I am starting to sell some products online and I get confused about GST. Basically, a manufacture sells their products with GST to my supplier. My supplier doesn't have GST registered, so they can't charge me for GST. However, I got GST registered, so I have to charge my customer for GST on top of the price because I couldn't claim GST back from ATO. So, my customers get charged for GST twice on the same product?
Manufacture (charge GST) -> Supplier (NO GST) -> Me (Charge GST) -> Customers
Thanks Konnknee but where is it wrong?
My name for starters.
Ronnknee :)
That made me laugh harder than it should have.
Consider 2 scenarios:
Scenario A: Supplier is not GST registered.
Manufacturer sells the item for $1 (inc. $0.09 GST) to the supplier. The supplier pays for the $0.09 GST.
The supplier resells the item to you for $2. You don't pay GST.
You resell the item to the customer for $4 (inc. $0.36 GST). The customer pays for the $0.36 GST.
Scenario B: Supplier is GST registered. Assume same price for each sale as last scenario to stay competitive.
Manufacturer sells the item for $1 (inc. $0.09 GST) to the supplier. The supplier pays for the $0.09 GST.
The supplier resells the item to you for $2 (inc. $0.18 GST). You pay for the $0.18 GST but can claim $0.09 GST as input tax credit.
You resell the item to the customer for $4 (inc. $0.36 GST). The customer pays for the $0.36 GST.
Difference
Manufacturer: None.
Supplier: Pays $0.09 GST vs $0.09 GST. None.
You: Pays nil GST vs net $0.09 GST. $0.09 difference.
Customer: Pays $0.36 GST vs $0.36 GST None.
Basically you lose out because you can't claim the input tax credit from your supplier. To the customer, it makes no difference for them because you are GST registered. Also, the reason for same sale price in both scenarios is so that the competitiveness at each level is constant. If you price yourself higher to subsidise the GST as a cost and keep your margin constant, then you might not be competitive enough and the customer may buy from somewhere else.
My suggestion is that you find a supplier that is GST registered if you worry about losing the input tax credit. Compare their ex GST price against your current supplier.
@ronnknee: That's not right. Scenario B: If you pay $0.18 GST, they you claim $0.18 GST tax credit from the government. You only have the tax invoice from the supplier to go off, so you have no idea about the $0.09 GST amount; that was a transaction between the manufacturer and the supplier.
Actually you're right, I got it the other way around sorry.
Point still stands. OP is losing out on tax input credit.
I’d say they are not.
Unless they are able to find someone to sell to them with a GST inclusive price being the same as the current GST free price, it’s irrelevant whether OPs supplier is registered for GST or not.
I still find it interesting that OP is sourcing from a 3rd party supplier (ie. not the manufacturer) that is so small they don't have to register for GST, yet the OP can't seem to source from manufacturer direct.
A GST-registered business must charge its customers GST on taxable goods and services it provides, but is entitled to a credit for any GST it has paid for its expenditures on these goods and services as well as capital purchases (called input tax credits).
(Wikipedia)
So no. There is no "double dipping" or double charging of the GST as you have described.
There are situations where you can't claim a tax credit. Listed here.
Thanks Scrimshaw. Yes, it's exactly. I can't claim for GST because there is no GST component on the invoice.
If you were paying GST and then claiming it back, how would your financial situation be materially different then not paying it in the first place? If it's the same, why would the price you charge your customers be different, and they're paying GST regardless too.
Cash flow for one.
But the manufacturer claims the GST and consumer pays the final GST?
Change your supplier
There is no difference.
Supplier doesn't charge you GST. You get the goods 1/11th cheaper.
Supplier charges you GST. You get to claim 1/11th as input cost later.
- Supplier doesn't charge you GST. You get the goods 1/11th cheaper.
How? Let say the manufacture sell the product with $300 (included GST). The supplier can't claim GST because they didn't register for it (You have to register for GST to claim GST). So the product's cost for the supplier will be $300. The supplier sell it to me for $350 with $50 profit and NO GST. I can't claim the GST because the supplier didn't charge me for GST, So the product's cost for me is $350. I have to sell it for $380 + $38 GST if I want to make $30 profit
If they supplier isn't registered for GST, they would not pay GST on their sales. So they can sell it a little cheaper than if they had to pay GST later. If the supplier were registered for GST they wouldn't sell it to you for $350, they would have to charge $385. And that works out to be the same for you because you can claim the $35 later.
But none of this matters to you. Just decide on who you want to buy from based on the actual cost to you: price minus GST.
But if the supplier was registered for GST, they could claim the GST they were charged from the manufacturer, and then still sell it for say $360, with you able to get an 11th of that back, so cheaper.
@Quantumcat: But then supplier also has to pay any GST collected which will be more than than the input GST. Essentially the GST is on the markup. Look at this way, the supplier is in the reverse position from OP.
@greenpossum: but the goods will cost them less, so they can sell them for less. Any GST added, OP can claim back so OP will still get them cheaper than if the supplier wasn't registered.
I feel like I'm not understanding something?
@Quantumcat: But remember the supplier also has to collect GST from OP. To put actual numbers on it, the GST paid by the supplier is $300/11, about $27. If the supplier sells for $360, that will be a GST-inclusive price, so the ATO will expect $360/11 of that, about $32. So that eats into the profit.
@greenpossum: two options, GST or not. Say supplier wants to make $50 regardless. Let's see what OP has to pay.
Option 1, no GST: supplier is charged $300 from the manufacturer, so charges $350. OP has to pay $350, he can't claim anything.
Option 2, GST: supplier is charged $300 but can claim $27 back, so he has paid $273 for the item. He wants to make $50 so he charges $323. But he has to add 10% so the sale price is $355. OP can claim that back so he pays $323.
When supplier is GST registered it is cheaper for OP.
@Quantumcat: Ok, I see what you mean. Supplier not registering for GST puts them at a disadvantage compared to one that does.
I can't argue with your calculations and I think that's a great answer but the real world may be different.
If the supplier has mainly business customers that are registered for GST, they clearly currently have a competitive ex GST price (in this case their only price is the ex GST price) for that product or the OP wouldn't be buying from them. I'm assuming here that the OP has compared their price with the ex GST price of other suppliers. If the supplier then registered for GST and kept the ex GST price the same, it shouldn't make much difference to their business customers at all. Obviously their (inc) price would go up 10% of course but the customers could claim that back. Why would the supplier drop his ex GST price by $27 when he could just pocket it without losing customers?
I think this is why the OP is getting different answers. All they need to worry about is choosing the supplier with the lowest ex GST price. If the supplier is registered for GST or not is a matter for the supplier.
@Quantumcat: I agree, but would say that calculations are made much easier if one considers all prices as ex-GST, then treats GST as an add-on.
You are correct. The middleman is treating the GST they pay as a cost of sale rather than a tax. You need another (GST registered) middleman, or you should not register for GST yourself and not add it to your own final price, rather pocket the 10% you would normally have charged as tax. Of course that last option only works if you're selling less than the threshold for mandatory GST registration. Better yet, remove the middleman all together unless they are adding real value; if you have a "deal" with them then reneg to make the situation better.
Indeed many taxes can bite more than once. GST is not normally one of them but here it is.
This is a good answer. The supplier (who we can hopefully presume is at least 10% cheaper than alternatives who do charge GST ) could be just be trying to keep their operation small and simple and saving a lot in bookkeeping overheads and most importantly time.
So yes looking at the entire supply chain GST is paid twice but OP's customers only pay once.
GST being optional sure can throw some people off. I used to do freelance work below the GST turnover threshold. My clients bookkeepers were always asking for invoices to be reissued including GST - I had to repeatedly explain that they intentionally said "INVOICE" not "TAX INVOICE" because I wasn’t registered to charge it at the time.
I have this seller on eBay who is GST registered but insist on those documents printed on eBay even without the word tax invoice nor GST on it to be a proper tax invoice. Have informed the seller that if those documents provided that way none of the business customers can claim GST credits. Have requested three times but seller won't do anything. As small amount, I just give up. No GST credit on that purchase.
If the seller won’t quote their ABN then you might be obliged to withhold like 47% of the purchase price. Are you sure that they are GST registered?
https://www.ato.gov.au/Non-profit/Your-organisation/Dealing-…
Likewise you can demand a supplier of a taxable supply to provide a tax invoice within 28 days under the GST legislation.
Hi seller does provide document with ABN and from Google, it's sole trader with GST registered from 2014. Document itself doesn't have word "Tax Invoice" nor GST in it. Seller offered to give 10% refund - but seller missing the point.
If you are confused about GST are you sure you are ready to start your own business?
Just out of interest, OP, what sort of a product are you selling that you are buying from a supplier that sources from the manufacturer, yet is not registered for GST.
I'd imagine most business would just register for GST as standard unless they are some small fry, in which case, you wouldn't expect a manufacturer to sell directly to them.
If you would prefer not to answer for privacy sake, that's fine.
Manufacture (charge GST) -> Supplier (NO GST) -> Me (Charge GST) -> Customers
the Supplier in the above chain - are they located in Australia? If yes, they should be registered and charging. I would be shocked if they aren't as they would want to recover the GST they paid to the manufacturer.
Even if they are outside of Australia, GST should be imposed on importation.
GST is an addition to the purchase price.
it works like this:
Manufacture is paid say $10 - of this, $0.91 is GST - this GST should be paid to the ATO by the manufacturer, and claimed back by the supplier.
You pay the supplier $20 - of this, $1.82 is GST - this GST should be paid to the ATO by the supplier and claimed back by you
You sell to your customer at $30 - of this, $2.73 is GST - this GST should be paid by you to the ATO - your customercan they claim it back if able to, or thats where you stop.
In this system - net GST paid is $2.73. GST is never a cost until you sell to your end customer, until that point in time it goes to and from the ATO. The only time it won't neatly flow is if the supplier stays unregistered and decdes to jack his price to cover the leakage.
So, my customers get charged for GST twice on the same product?
No its you who is losing out on the GST input credits…..
And the cost is passed onto the customer, so yes, the customer is being charged GST twice even though it only appears once on their invoice, the other being part of the cost of the item.
That's assuming that the supplier would drop their ex GST price once they registered for GST. Seeing as they have customers at their current ex GST price, I don't see why they would. They could keep their ex GST price the same, their business customers would be charged an extra 10% but they could claim it back, and then pocket the tax credit. They'd be silly not to.
I don't see why they would
To prevent pissing off their customers, like OP, who now see them decrease their costs 10% but not passing any of this saving on.
That seems a strange way to run a business. What concern is it of the OP how much profit the supplier makes? What if the OP then changes to another supplier - who is probably more expensive than the current supplier or the OP would be using them now - and unbeknown to the OP the new supplier has even lower costs and is making twice the profit? The OP should just be focused on getting the best supplier at the lowest ex GST cost.
If the OP found out that the supplier decreased his costs by 10% in another way - for example, by getting a cheaper supplier themselves - would that be a personal slight to the OP too if the supplier kept their price the same?
@dazweeja: For a general customer off the street, yes. But here it seems (to me) the OP is somewhat intimate with their supplier, at least enough to know that their supplier is paying GST to the manufacturer.
@dazweeja: this. What op should worry is after GST and other costs and expenses he should make profits. That what matters.
GST is a stacked tax. So no the customer isn't missing out but the seller is.
The customer pays GST on the FINAL price and we all know the OP/seller won't be selling the item for less money if they got GST input credit.
we all know the OP/seller won't be selling the item for less money if they got GST input credit.
I disagree. I suspect many eBay sellers peddling imported stuff are not GST registered so they don't have to charge it out, yet they can increase their price by 5% but remain 5% cheaper than GST registered businesses for the same margin.
You can call it the FINAL price and add GST, but that final price already contains some unclaimed GST. The final price could be lower if the supplier was GST registered. I suspect the final customer doesn't care how the final price came to be, just what it is.
Help help..
my customers are getting charged 3 times GST…
Manufacture (charge GST) -> Supplier (GST) -> Me (Charge GST) -> Customers
Yeah doesn't work the way you mentioned…
The end consumer will only pay GST once.
It's you who is missing out on the input tax credit.
Correct, GST is a stacked tax, based on input credits along the supply pathway.
In this case, the OP is the one missing out for not using a supplier who has input tax credits.
The equation is pretty simple for the OP. Just go with whatever supplier has the lowest ex GST price, all other things being equal.
Correct!
Say a manufacturer sells a pen for $10+GST =$11
Your supplier sells it to you for $20+GST = $22 OR $22 (Without GST) OR $20 (Without GST)
You sell it on to your customer for $40 + Gst = $44
Supplier sells for $20+GST
You make $20 Profit ($40-20) and OWE $4 in GST (paid by the customer to you). Since your suppliers already Paid $2 GST (collected from you) you will only pay $2 GST to the ATO.
Supplier sells for $22 (No GST)
You make $18 Profit ($40-$22) and OWE $4 in GST (paid by the customer to you). Since no GST was paid by the supplier you will pay the full $4 paid by the customer.
Supplier sells for $20 (No GST)
You make $20 Profit and OWE $4 in GST. Since no GST was paid by the supplier you will pay the full $4 (paid by the customer to you).
In most cases, your supplier charging GST or not charging GST doesn't make a difference as the wholesale price is always +GST. Them not being registered for GST means you don't have to pay it first and then claim it back (Eg1 and Eg3). You or your customers are not paying double tax.
Does your supplier have any association with Australia ? Ie is he an Australian business, does he have an ABN/ARBN? Ie is he selling to AUS clients etc?
A good chance he should be registered for GST (conduct of a business and the $75k threshold or expectation to exceed that threshold is so regularly ignored), such that they pass on the net GST on the mark up to the ATO (buys it for $11 and sells for $22, claims $1 on the purchase and pays $2 on the sale, ie the ATO gets $1 in their pocket)
The whole idea of GST in a perfect world scenario is that the GST is absorbed by the final consumer. It is valued added along the way, the manufacturer manufactures, the retailer sells, and everyone passes on GST on their value add. The issue itself is not everyone is clear on compliance requirements and commonly people just ignore their obligations.
As stated above, find a supplier who isn’t passing you the mark up which should represent GST, ie find someone who is doing it for 1/11th cheaper
Your supplier sells you their widget for $20, or they can become GST registered and charge you $20 + $2 GST and you can claim back $2.
No, because they'd be able to claim back the GST from the manufacturer, and be able to sell it for less.
I'm sure someone has mentioned it but GST is a value added tax, so the end user only pays one eleventh of the total on a taxable supply, regardless of anything that has gone before in the supply chain.
EDIT: Your current supplier would want to be at least 9.09% cheaper than the GST inclusive price of your other potential suppliers, otherwise you are losing out.
Double GST is a common scam which many small businesses do knowingly or unknowingly. Truth is you cannot charge end user GST on GST which you will claim back!!
In your case it is ok because you can't claim back.
Ideally, when you charge GST, you should charge only on the price without GST (basically exclude your GST credit)
An example in case of a builder:
- Materials = $100 (without GST)
- Labour = $50
GST = ($100 + $50) * 10%
Sorry, but I don’t exactly understand the scam.
A business can charge whatever they want plus GST (whether customers will pay is another matter).
This, at the end of the day, no matter a business charges $110 for the materials or $121 ($110+$11) is really doesn't matter, at the end of the day, that business just need to collect 10% GST of that particular sale, once, to government.
I think @bobz79 might be specifically referring to dealing with small time builders or tradespeople.
I’ve experienced the same – an itemised bill including labour and materials, with no builders markup on say the kitchen sink just the price they paid instore. They tally the whole lot up and add GST to the end.
Was only an issue because I’d agreed to pay for his time to go and buy my selected items. My attempt to avoid the standard obscene 15-20% builders mark up.
Otherwise yeah they can charge what they want regardless of GST (and typically do!)
No.