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Chapter 4

Sales tax

Sales tax is a tax imposed by the government on the supply of goods and services.
Sales tax is levied at the point of sale, collected by the seller and passed on to the
government or tax authority.

3.1 Non-registered entities

Some entities may not be required to register to account for sales tax. Such entities
are referred to as ‘non-registered’ for sales tax purposes. In this case, they are not
allowed to add sales tax to their sales, and nor can they reclaim the sales tax on their
purchases. When a non-registered entity purchases goods or services from tax-
registered supplier, on which sales tax has been charged, it will recognise the gross
cost of the expense or asset as appropriate.

Always read questions carefully to identify whether an entity is, or
is not, required to account for sales tax to ensure that you
correctly answer the question.

3.2 Key points

 Output tax – this is the additional amount an entity will charge on sales of goods
and services to its customers.

 Input tax – this is the additional amount charged to an entity on goods and
services purchased from suppliers.

 For a registered entity sales tax incurred on purchases from suppliers (input tax)
can normally be reclaimed and offset against tax collected from customers
(output tax). If the value of tax on outputs exceeds tax on inputs, the net output
tax balance is paid to the government or tax authority. If the value of tax on
inputs exceeds the value of tax on outputs, the entity will receive a refund of
overpaid sales tax from the tax authority.

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