The nuts and bolts of GST
By Noel Wynn April 26, 2000

Introduction:
I'm not a registered accountant or tax adviser, but industry members have been looking to me to issue simple, easy to understand "industry specific" information on how the GST will affect specialist automotive repair shops. Hence, I have compiled the following points aimed specifically at repair shops with an annual turnover of over $50,000. This information is compiled to the best of my knowledge, but you should seek professional advice from your accountant on the application of GST to your particular business.

What is GST?
By now you should be aware that the 10% Goods and Services Tax (GST) will apply to all goods and services that you buy and sell after June 30, 2000. The liability to pay this tax to the Australian Tax Office (ATO) rests with the business supplying the goods or services, not the consumer.
The amount you remit to the ATO is the difference between the GST you paid on goods when you bought them and the amount of GST collected when you sold the goods. As there is no GST on wages it is the full amount you collect when you charge out labour to your customers. You also claim back any GST paid on goods or services used in the operation of your business.

Registration:
By now you should be registered with the ATO and obtained an Australian Business Number (ABN) otherwise you will not be able to claim credits for GST paid on goods (purchases) and services (operating expenses). These are referred to as 'Input Tax Credits'. You will also need to ascertain the amount of sales tax you have paid on goods you hold in stock at June 30, 2000 and claim this back as a credit on your first GST return (Business Activity Statement).

Operation:
Before I go any further I must reinforce that your accountant is the best qualified person to handle your ABN registration as there are certain aspects of the registration procedure, such as cash or accrual accounting and monthly or quarterly reporting and payment of GST, that could seriously affect your cash flow.
Also, any business that thinks it can handle GST without a computer had better think again. There are several good and relatively inexpensive software packages that will take care of your GST. I use MYOB and any references I use are based on its operation.
The Federal Government's tax reform package includes many changes to the way taxes are handled and reported on your Business Activity Statement. Once again, your accountant is the best person to advise you and I will restrict my comments to GST alone.

Sales:
You will most probably encounter two types of GST sales, retail to consumers and sales to other businesses.
If the sale is under $50 no 'Tax Invoice' is required. However it is compulsory to issue a Tax Invoice within 28 days if the customer requires one. MYOB and other 'GST Ready' software programs provide for the issue of Tax Invoices.
Retail sales to consumers - Consumers are not registered and do not have an ABN, therefore the 10% GST you charge them is the total amount of GST applicable to the sale and remitted to the ATO, less any input tax credits.
Sales to other businesses with ABNs - These fall into two categories. (1) Parts or services that will be on-charged and (2) Parts or services that are used in the operation of the customer's business.
(1) When the parts or services are on-charged by your customer GST is added to the on-charged price and the GST paid by your customer to you is claimed back as business input.
(2) When the parts or service, such as repairs to a company owned vehicle, are used by a business with an ABN and registered for GST the GST paid by the customer to you is claimed back as a business input and is therefore revenue neutral to the ATO.

Purchases and Expenses:
It is very important that you keep track of the GST you pay on parts and services that come into your business so that it can be claimed back as business inputs. Regardless of whether they are goods to be resold or goods or services that are to be used in the running of your business.
(1) Goods to be resold such as replacement parts - You simply claim the amount of GST paid to your supplier back on your next Business Activity Statement after the time of purchase. You do not have to wait until you sell it!
(2) Goods or services purchased in the running of your business such as rental of business premises, trade association membership and trade publication subscriptions - You simply claim the amount of GST paid to your supplier back on your next Business Activity Statement after the time of purchase and as it has not been on-charged it is therefore revenue neutral to the ATO.

Mark-up:
Whereas under the old sales tax system where the Wholesale Sales Tax amount was usually taken in as part of the cost of goods you need to treat the purchase price of goods separately from the GST paid under the new system. To maintain the same dollar profit margin you will need to re-work your percentage mark-up amounts from cost as the tax will not be included. While you cannot mark-up GST amounts or profit from the introduction of GST it is OK to maintain previous dollar profits set prior to the introduction of GST.

Prices:
After you rework your mark-ups with the replacement of a 22% Wholesale Sales Tax with a 10% GST (Retail Tax) it could reduce the retail price of the goods you sell. If it does you must pass this saving on to the consumer. But as there will be 10% GST on the labour charged on a workshop job there will probably be little saving to the consumer who chooses to have you fit the part.
Business to business sales are a different matter and there could be some small savings when purchasing certain goods. Where you are paying for professional services, such as accountants and lawyers, the amount of GST they will add to their bill can be claimed back by your business. Any small cost savings professional people will get from the introduction of GST will probably be eaten up in increased administration costs.

Quoting:
As far as I can ascertain, retail prices quoted to consumers must be GST inclusive, but can be invoiced as either GST inclusive or you can show the GST as a separate amount on the docket, which ever you prefer.
Business to business sales appear to be a different matter and some manufacturers and suppliers may opt to publish a List price without GST so that various discount structures can be maintained.
Some businesses where they do not intend to on-sell products, such as local governments, are requesting that all quoting be done GST exclusive as they intend claiming back all GST paid on repairing their vehicles as a Business Input.
Retail prices shown in advertising and on product tickets must be GST inclusive. In other words the full price the consumer will pay at the till.
If you buy or sell goods and services that are charged as GST inclusive, the GST component is 1/11th of the total price.

Checklist:
* Talk to your accountant and make sure you have an ABN and registered for GST.
* Ensure your computer system is GST ready.
* Find our what your buying prices will be under the GST from your suppliers so that you can calculate your new selling prices after you have added the same dollar value mark-up on cost.
* Attend an ATO GST seminar and as many industry based GST seminars that you can.
* Ensure you receive 'Tax Invoices' for any GST related purchases.
* Make sure you do an accurate stocktake at June 30 and record the Sales Tax paid on each item.

Top^