We get lots of questions quite regularly from new business owners, around how GST works and when is the best time to register.
– What is GST?
– When to register?
– How Business Activity Statements work?
– Bookkeeping when you’re registered for GST?
WHAT IS GST?
GST (which stands for Goods & Services Tax) – is a value-added tax on goods and services in Australia. GST helps fund public services and it’s logic is to promote fairness in the Australian tax system.
If your business is registered for GST, then what this means is you need to charge 10% on your taxable supplies (the good or service that you are selling) and you remit this to the ATO. You can also claim a credit for the GST that you have paid on various business expenses (provided these expenses have GST attached).
Common expenses that have GST attached include goods like electronics and furniture, services such as repairs and consulting, food and beverages, accommodation, entertainment tickets, transportation fares, communication services, and some health and medical services. Other examples include: Australian software subscriptions, motor vehicles, fuel, and stationery / office supplies. In fact, it would be safe to say, that most expenses in Australia do have GST attached – but not all.
Expenses that are generally GST-free include basic food items (e.g. raw foods – fruit and similar), education services, medical services, certain medical aids, exported goods and services, certain financial services, bank interest, bank fees, some government services, childcare services, and sales of precious metals in their pure form.
WHEN TO REGISTER
In Australia, you’re required to register for GST if:
- Your business has a current or projected annual turnover of $75,000 or more.
- Your business is a non-profit organisation with a current or projected annual turnover of $150,000 or more.
- You provide taxi or limousine services, regardless of your annual turnover.
If your business falls under any of these categories, you must register for GST within 21 days of meeting the criteria.
REASONS TO REGISTER EARLY
It is important to note that you can also choose to register for GST voluntarily if you don’t meet the above requirements.
Why?
- Reputation: If you’re a new service business; and you’re not yet registered for GST – do you really want your clients to see on your invoices that you’ve not yet generated turnover of more than $75K in a financial year? (Or, does this aspect not matter in your line of work)?
- In some industries you’re not required to charge GST on your sales (e.g. the healthcare profession, disability services, childcare). Having said that, you’re still entitled to claim GST on expenses. Therefore, if you register for GST, you’ll be able to take advantage of GST refunds as a result of each BAS lodgement.
- If you’re business is in start-up phase and you’re incurring substantial setup costs, it may be worth registering for GST in order to take advantage of the GST credits you’ll be entitled to claim on your big-ticket expenses, potentially resulting in very large GST refunds.
When would it be worth putting off registering for GST?
If you sell a good or service mainly to consumers (rather than businesses); then it may be worth holding off registering until you meet the criteria above. The reason for this is that registering for GST automatically means you’re charging your customers more – the GST component (unless you lower your price to absorb this which generally isn’t optimal). If you’re charging your customers more – then potentially you’re less competitive in your market, so you may as well hold off and reap the benefits of selling your good or service for a lower price while you can. This scenario is most applicable when your business reputation (as discussed above) does not come into play so much and your customer is generally driven by price primarily.
Note: you MUST register for GST when you reasonably anticipate that you’ll pass annual turnover of $75K (not once you pass it).
HOW TO REGISTER FOR GST & HANDY TIPS
You can register for GST through:
- Online services for agents
- By calling the ATO on 13 28 66 (warning – their lines do get pretty clogged)
- Your registered tax agent
If you currently aren’t required to register for GST, but you’re considering registering early, we highly recommend that you wait until the first date of a quarter (or new financial year if possible) – in order that your transition is as clean and clear as possible.
HOW BUSINESS ACTIVITY STATEMENTS (BAS) WORK
Business Activity Statements (BAS) are used in Australia to report and pay taxes (including GST) to the Australian Taxation Office (ATO). Within the BAS form, businesses report sales, GST collected on these sales, and GST paid on purchases that have GST attached to them.
If a business is registered to pay wages, the BAS form will also include a section where gross wages and tax on these wages for the relevant period are declared.
If the ATO has decided that a business should pay instalments of tax toward its final annual tax liability; the BAS will also include a section where the required tax instalment is declared.
BAS forms are filled out monthly, quarterly, or annually. (Quarterly is the most common). Once completed, businesses lodge their BAS with the ATO, make any required payments via BPAY details provided on the BAS form. If a business is in a payable position; it’s GST on sales + tax on wages (if applicable) + tax instalment (if applicable) is greater than any GST refundable on expenses. The business will receive a GST refund if the opposite scenario applies.
When is BAS due?
If you prepare and lodge your own BAS, it must be lodged with the ATO and paid no later than the 28th day of the month following the BAS period in question. If your BAS is prepared quarterly, then the due date will be: 28th of October, January, April and July.
If you engage a tax agent, such as our team to prepare your BAS, then you’re automatically granted a 1 month deadline on the above timeframe.
Note: us tax & BAS ages tend to get heavily inundated with BAS requests very close to the final due date, so please be sure to submit your BAS request to your accountant as early as possible once your BAS period has passed!
BOOKKEEPING & INVOICING WHEN YOU’RE REGISTERED FOR GST
If you don’t currently use an online bookkeeping software such as Xero (which we HIGHLY recommend for many reasons), then you’ll need to be sure that you have an accurate way to clearly track all your business income and expenses, factoring in the GST component. Excel is the most common alternative to an online bookkeeping software, however most growing businesses soon realise that it can quickly become quite complicated and time-consuming tracking everything on excel and details can easily be missed.
In an online bookkeeping software, once you’ve registered for GST, you can simply let the software know – and GST will automatically apply as you code up your income and expenses.
If you send invoices within your business, then you’ll need to ensure that your invoices factor in GST and clearly show this component for your customers. Most online bookkeeping software’s these days will take you through this aspect very clearly.
As your business grows, it can become complicated to track your income, expenses, and GST components. It is surprisingly easy to accidentally claim GST on an expense category on which GST is not actually claimable. When this happens, these mistakes can accumulate over the year and when your accountant does your year-end tax, they may also uncover that potentially thousands of dollars of GST is actually owing to the ATO! Don’t let this happen to you!
FRESHWATER VIRTUAL CFO
Save time, stress and hassle by allowing our team to handle absolutely everything accounting, bookkeeping and tax related for your small business. We keep on top of your books right throughout each week and we send you a detailed comparative monthly profit & loss statement after the close of each month. Tracking your performance in this manner allows you to identify areas for growth and weaknesses; as well as to demonstrate key seasonal trends.
You’ll also receive a monthly email from our team detailing the key information that you need to know in order to stay across your finances including:
- Super and GST for the quarter-to-date
- Tax to set aside for the financial year to-date
- Information on director loan balances (if you run your business in a company structure)
- Anything else you need to know in order to grow your business and stay on top off your financial affairs
In addition, we now have an amazing new software which connects to your online bookkeeping file bringing you key data on your business on a monthly basis – tailored to exactly what YOU need. This includes: various ratios (e.g. profit on sales, gross profit margin, net profit margin, COGS %, current ratio) as well as data such as you’re key customers for the month, key expense accounts for the month and much more!
Should you have any queries about GST, need help registering for GST, or you’re interested in our virtual CFO or new reporting software; then don’t hesitate to get in touch with our friendly team!
