Goods and Services Tax for Business and Property Transactions
These answers demonstrate the statutory sequence. In practice, always verify the relevant income/tax period, contractual terms and current ATO materials.
High Distinction Model Answers
Question 1 — Registration and mixed activities
Issue. Whether Sophie carries on an enterprise and whether her GST turnover meets the registration threshold.
Law and application. The pottery activity has progressed beyond a private hobby: there is a website, advertising, regular markets and recurring sales. It is therefore strongly capable of being an enterprise. The dentistry salary is remuneration from employment rather than turnover of Sophie’s pottery enterprise. Ordinary residential rent is input taxed and is excluded from GST turnover. The studio-hire receipts are more likely to be taxable commercial property/hire receipts and should be included if they form part of Sophie’s enterprise.
Historical pottery sales are $52,000, but projected pottery sales based on $6,500 per month are about $78,000 over 12 months. Even before studio hire, projected GST turnover reaches the ordinary $75,000 threshold. Sophie is therefore likely required to register when the statutory projected-turnover test is satisfied. If pottery sales were only $45,000 per annum, studio hire of $10,800 would produce approximately $55,800, below the ordinary threshold, assuming no other included enterprise turnover.
Conclusion. On the stated trend she is likely required to register; at $45,000 pottery turnover the answer would ordinarily change.
Question 2 — October GST calculation
Output GST on $8,800 taxable pottery sales is $800. Creditable acquisitions: materials $200; kiln $400; website/advertising $40; phone/internet $20 × 60% = $12. Interest and wages do not produce ordinary input tax credits. The vase gifted out of trading stock requires a private-use/adjustment analysis because input tax credits were claimed on business acquisitions later applied privately; on the stated $110 GST-inclusive material cost, a $10 increasing adjustment is a useful working assumption if the relevant adjustment provision applies.
Net working amount: $800 + $10 − ($200+$400+$40+$12) = $158 payable. The exact adjustment should be checked against the acquisition and adjustment-period facts.
Question 3 — Beach Basket food classification
Whole fresh oranges are basic food and ordinarily GST-free. Qualifying 100% fruit juice and qualifying bottled water can be GST-free subject to the statutory beverage schedule. Roasted coffee beans are generally GST-free as food/ingredients. Flavoured carbonated mineral water, takeaway prepared coffee, cake slices, sandwiches and hot sausage rolls are generally taxable because of the prepared-food/bakery/beverage rules. If customers dine on the premises, supplies of food for consumption on the premises are taxable even where the underlying item might otherwise be basic food. Oliver should code each SKU correctly in the point-of-sale system and retain product specifications for borderline beverages.
Question 4 — University, health and residential payments
Qualifying course tuition can be GST-free education. A compulsory materials fee that is integral to the education course may also fall within the education treatment where the statutory conditions are met. A separately sold textbook retained by the student and a laptop from a retailer are ordinarily taxable supplies. A qualifying medical service is GST-free. Ordinary residential accommodation is generally input taxed. A hot cafeteria meal is ordinarily taxable.
Question 5 — Barter and non-cash consideration
Mia is incorrect. Consideration can be non-cash. Her landscape-design service is a taxable supply if s 9-5 is otherwise satisfied. The $5,500 value implies output GST of $500. The hotel also makes a supply of accommodation/vouchers. Because Mia uses the vouchers for a private family holiday, she ordinarily has no input tax credit for that acquisition. The barter therefore can produce a real GST liability even though no cash is exchanged.
Question 6 — Sale of physiotherapy clinic as a going concern
The parties must satisfy s 38-325. River Health must be registered or required to be registered at the relevant time; the parties must agree in writing that the supply is of a going concern; Petra must supply all things necessary for the continued operation of the identified enterprise; and she must carry on that enterprise until the day of supply. Access to suitable premises is a material issue: a new lease, assignment or equivalent arrangement must support continuity where premises are necessary. Petra should avoid an unnecessary cessation one week before settlement if it means the enterprise is no longer being carried on. The contract should expressly deal with the going-concern treatment and GST risk.
Question 7 — Hire price and security deposit
The $550 non-refundable part-payment is ordinary consideration for the taxable hire and attracts GST in the normal attribution period. The $1,650 later balance is also consideration. The separate $1,000 can qualify as a genuine security deposit if it is held as security and refundable on satisfactory performance; Division 99 defers GST until it is forfeited or applied as consideration. When $440 is retained because of damage, the GST treatment depends on the legal character of that retained amount and the application of the deposit rules; it is no longer simply a refundable security amount.
Question 8 — Taxable importation
There is a taxable importation because the helmets are imported for home consumption and no exemption is stated. On the assumed value of $22,000 + $2,200 + $800 = $25,000, GST is $2,500 (10%). Because Kai is registered and the helmets are wholly for resale in his taxable enterprise, he is generally entitled to a corresponding $2,500 input tax credit, subject to holding the required import documentation. The importation itself therefore commonly has a nil net economic GST cost, although there can be timing/cash-flow consequences.
Question 9 — Property development and the margin scheme
Coastal can potentially use Division 75 because it acquired the property from an unregistered private owner in a transaction on which GST was not charged under the ordinary taxable-supply rules. The parties to each sale must make the required written agreement to apply the margin scheme by the statutory time.
The managing director is wrong to equate “margin” with accounting profit. Treating the $1,650,000 acquisition price as $550,000 per resulting lot: Lot 1 margin = $1,100,000; Lot 2 = $1,210,000; Lot 3 = $1,320,000. Total margin = $3,630,000. GST under the ordinary 1/11 margin formula is $330,000. Development costs are dealt with separately, including through input tax credits where available; they are not simply deducted in computing this statutory margin.
If Margaret had instead made an ordinary fully taxable supply to Coastal without using the margin scheme, Coastal’s eligibility to use the margin scheme on resale would generally be adversely affected by the acquisition-history rule. Purchasers acquiring under the margin scheme generally cannot claim input tax credits for the GST embedded in the margin-scheme acquisition.
Question 10 — Integrated September GST revision
Corporate catering $22,000 includes $2,000 output GST. Fresh fruit boxes are generally GST-free. Ingredient purchases from registered suppliers give a $500 input tax credit. The $1,100 purchase from an unregistered farmer carries no GST credit. The free family catering triggers a private-use/adjustment analysis; on a $550 GST-inclusive input cost, $50 is a useful working adjustment if the relevant provisions apply. The barter transaction creates a $200 output GST liability on Amelia’s catering and, because the photography is for advertising, ordinarily a $200 input tax credit on the reciprocal acquisition. Rent gives a $300 input tax credit. Interest and wages do not generate ordinary GST credits.
Working net amount: output $2,200 + private-use adjustment $50 − input credits ($500+$200+$300) = $1,250 payable, subject to confirming the private-use adjustment facts.
Additional Revision Answers
GST-free v input taxed
Both categories generally mean no GST is charged to the recipient, but the upstream credit treatment differs. A GST-free supplier generally retains input tax credits for acquisitions relating to the GST-free supply. An input-taxed supplier generally cannot claim input tax credits to the extent acquisitions relate to making the input-taxed supply. This difference is why the two labels must never be used interchangeably.