IRAC Analysis:
Issue: Minnie has incorrectly identified the taxable supplies that Priti makes and the GST payable. Explain why that is the case. Provide an analysis of how the law applies to each supply that Priti makes.
Rule: According to the Goods and Services Tax (GST) legislation, a taxable supply is a supply made for consideration by a registered entity in the course of an enterprise, which is not GST-free or input-taxed. GST is payable on taxable supplies.
Analysis:
Revenue from selling flowers: Minnie correctly identified this as a taxable supply. Priti operates a florist shop, and selling flowers is the main activity of her business. As the sale is made for consideration in the course of an enterprise, and it is not GST-free or input-taxed, it is a taxable supply, and GST is payable on it.
Rent from tenants: Minnie incorrectly identified this as a non-taxable supply. However, rental income from residential properties is considered input-taxed under GST legislation. Therefore, GST is not payable on rent received from tenants.
Rent for premises used for florist shop: Minnie correctly identified this as a taxable supply. The rent paid for the premises used for the florist shop is a taxable supply as it is a supply made for consideration in the course of an enterprise, and it is not GST-free or input-taxed.
Wages for shop assistant: Minnie incorrectly identified this as a non-taxable supply. Wages paid to employees are not considered taxable supplies, and GST is not payable on them.
Fresh flowers from wholesaler: Minnie correctly identified this as a taxable supply. The purchase of fresh flowers from a wholesaler is a taxable supply as it is a supply made for consideration in the course of an enterprise, and it is not GST-free or input-taxed.
Plumbing repairs to residential premises: Minnie incorrectly identified this as a taxable supply. However, repairs and maintenance to residential properties are considered input-taxed under GST legislation. Therefore, GST is not payable on plumbing repairs to residential premises.
New curtains for florist shop: Minnie incorrectly identified this as a taxable supply. However, the supply of curtains is not GST-free or input-taxed. The GST payable on this supply depends on whether a tax invoice has been received or not. If a tax invoice has been received, GST is payable on the cost of curtains. If a tax invoice has not been received, then GST cannot be claimed, and no GST is payable on the supply.
Repayments of loan used to buy residential premises: Minnie correctly identified this as a non-taxable supply. Repayments of loans are not considered taxable supplies, and GST is not payable on them.
New office chair for Priti-used 75/25 for managing the florist shop and her investment properties: Minnie correctly identified this as a taxable supply. The purchase of an office chair used for managing the florist shop and investment properties is a taxable supply as it is a supply made for consideration in the course of an enterprise, and it is not GST-free or input-taxed. The amount of GST payable on this supply depends on the extent of its use for managing the florist shop.
References:
- Goods and Services Tax Act 1999 (Cth) s.29-70.
- Australian Taxation Office, \’GST credit for purchases: When you can claim\’, last modified on 3 October 2019, accessed on 5 March 2023, https://www.ato.gov.au/Business/GST/Claiming-GST-credits/GST-credit-for-purchases/.
