Who Actually Pays GST: Businesses, Consumers and the Supply Chain

Introduction

Goods and Services Tax (GST) is a broad-based consumption tax of 10% applied to most goods, services, and other items sold or consumed in Australia. While businesses are responsible for collecting and remitting GST to the Australian Taxation Office (ATO), the ultimate economic burden falls on the final consumer. This pillar article dissects the mechanics of GST across the supply chain, clarifying who pays, who collects, and how businesses can manage their obligations. Whether you are a sole trader, a small business operator, a bookkeeper, or an importer, understanding these principles is essential for accurate pricing, cash flow management, and BAS lodgment.

We will explore the flow of GST from producer to consumer, the role of input tax credits, special rules for importers and second-hand goods, cross-border transactions, registration thresholds, and common pitfalls. By the end, you will have a clear framework to apply GST correctly in your own operations.

The Fundamental Principle: Who Bears the Economic Burden?

GST as a Consumption Tax

GST is designed to be a tax on final consumption. Businesses act as collection agents: they add GST to their sales (output tax) and can claim back GST on their business purchases (input tax credits). The net amount is remitted to the ATO. The consumer, who cannot claim input tax credits, bears the full 10% cost.

Economic Incidence vs. Legal Liability

Legally, a registered business is liable to remit GST on its taxable supplies. Economically, the burden is shifted forward to the end user through pricing. For example, a manufacturer sells raw materials to a wholesaler for $110 (including $10 GST). The wholesaler claims $10 input tax credit, then sells to a retailer for $220 (including $20 GST). The retailer claims $20 input tax credit, then sells to a consumer for $330 (including $30 GST). The consumer pays $30 GST, but the ATO collects $10 from the manufacturer, $10 from the wholesaler, and $10 from the retailer – total $30. Each business is effectively a pass-through.

Expert Tip: Always remember that GST is not a cost to your business if you are registered and can claim input tax credits. It is a flow-through item. Price your goods and services GST-inclusive to avoid cash flow surprises.

The Supply Chain: How GST Flows from Producer to Consumer

Step-by-Step Flow

Consider a simple supply chain: Farmer → Processor → Wholesaler → Retailer → Consumer. Each registered entity charges GST on its sale and claims input tax credits on its purchases. The table below illustrates the net GST position at each stage.

Total GST collected by ATO: $40. The consumer bears the full $40. Each business remits only the value they added.

GST-Free and Input-Taxed Supplies

Not all supplies are taxable. GST-free supplies (e.g., basic food, medical services, education) have no GST on sale, but suppliers can claim input tax credits. Input-taxed supplies (e.g., residential rent, financial services) have no GST on sale, and suppliers cannot claim input tax credits on related purchases. This creates a different economic burden: the supplier absorbs the GST on inputs, which may be passed on in pricing.

GST for Sole Traders and Small Businesses: Input Tax Credits and Output Tax

Registration and BAS

If your GST turnover (gross business income) is $75,000 or more ($150,000 for non-profit), you must register for GST. Sole traders and small businesses can choose to register voluntarily if below the threshold. Once registered, you must charge GST on taxable supplies and lodge Business Activity Statements (BAS) quarterly or monthly.

Claiming Input Tax Credits

You can claim input tax credits for GST included in purchases directly related to your business. This includes stock, equipment, services, and overheads. However, you cannot claim for private or exempt purchases. Keep tax invoices for all purchases over $82.50 (including GST).

• Example: A sole trader buys a laptop for $1,100 (inc. $100 GST) for business use. They claim $100 input tax credit on their BAS.
• Example: A small business pays $550 (inc. $50 GST) for accounting software. They claim $50 input tax credit.

Adjustments for Private Use

If an asset is used partly for business and partly privately, you must apportion the input tax credit. For example, a car used 60% for business allows a 60% claim on the GST component.

Warning: Failing to apportion private use can lead to ATO penalties. Maintain a logbook or usage records.

GST for Importers: Customs, Deferred GST, and Adjustments

GST on Imported Goods

When you import goods into Australia, GST is payable at the border. The value for GST includes the customs value, duty, and any transport/insurance costs. You must pay this GST to the Australian Border Force before goods are released, unless you use the deferred GST scheme.

Deferred GST Scheme

Registered businesses can defer the GST payment on imports to their next BAS. This improves cash flow. To use it, you must be registered for GST, have a deferral approval from the ATO, and lodge your import declarations electronically. The deferred amount is reported as a GST liability on your BAS, and you can claim an input tax credit in the same period if the goods are for business use.

Adjustments for Imported Services and Digital Products

Since 2017, GST applies to imported services and digital products (e.g., software, streaming, consulting) from overseas suppliers. If you are a business purchasing such services, you may need to reverse-charge the GST (i.e., self-assess) if the supplier is not registered. This is complex; consult a tax professional.

GST on Second-Hand Goods and the Margin Scheme

Margin Scheme for Second-Hand Goods

Dealers in second-hand goods (e.g., used cars, antiques) can use the margin scheme to calculate GST on the profit margin rather than the full sale price. This avoids double taxation because the original seller (often a private individual) did not charge GST. The margin is the difference between the sale price and the purchase price (if purchased from a non-registered person).

How It Works

If a dealer buys a used car from a private seller for $20,000 and sells it for $25,000, the margin is $5,000. GST is 1/11th of the margin: $5,000 × 1/11 = $454.55. The dealer charges $25,454.55 to the customer. The dealer cannot claim an input tax credit on the purchase because no GST was charged.

Eligibility and Record-Keeping

The margin scheme is optional and must be elected in writing. It applies only to second-hand goods acquired from non-registered entities. Keep records of purchase and sale prices.

GST on Cross-Border Transactions and Digital Products

Supplying to Overseas Customers

If you sell goods or services to customers outside Australia, the supply is generally GST-free (zero-rated) if the goods are exported or the services are provided to a non-resident. You can still claim input tax credits on related expenses. This is a key benefit for exporters.

Digital Products and the NetFlix Tax

Since 2017, overseas suppliers of digital products (e.g., e-books, streaming, apps) to Australian consumers must register for GST and charge 10% if their turnover exceeds $75,000. As an Australian business, if you purchase digital products from an overseas supplier, you may need to reverse-charge the GST if the supplier is not registered.

Cross-Border Services

Services performed in Australia for an overseas client (e.g., consulting, design) are GST-free if the recipient is outside Australia and the services are not connected with Australian real property. Ensure you have evidence of the recipient’s location.

GST Registration: Thresholds, Voluntary Registration, and Cancellation

Mandatory Registration

You must register for GST if your GST turnover (current or projected) is $75,000 or more. For non-profit organisations, the threshold is $150,000. Turnover includes all sales (including GST-free) but excludes input-taxed sales.

Voluntary Registration

Businesses below the threshold can register voluntarily. Benefits include claiming input tax credits and appearing more established. However, you must charge GST on your sales, which may make your prices less competitive. Consider your customer base.

Cancelling Registration

If your turnover drops below the threshold, you can cancel your GST registration. You may need to repay input tax credits claimed on assets still held (adjustment). The ATO provides a simplified process.

GST and Non-Profit Organizations: Special Rules

Reduced Threshold

Non-profit organisations have a higher registration threshold of $150,000. They can also access concessional GST treatment for certain supplies (e.g., fundraising events).

Input Tax Credits for Non-Profits

Non-profits can claim input tax credits on purchases used for their activities, but not for supplies that are input-taxed (e.g., residential rent). Special rules apply to gift fund income.

GST Calculator & Tools

Our GST Calculator Suite helps you quickly determine GST amounts, reverse-calculate GST from total prices, and manage BAS calculations. Here’s how to use it:

1. Add GST: Enter the base price (excl. GST) and click “Add GST” to get the total including 10% GST.
2. Remove GST: Enter the total price (incl. GST) and click “Remove GST” to find the base price and GST component.
3. Margin Scheme: Use the margin calculator to compute GST on second-hand goods.
4. BAS Calculator: Input your total sales and purchases to estimate net GST payable or refundable.

Visit our Searchable GST Database to check how GST applies to specific goods and services.

Common GST Mistakes to Avoid

• Not registering on time: If your turnover exceeds $75,000, you must register within 21 days. Late registration can result in penalties and backdated GST liability.
• Claiming input tax credits without a valid tax invoice: For purchases over $82.50 (incl. GST), you need a tax invoice. For smaller amounts, a receipt is sufficient.
• Mixing private and business expenses: Claiming full input tax credits on assets used partly privately leads to ATO adjustments. Apportion correctly.
• Ignoring GST on imports: Failing to pay GST at the border can delay goods. Use deferred GST to manage cash flow.
• Not reporting GST on cross-border digital services: If you buy from an overseas supplier, you may need to reverse-charge. Seek advice.
• Using the margin scheme incorrectly: Only available for second-hand goods from non-registered sellers. Keep records.
• Lodging BAS late: Late lodgment attracts penalties and interest. Set reminders.

Conclusion

GST is a consumption tax that ultimately falls on the final consumer, but businesses play a critical role in its collection and remittance. Understanding the flow through the supply chain, the rules for input tax credits, and special provisions for importers, second-hand goods, and cross-border transactions is essential for compliance and cash flow management. Use the tools and database on gstcalculatorau.com to simplify your calculations and stay informed. For complex situations, always consult a registered tax agent.