How the Goods and Services Tax (GST) affects business income 043-03100080

The ABN is the identifier for all business dealings with the Australian Taxation Office (ATO) and for future dealings with other government departments.

An ABN is necessary for all people to be a part of the GST and other elements of the New Tax System.

All businesses with an annual turnover of $75,000 or more must register for the GST and will need an ABN to do this. Businesses with a lower annual turnover may choose not to register for the GST.

Businesses who do not wish to register for the GST can still apply for an ABN. This is because under the Pay As You Go (PAYG) tax system, businesses that are not part of the GST system who receive an invoice are required to withhold tax (at 48.5%) from their payments for any goods or services if an ABN is not quoted.

A person who is carrying out activities as a hobby or personal pursuit does not have to register for an ABN (for example, a person who is a sales consultant for AVON or Tupperware with a small turnover for personal use does not have to register for an ABN).

Businesses that are a part of the GST system are required to submit Business Activity Statements (BAS) to the ATO. These are usually submitted to the ATO on a quarterly basis, however individuals with a low tax liability only need to submit the BAS annually and a business with a turnover of greater than $20 million per year is to submit their BAS monthly.

BAS's are used to record information including:

• income tax withholdings from all sources
• instalment of tax liabilities on business income
• tax liability on fringe benefits, and
• GST credits and debts

The BAS does not replace the annual income tax return for businesses or individuals.

BAS's are not to be used to assess income for Centrelink payments; income tax returns are still to be provided.

GST refunds from the ATO are not to be treated as income as they are reimbursements of money that has been paid to the ATO by the business and is already being assessed as part of the business income. Where GST costs cannot be claimed back as input tax credits they will be allowed as a business deduction. If a business:

• Has an ABN and is registered for the GST, the business must charge a GST and then pay this to the ATO. The business can claim any input tax credits. The GST that is paid to the ATO is a taxation liability and is not allowed as a tax deduction. Any input tax credits or GST refunds received from the ATO is not assessed as income
• Has an ABN but is not registered for the GST, any GST included in the cost of allowable business expenses are allowed as deductions
• Does not have an ABN and is not registered for the GST, any GST included in the cost of allowable business expenses is allowed as a deduction

If a customer is involved in a GST registered business, Service Officers should advise customers to provide proof of this.

Any GST that is paid to the ATO is not a business deduction, but any amount that is forwarded to the ATO is not included in the customer's gross income assessment.

Allowable business deductions should not include any amounts for which the customer receives an input tax credit or refund from the ATO.

See the Resources page for an example of the income assessment.

When a customer is not registered in the GST system, they do not pay any GST to the ATO and do not receive any tax credits. If a customer is self-employed in a business that is not GST registered, the assessment of income rules have not changed. See the Resources page for an example of the income assessment