Question

If Joe (a business taxpayer) acquires ice cream from the manufacturer for $330, and later sells the ice cream to customers for $550, calculate the net GST payable or refundable. (Note: You do not have to refer to law, but must briefly explain your calculations)

Answer 1

Solution,

Let the GST rate be 10%.

Assuming, both the amounts stated in question are inclusive of GST.

Computation of Output tax (i.e. payable to government):

Output GST ( GST charged from customers on sales) = ($550/110)*10 = $50

Transaction value ( Amount on which GST will be charged from customers) = Invoice price - amount of GST on Transaction value = $550-$50 = $500.

Computation of input tax credit on GST payable to manufacturer:

Invoice price = ($330/110)*10 = $ 30

Purchase price = $330-$30 = $300

Computation of net GST Payable:

Net GST payable =Output Tax - Input Tax Credit = $50- $30= $20

Here, Output tax is the term used for the amount charged as GST from customers and

Input tax credit is the term used for the amount refundable to joe (i.e. the refunded amount of GST which he already paid at the time of purchase).

Invoice (i.e. price inclusive of GST) price is the price consists of :

At the time of sale= Sale Price + Gst Payable on Sales price (i.e. price inclusive of GST)

At the time of Purchase = Purchase Price + Gst Payable on Purchase price

Here, Puchase price and sales price indicates the transaction value which doesn't include GST.