GST is something that impacts us all, whether you are a business owner or a consumer. While most consumers rarely pay attention to the GST amounts included on their receipts, it’s up to businesses to ensure they are meeting their GST obligations. So as a small business owner you might have a few questions floating around your head – Do I need to register for GST? How does GST work? How do I pay GST, and who to? Luckily, GST isn’t too difficult to understand. If you want to further your understanding, read on for an in-depth guide to GST for small (and large) businesses.
What Is GST?
GST stands for goods and services tax, a 10% tax that applies to most goods and services sold and consumed in Australia. There are a few items that are exempt from GST, including most basic foods, some education courses, as well as some medical, health and care products.
How Does GST Work?
Most businesses will generally include GST in the price they charge for goods and services, this is also known as a price being ‘GST inclusive’. While it is an additional 10% on the original price, it’s important to note that businesses are just collecting these funds on the behalf of the Australian Tax Office (ATO) and all GST will eventually be passed on to the ATO. For sole traders or businesses that offer a service, it is more common for GST to be added on top of their quoted service price. For example, an electrician may charge $150 an hour, plus GST, making the total cost of employing the sparkie for one hour, $165.
Who Should Register For GST?
While any business is free to register for GST if they wish, there are some businesses that are legally required to register for GST if they meet the below criteria:
- Businesses that turn over (gross income) more than $75,000*
- Not-for-profit organisations that turnover (gross income) more than $150,000
- Those making income via the ‘sharing economy’. This refers to income sources from ride sharing services, renting out holiday homes, and offering odd jobs – think Uber, AirBnB, and Airtasker, respectively
- Anyone planning to claim fuel tax credits for their business
*If you reach the $75,000 threshold and are not yet registered for GST, you have 21 days to register.
How To Register For GST
Before you register your business for GST, you must have an Australian Business Number (ABN). For a guide on how to set up an ABN, please visit the Australian Business Register.
From there, there a number of ways that you can register for GST:
- Via the ATO website’s Online Services
- By calling the ATO 13 28 66
- Through your registered tax agent
How To Calculate GST
Calculating GST is easy! Simply multiply a price by 1.1 to end up with a GST inclusive price.
If you are trying to calculate the GST included in a certain good or service, you need to divide the price paid by 11.
Accounting For GST In Your Small Business
Once you have registered your business for GST, it’s important that you keep track of how much GST you have spent on business expenses and how much you have collected via sales.
It is recommended that you calculate this figure regularly and store the money in a separate bank account. This will ensure that when it comes time to submit your BAS, you will have less work to do and all the money is already sitting there ready to be sent to the ATO! For information on how to best organise your business’ incomings and outgoings, read our recent blog on Australia’s best business bank accounts.
In order to satisfy your GST obligations as a business, you need to:
- Ensure you are adding GST to your prices
- Issue tax invoices to your customers
- Keep receipts and invoices to claim back GST on business expenses
- Submit a BAS every quarter
- Pay any GST owing
How Do I Pay GST To The ATO?
Once you have registered for GST, the ATO will send you a BAS around two weeks before your reporting period comes to an end. The BAS shows the lodgement date and any balance that needs to be paid.
Depending on your business’ turnover, the frequency of your reporting and payment periods will vary:
- Turnover > $20 million = monthly
- Turnover < $20 million = quarterly
- Voluntarily registered (turnover < $75,000) = annually
You can pay GST through the ATO’s online portal, over the phone, in person at Australia Post or via electronic transfer.
Why Register For GST If You Are Under The Threshold
Even if your business earns less than $75,000 gross income, it can be beneficial to register for GST. Being registered for GST means you can claim GST credits on most business purchases you make throughout your reporting period. However, it’s important to note that when you are registered for GST, you must include and charge customers GST even when your turnover is less than $75,000.
GST Rebates For Small Business
If your business is registered for GST, you can claim credit for any GST included in the price of any goods and services you buy for your business.
You can claim GST credits if:
- The purchase is solely or partly for business purposes
- The purchase doesn’t relate to making input-taxed supplies
- The purchase price included GST
- You have a tax invoice from the supplier
What Is Exempt From GST?
Most basic foods and some medical, health and care products and services are exempt from GST. A full list of GST-free products and services can be found on the ATO website.
To learn more about all things GST, you can visit the Australian Government Business website. Additionally, we recommend consulting a professional for important financial matters, whether these are personal or business related.