THE GST has dominated discussions over the Australian airwaves in the past few months.
The goods and services tax is a broad-based tax of 10 per cent on most goods, services and other items sold or consumed in the nation.
While opinion is currently divided over the pros and cons of increasing the threshold of Australia’s main tax on consumption to 15 per cent, any small business owner has to carefully consider their GST options as an integral part of running their business.
Businesses and other organisations registered for the GST have to include this tax on the sale of their goods and services. This revenue is then handed over to the Australian Tax Office. The business passes that cost on to its customers.
Who needs to register for GST?
You have to register for GST if your business or enterprise has a GST turnover of $75,000 or more a year, the ATO says on its website.
Businesses that have a turnover of less than $75,000 a year are not required to register for the GST. In the case of non-profit organisations, the threshold is $150,000.
However, even if you are below the threshold, you can collect GST. If your target revenue figure is more than $75,000 a year, then it would be a good thing to keep that in mind.
That being said, many of your clients may expect to be billed GST.
When should you register for GST?
According to the Australian Tax Office website, entrepreneurs can register for GST when they first register their business or at a later time.
“If you're not registered for GST,” says the ATO on its website, “check each month to see whether you've reached the threshold, or are likely to exceed it. If your turnover exceeds the relevant threshold, you must register within 21 days of reaching it.”
Entrepreneurs need to register only once for GST, even if they operate more than one business.
“If you do not register for GST and you are required to do so, you may have to pay GST on the sales you have made since the date you became required to register – even if you did not include GST in the price of those sales. You may also have to pay penalties and interest,” says the ATO on its website.
How should you invoice?
When you invoice a client after completing a task, your invoice needs to clearly indicate whether or not it includes GST.
If you are charging your client GST, you need to issue a ‘Tax Invoice’ that states the amount of GST that has been charged.
However, if you are not charging your client GST, you need to issue an ‘invoice’ that states that GST has not been charged.
On the other hand, if you are the purchaser of a service or product, you need to keep a note of whether your supplier has charged you GST or not. This will help ensure you do not overclaim GST when you are preparing your returns.
Staying on top of your BAS
Your Business Activity Statement (BAS) is a tax reporting requirement for businesses issued by the ATO on either a monthly or quarterly basis.
When you register for an Australian business number (ABN) and GST, the ATO automatically sends you a BAS when it is time to lodge.
As a small business owner, you regularly report and pay GST amounts to the ATO, and claim GST credits, by lodging a BAS.
The ATO issues your BAS about two weeks before the end of your reporting period. The date for lodging and paying is shown on your activity statement.
Businesses have to work out which payment cycle suits them the best to stay on top of their BAS – it could be monthly for some or quarterly for others.
Claiming GST credits
You can claim a credit for any GST included in the price you pay for things that you use in your business, says the ATO on its website. “This is called a GST credit (or input-tax credit, a credit for the tax included in the price of your business inputs).
“You claim GST credits in your activity statement.”
For purchases that you use both for business and private purposes, you can claim a GST credit for the portion you use for business purposes, the ATO says. “For example, if 50% of your use of the purchased item is for business purposes, you can claim a credit of 50% of the GST you paid.”
When you have worked out your total GST credits, you can offset them against the amount of GST you are liable to pay, says the ATO. “If your GST credits are greater than the amount you are liable to pay, you're entitled to a refund.”
For more detailed information on GST: