The GST credits work like this.
- Supplier A sells a $200 CPU to a Supplier B. Supplier B pays $220 to Supplier A ($200 + $20 tax).
- Supplier B puts the CPU in a machine, and sells it for $300 to Supplier C. Supplier C pays $330 ($300 + $30 tax).
- Supplier C sells the machine to a consumer for $400. The consumer pays $440 ($400 + $40 tax).
So, along this, there is $20 + $30 + $40 = $90 of tax. Does this go to the ATO? No, it doesn't.
- Supplier A gives the $20 of tax to the ATO.
- Supplier B gets the $20 they paid in tax back, and pays $30 of tax to the ATO - ending up with a net $10 given to the ATO.
- Supplier C gets the $30 of tax they paid back, and pays $40 of tax to the ATO - ending up with a net $10 given to the ATO.
So, in the end, $20 + $10 + $10 = $40 of tax is given to the ATO, which is the same as the tax paid to Supplier C by the consumer.