GST Return and Input Tax Credits
You are preparing the quarterly GST return for a small business. For the quarter, total sales (including GST) were $55,000. Total purchases (including GST) were $33,000. The GST rate is 10%. However, you discover that a purchase of office equipment for $2,200 (including GST) was recorded but the invoice is missing, so you cannot claim the GST input tax credit on it. Also, a sale of $1,100 (including GST) was to a customer who is not registered for GST, so it is exempt. All other sales and purchases are taxable. You need to calculate the net GST payable or refundable for the quarter.
1. Calculate the net GST payable or refundable for the quarter, showing all workings.
Read the worked answer
First, determine taxable sales and purchases.
Total sales including GST: $55,000. Exempt sale: $1,100 (including GST). So taxable sales including GST = $55,000 - $1,100 = $53,900. GST on taxable sales = $53,900 / 11 = $4,900 (since GST rate 10%, price incl GST = 110%, so GST = total/11).
Total purchases including GST: $33,000. Purchase without valid invoice: $2,200. So allowable purchases including GST = $33,000 - $2,200 = $30,800. GST on allowable purchases = $30,800 / 11 = $2,800.
Net GST = GST on sales - GST on purchases = $4,900 - $2,800 = $2,100 payable.
Note: The $2,200 purchase cannot be claimed because no invoice, so its GST of $200 is not claimable. The exempt sale has no GST.
2. What would be the net GST if the missing invoice were found and the purchase was allowable?
Read the worked answer
If the $2,200 purchase were allowable, GST on purchases would be $30,800/11 + $2,200/11 = $2,800 + $200 = $3,000. Net GST = $4,900 - $3,000 = $1,900 payable. So the net GST decreases by $200.