invoice involves taxable supplies and GST-free and or input-taxed supplies (mixed supplies). The table below sets out the different requirements:

Rounding - Where the total amount of GST payable for the tax invoice includes a fraction of a cent, the amount should be rounded to the nearest cent, with fractions of half a cent being rounded upwards.

Taxable Supplies less than $82.50 (including GST)

There is no requirement for a supplier to issue a tax invoice and the recipient does not have to hold a tax invoice to claim an input tax credit if the value (excluding GST) of the taxable supply is $75 or less. However, there should be some documentary evidence to support all input tax credit claims.

For example, a cash register receipt for a $28 stationery purchase is sufficient to claim the input tax credit. The University can still claim back 1/11th of this as an input tax credit ($2.54). However the University still has to have evidence to support the input tax credit claim for the transaction. The cash register receipt will satisfy this if it can substantiate what was purchased, the supplier, the date and the consideration.

Mixed Supplies

A mixed supply is where only some of the items on a tax invoice include GST (e.g. field trip receipt from a supermarket where some of the items have GST and some do not). A tax invoice for a mixed supply must:

1. clearly identify each taxable supply;

2. show the total amount of GST payable; and

3. show the total amount payable.

Period/Progressive Supplies

Supplies of goods or services that are supplied for a period, or progressively over a period have special rules. Examples are leases, hiring arrangements, pay by the month insurance cover, and building & construction contracts. In these situations the contract is treated as a series of separate contracts for each separate supply that is invoiced. For attributing the GST payable and the input tax credit to a tax period, each progressive or period component of the supply is treated as a separate supply.

While the separate components are treated as separate supplies it is not necessary to issue separate tax invoices for each supply. The ATO have issued GST Ruling 2000/17, which states that a single invoice can be issued to cover all the supplies. The invoice would have to identify the price of each supply either in the document or with a schedule attached. Where these requirements are met, the purchaser can recoup the GST over the life of the agreement.

Subscription, Conference Registration, Insurance Renewal, and Similar Notices

These types of notices are issued before it is know whether there will be a supply. Legally these documents are called an “offer” and the supply does not take place until accepted by payment.

The ATO, in GST ruling GSTR 2000/17, have stated that if the document otherwise complies with the requirements for a tax invoice it can be treated as a tax invoice. However the document must contain a statement such as “This document will be a tax invoice for GST when you make payment”.

GST Procedures

The following GST procedures have been developed according to the type of activity and how that activity is processed through the University’s finance system:

732.1 - Accounts Payable

732.2 - Petty Cash

732.3 – Corporate Credit Card

732.4 - Recipient Created Tax Invoices (RCTI) Agreements

732.5 - Accounts Receivable

732.6 - Business Activity Statement (BAS)

The procedures can be summarised as follows.

732.1 Accounts Payable

All invoices for payment of goods and services, other than those processed via the corporate credit card, or through petty cash are processed by Accounts Payable within Financial and Business Services Office.

Most acquisitions by the University will be subject to GST. The University will pay GST at the time of acquisition and then, with a tax invoice, claim an input tax credit from the ATO.

At the time of processing the invoice, the relevant Rate Code (see below) is used to ensure the correct GST treatment is applied.

GST Codes in Finance One

Listed below are the rate codes used in Finance One to deal with GST.

732.2 Petty Cash

As previously noted, the requirement to obtain a tax invoice relates to payments greater than $75.  As the petty cash limit for individual purchases is $50 there should be no requirement to obtain tax invoices for petty cash expenditure.  Where individual petty cash transactions exceed $75 (GST exclusive) a tax invoice must be obtained.

Please note that payments should not be made via petty cash where the payee cannot provide an ABN and the purchase value is greater than $75 (excluding GST). There is no mechanism in the petty cash system to withhold tax at 46.5%. These payments must be made through accounts payable with a payment request.

732.3 Corporate Credit Card

These procedures should be read in conjunction with:

The corporate credit card is a means of paying for goods and services in an efficient and convenient manner. The corporate credit card does not alleviate the cardholder from any of the normal GST or ABN considerations that presently exist for acquisitions made by the University.

Amount entered is GST Inclusive

The purchase request should be raised using the GST inclusive figure from the supplier’s quote. In most instances 10% GST will be levied on goods or services that the University acquires. To avoid any chance of a dispute with a supplier ensure the price quoted is GST inclusive.

Rate Code Pick List

Listed below are the codes used with the corporate credit card to deal with GST:

Corporate credit cardholders must ensure that tax invoices are received to substantiate each transaction greater than $75 (excluding GST).

Please note that payments should not be made via the corporate credit card where the payee cannot provide an ABN and the purchase is greater than $75 (excluding GST). There is no mechanism to withhold tax at 46.5% with the corporate credit card. These payments must be made through accounts payable with a payment request. To avoid this situation you should ensure that you are dealing with a supplier who has an ABN.

732.4 - Recipient Created Tax Invoices (RCTIs)

An RCTI is a tax invoice that is issued by the recipient instead of the supplier.

ATO Ruling – GSTR 2000/10

The ATO determines the situations in which RCTIs can be issued and has authorised RCTIs for some general situations and also for some specific industry transactions. The ATO have issued a ruling (GSTR 2000/10), which relates to Recipient Created Tax Invoices.

This extract below from GSTR 2000/10 explains the rationale behind RCTIs:

Usually, the supplier of a taxable supply gives the recipient a tax invoice for the supply. However, commercially, invoices are also currently created by recipients of supplies, particularly where:

1. the value of the supply is established by the recipient rather than by the supplier; and

2. (i) the goods involved are of a type that require qualitative analysis to be undertaken before their value can be ascertained (for example, cut sugar cane is analysed by the sugar mill);

(ii) quantitative analysis is undertaken before the recipient can ascertain the value of the supply (for example, work-in-progress in the building and construction industry is analysed by quantity surveyors);

(iii) the supplies are arranged and recorded using electronic purchasing systems operated by the recipients (to require a tax invoice to be issued by the supplier would detract from the effectiveness of these systems); or

(iv) there are mutual efficiencies for the supplier and the recipient in conducting their business on the basis that the recipient notifies the supplier of the value of the supply.

The determination will enable many recipients to claim input tax credits without significantly altering their current invoicing practices.

What information must an RCTI contain

A RCTI is basically a tax invoice that has been prepared by the recipient. Therefore a RCTI must contain all the information required for a tax invoice. In addition, the words “recipient created tax invoice”' and the ABN of the supplier and the recipient must also be prominently stated.

How to set up a RCTI agreement

The University has entered into RCTI agreements with a number of funding bodies. In these situations the funding body is the recipient and has instigated the agreement. The RCTI allows the funding body to make periodic payments (with RCTI attached) without having to wait for the University to raise the tax invoice. If the entity you are dealing with has been given authority to enter into RCTI agreements by the ATO then a RCTI agreement can be set up.

Normally the recipient would initiate the agreement. All agreements should be forwarded to the Taxation Accountant, Financial and Business Services Office to ensure that they comply with the requirements set out by the ATO.

732.5 – Accounts Receivable

Revenue for the University can only be raised using one of the four (4) methods:

1. Appropriation. For GST purposes appropriation has been specifically excluded from the definition of consideration and therefore falls outside the scope of the legislation. For the University this means income like the operating grant, which has been provided under appropriation, will not include GST. This type of income will not be invoiced but will usually be receipted via a direct deposit.

2. Request for Invoice. Invoices must NOT be raised by organisational units. The Request for Invoice form should be completed and forwarded to Financial and Business Services Office for processing. Income should not be received without an appropriate invoice.  Examples of income that should be raised using a Request for Invoice form would include: research & consultancies, and the sale of goods and services.

The Request for Invoice form is on the web and the following steps should be used to complete the form:

1. Check if the supply is GST-free. If GST-free do not include GST in total price. You must however show justification why GST should not be charged.

2. Determine the actual price of the supply (excluding GST). NB if recovering expenses incurred, the amount must be exclusive of GST (can not levy tax on tax). Insert as TOTAL AUD$.

3. Calculate 10% of TOTAL & insert at GST $.

4. Add GST to TOTAL and insert at “TOTAL incl GST”.

5. The account number to be credited should be clearly indicated.

6. Have Request authorised by appropriate delegate and forward to Revenue Section, Financial and Business Services.

As the University accounts for GST on an accrual basis, the GST is remitted to the ATO at the time the invoice is raised and not when the funds are received.

1. Recipient Created Tax Invoices (RCTI).

Refer to 732.4 –RCTIs

1. Sub-receipts/Cashier (Student Enquires). Generally this will include low value miscellaneous income where an invoice is not raised (e.g. sundry charges for students).  This type of income is usually receipted at departments using sub-receipts or directly through the cashier (Student Enquires).

Both the sub-receipt form and the receipt issued by the cashier comply with the requirements of a tax invoice.

For receipting using sub-receipts the following instructions are to be used:

1. Before sub-receipts are forwarded to the cashier for receipting the Finance Officer must indicate whether the receipts include GST or not. The Cashier does not make this determination.

2. Sub-receipts should be divided into taxable supplies and GST-free supplies. This will assist in the data entry of the transaction.

3. The account number to be credited should be clearly indicated.

4. For taxable supplies fill out the exclusive amount, the GST amount and ensure they add to the total received.

Sub-receipts that have no indication regarding GST will not be receipted until the GST has been determined.

GST Codes in Finance One

Listed below are the rate codes used in Finance One to deal with GST.

732.6 – Business Activity Statement (BAS)

The Taxation Accountant, Financial and Business Services Office, is responsible for lodging the Business Activity Statement (BAS) with the Australian Taxation Office (ATO). The University lodges the BAS monthly (determined by turnover). The University has had approval from the ATO to lodge based on the University’s period reporting.

Each month the BAS information for the JCU Bookshop and JCU Halls of Residence are consolidated with the BAS information for the University. The consolidation is required as the JCU Bookshop and JCU Halls of Residence run separate general ledgers to the University.

Specimen Forms

Request for Invoice

Statement by Supplier

Related documents, legislation or JCU Statutes

A New Tax System (Goods and Services Tax) Act 1999

A New Tax System (Australian Business Number) Act 1999

A New Tax System (Pay As You Go) Act 1999

For enquiries in relation to this Finance Procedure please contact Taxation Office taxation@jcu.edu.au

Administration

NOTE: Printed copies of this policy procedure are uncontrolled, and currency can only be assured at the time of printing.

Approval Details

Revision History