GST-Free Items and Input-Taxed Supplies: What Carries No GST

Three statuses, two questions

For any sale, ask two questions. Does the customer pay GST? And can the seller claim the GST in its own costs?

The credit question is set by section 11-15 of the Act: a purchase is not for a creditable purpose to the extent that it relates to making input-taxed supplies. Nothing similar applies to GST-free supplies, which is why exporters and medical practices usually receive GST refunds.

GST-free items, Division 38

Food (Subdivision 38-A). Section 38-2 makes food GST-free; section 38-3 takes back food eaten on the premises, hot food sold to take away, most beverages and the foods listed in Schedule 1. That schedule is specific: prepared food (quiches, sandwiches, pizzas, hamburgers, hot dogs, platters, meals marketed as prepared meals but not soup), confectionery and muesli bars, savoury snacks such as chips and roasted or salted nuts, bakery products (cakes, muffins, pies, sausage rolls, croissants, scones, sweet buns), ice-cream and frozen confectionery, and biscuit goods. Bread, fresh meat, fruit, vegetables, milk and eggs remain GST-free.

Health (Subdivision 38-B). Medical services (section 38-7), other recognised health services, hospital treatment, residential and home care, disability support provided to NDIS participants, listed medical aids and appliances, and most prescription medicines.

Education and childcare (Subdivisions 38-C and 38-D). Education courses and directly related administrative services (section 38-85), course materials, excursions, and approved childcare.

Exports and cross-border supplies (Subdivision 38-E). Goods exported within 60 days of payment or invoice (section 38-185), and services or other things consumed outside Australia.

Others. Religious services, water, sewerage and drainage, the supply of a going concern (section 38-325), international transport, farm land supplied for farming, cars for eligible disabled people, and some supplies by charities.

Input-taxed supplies, Division 40

Financial supplies (section 40-5): lending, interest, deposits, most account and loan fees, shares and other securities. Residential rent (section 40-35): leasing a house or flat to live in, but not commercial residential premises such as hotels. Sales of residential premises (section 40-65): selling an existing home is input-taxed; new residential premises are taxable. Also input-taxed: precious metals in some dealings, school tuckshops that choose it, and fundraising events run by charities.

A supermarket docket, line by line

A docket with $6.50 of fruit and $4.20 of milk (GST-free), and $5.50 of chips and $8.80 of cleaning products (taxable), totals $25.00. The GST is $1.30, one-eleventh of the taxable $14.30 only, not one-eleventh of the whole docket ($2.27). Retail dockets usually mark the taxable or GST-free items; the reverse GST calculator does the subtraction for you, and the GST calculator takes each line with its own status.

Why the status matters even when no GST is charged

Take two businesses each spending $2 200 a quarter, GST included, on rent of commercial space, equipment and software. The physiotherapy practice supplies GST-free health services: it claims $200.00 back. The landlord letting apartments supplies input-taxed residential rent: the $200.00 of GST in its costs stays a cost. Over a year, that is $800 of difference with the same spending, which is why property investors and medical practices read the same GST rules so differently.

Mixed businesses (a café that sells takeaway coffee and packaged coffee beans, a GP clinic that also sells cosmetic products) need to split their sales by status, and sometimes their costs too. The simulator above asks for both splits, because a single average rate hides exactly the credits that are at stake.