Non-taxable and GST-free supplies
There are three types of exemption from charging GST. These are: supplies outside the GST system; GST-free supplies; and input taxed supplies.
Supplies outside the GST system
The GST rules generally did not apply to supplies made before 1 July 2000. Nor, in general, do they apply to gifts, to supplies made by unregistered entities, supplies made by business entities that are not registered and are not required to be registered, or transactions that have no connection with Australia. For example, sales made at a private garage sale are not caught by the GST. The Commonwealth Government itself is not liable to pay GST (sec 177-1). Appropriations made between government agencies are also not subject to GST (sec 9-15).
If a supply is GST-free, this means that no GST is payable on it, but that the supplier is entitled to claim credits for the GST payable on its business inputs that relate to that supply (sec 9-5; 11-15). For this reason, it is quite different from a supply which is outside the GST system altogether.
Example: A registered greengrocers business consists wholly of selling fresh food. The sale of that food is GST-free. The greengrocer therefore will not charge GST on the food it sells, and claim input tax credits for the GST it pays on goods and services it acquires in carrying on its business, e.g. rent and equipment.
Note: If the greengrocer used some of those goods for private, non-business purposes, only a proportion of the input tax credit for GST on those goods would be allowed.
GST-free supplies include:
- Cars for disabled people
- Certain activities of charities and gift-deductible bodies
- Certain prepaid funerals
- Certain supplies under contracts made before 8 July 1999
- Certain transactions involving precision metals
- Child Care
- Crown Land
- Farm land
- Health and medical care
- International mail
- International travel and transportation of goods
- Sale of businesses
- Subdivisions of farm land for family residential purposes
- Supplies through inwards duty-free shops
- Water, sewerage and drainage
- Religious services
Supplies of items such as retail books, public transport or domestic tourism are not GST-free.
The greatest impact of GST-free status will normally be felt where the customer is a private consumer. It will not matter so much where the customer is a business that can get an input tax credit for GST in any event, though there may be some cash flow implications.
Input taxed supplies
If a supply is “input taxed”, no GST is payable on it, but the supplier normally cannot claim input tax credits for the GST payable on its business inputs that relate to that supply (sec 9-5; 11-15).
Example: A registered landlord’s business consists wholly of letting private residential premises. These are input taxed supplies. The landlord therefore will not charge GST on the rent, and cannot claim input tax credits for the GST it pays on the goods and services it acquires to run the business.
Note: If the landlord also used some of the goods and services in other business activities that were taxable (or GST-free), it could claim a proportion of the GST as an input tax credit.
Input taxed supplies are set out in Div 40 (sec 9-5). They include:
- Financial supplies such as loans, dealings in money and issuing securities (note that in this particular case, limited input tax credits may be available);
- The supply of residential rental premises
- Sales of residential premises (but not new homes or commercial premises);
- Food at school tuckshops (optional);
- Certain transactions involving precious metals;
- Certain fund raising activities of charities; and
If a supply is input taxed, the supply of a right to that supply is also input taxed.
It is possible that a supply can be categorised as both a GST-free supply and an input taxed supply. In these cases, the GST-free status prevails.
Our dedicated team can assist you with all your accounting and GST related matter. Complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.