Australian GST (goods and services tax)

[RodG]

Lets play devil's advocate here :)

Traditionally that's my job, but as long as someone takes the position it does keep the ideas flowing.

I decide to sell my fabulous new mousetrap to overseas customers for $100 (no gst)

I also decide that I don't want to disadvantage my local customers by charging them $100 + gst = $110

I value my local customers so I decide to sell to them at $100 as well and I will cover the gst myself

So for this sale I will (eventually) pay 1/11 ($9.09) to the tax man as gst

I'm a little 'nervy' about your use of the word 'eventually' here.. GST is a pay as you go system, which means the *last* person in the list is the one that bears the full 10%. Everyone 'up' the line can claim their portion of it back..

You are looking at it as a B2B type transaction, where you sell at a price then add gst... to another business (as if you were a wholesaler)

I look at it as a B2C (end consumer) where we sell at a price to the consumer then (afterwards) pay 1/11 of all total local transactions as gst to the tax man
.

Yoiks, you don't understand the system (sorry for being so blunt) . With GST there is no difference when dealing B2B or B2C ... Those days died 10 years ago. The concept of a 'wholesaler' for tax purposes no longer exists.

I do not charge or collect gst on behalf of the tax man

Which means you are NOT registered for GST. Everything you sell is therefore GST free, in that you cannot add your own 10%, BUT, at the same time, everything you BUY already has an ever increasing tax embeded into it. If you are NOT registered for GST you cannot claim any of this back, you are the 'end user' and you bear the full cost. (Moustraps don't cost nothjing to build you know)

If you WERE registered for GST, you'd be able to reduce *your* costs by claiming back the credits from the GST already paid and passing them onto the end user....

Example: Suppose you were a reseller, doesn't matter if it is wholesale or retail, the exact same rules apply: Lets assume this mousterap costs you $90.00 to buy and you want to make $10 profit - easy, sell it for $100.
You're not collecting tax, so you can sell it overseas for the same price and profit, ok?

Now, register yourself as a tax collector (no choice if your turnover is over 75k p/a).. .. you still want to make $10 per sale, but if you continue to sell for $100, at the end of each month (or whatever) you'll need to give $9. to the tax man... You've now only made $1 profit on the sale. Now the cruncher, you cannot just add 10% on top of your $100 item to cater for this increased burden, because doing so is imposing a tax on a tax to the end user. (There were very severe penalities imposed on traders doing this when GST was first introduced), because the theory was, since wholesale tax was scrapped (and refunded to retailers) the prices of many items would drop as a result of GST rather than increase - as it did. Anyway, point being, profiteering by just jacking prices up by 10% wasn't, and probably still isn't tolerated (although there are times where this will occur - eg, service based income, rather than sales based).

What should be happening in this instance, the moustrap that cost you $90 has about $8.20 GST included in it ... you claim this back from the ATO, meaning that you've only paid $81.80 for it ... Add your $10.00 profit to this, and your pre-gst sale price is now $91.80 - You now add the GST, making the final sale price $100.98

Note: The consumer is only paying 98cents more as a result of you being registered for GST, you are still making $10.00 profit .. the slight increase is the result of the end user paying 10% gst on YOUR PORTION of the item's markup.

The tax man will expect (bill) you the GST portion of your total sales (in this case, $9.18), but, because you are claiming the 8.20 back as an input credit you only need pay the difference.. the 98cents, which you passed on to the end user anyway.
This is also why the B2B & B2C models are not relevent in regards to GST, the 'end user' is the one that cannot claim input credits (B2C), all else is B2B.

Sooo, where does this leeve us in regards to o/seas sales? If we are not registered then it make no difference, we don't add GST, we don't claim credits for GST paid. Everyone pays the same. You accept the tax that you paid when you purchased/made the origianl mousetrap.

If we are registered, for GST and we sell these items overseas for the same price as Australians, the implication is that we are charging GST where we shouldn't be... and that is illegal. Therefore we must give them a GST free amount on checkout, OR you can provide them with a tax invoice with instructions on how to reclaim the GST from the ATO (meanwhile, the ato has assumed you've already collected it and forwarded it on to them).

In short there is no way to avoid the GST.... overseas or local the ATO has it covered so that you'll do the 'right' thing and not charge GST where you shouldn't, and do charge where you should, and trying to do it any other way (no matter how it is presented) is going to end up with either
a) Breaking some law or other. or
b) Making $1.00 profit on overeseas sales, and $10 profit of local sales when selling an item for the same price, in this case, ~$100. You don't get to choose, it depends on the ability to claim back the input credits.

Short response to Devils advocate:
The ability or inability to claim back the input credits is what prevents us from 'choosing' whether to charge or not charge GST in any given situation. It isn't a matter of deciding whether to add GST or not.

Cheers
Rod