The goods and services tax, better known as the GST, is a tax on goods and services at the rate of 10%. It came into effect on 1 July 2000, replacing the old sales tax that applied at the wholesale level at different rates, and only to certain goods.

The GST is a commonwealth tax, but the proceeds go to the states, replacing the previous untied grants of income tax collected.

GST and sales tax

The GST is much more broadly based than sales tax, and it affects many more people than sales tax ever did. This is because it is levied at each stage of the production process (with credit for tax already paid). Almost every significant business in Australia — over a million entities — is required to register for GST, compared with the less than 100,000 who paid sales tax.

Even non-profit organisations are affected, since they are liable to collect GST where they charge for certain goods and services.

Very small businesses — those with an annual turnover of less than $50,000 — can elect not to register, and not obtain credit for tax already paid on goods and services supplied to them. (The threshold for non-profit organisations is $100,000.)

GST free items

Although the coverage of the tax is very extensive, some supplies are GST free. These include:

If an item is GST free the supplier gets a credit of tax already paid on it, so that the effective tax rate on its final value is zero.

Residential premises

The supply of residential premises, either by sale or rent is input taxed, so that while no GST is payable there is no credit for any tax already paid.

Financial services

Some financial services are input taxed; that is, there is no GST paid on their supply, but the supplier does not get an input credit for the tax already paid on the services.

Services in this category include shares, loans, the provision of money generally, superannuation funds and life insurance.

Legal and accounting services, general insurance and other advisory services are excluded, and GST is payable.