What is GST?
The goods and services tax is a broad-based tax applicable to most goods and services sold in Australia. When charging GST, the seller adds 10% to the price. GST is not charged on certain products including most foods, education and healthcare. You don’t include GST on products and services that are exported.
In addition to collecting GST, businesses pay GST on the products and services they buy. The difference between what has been collected and what has been paid is the amount owed to the Australian taxation office. In some cases, when a business has more expenses than income, it could be owed a refund.
When do you need to register for GST?
A business must register for GST if it has an annual turnover of $75,000 or more. For not-for-profit organisations, this amount is $150,000. Taxi and rideshare providers (such as Uber) need to register for GST regardless of their annual turnover.
If you are under the GST registration threshold and it’s clear that you are going to reach it in the financial year, you will need to register for GST within 21 days. If you do reach the threshold and haven’t registered, you could be liable to pay GST even if you haven’t included it in your prices. For this reason, the ATO suggests that businesses check each month to determine if they will surpass the GST registration threshold.
Registering for GST is fairly simple. When you have an Australian business number, you can register online, over the phone or through a registered tax agent.
Pros of registering for GST
By registering for GST, you will need to add 10% to your prices. At the same time, you will be able to claim GST credits for the goods and services you have purchased for your business. If you don’t register, you won’t be able to claim these credits. This amount can be substantial if you have many expenses.
In most cases, GST is payable quarterly. When you collect GST, you hold it until the payment is due one month after the end of the quarter (an at the end of February for the October to December quarter). This can help your cash flow but you need to ensure that you have the money when the payment is due. For this reason, it’s a good idea to set up a separate savings account where you keep the GST you have collected.
Another reason to register for GST is perception. If you don’t charge GST, you are telling people that your annual turnover is less than $75,000. If you are selling products or services on a business-to-business basis, and want to work with larger organisations, you don’t want to advertise that you have a new or small business that has a turnover under $75,000. Many small businesses have an annual turnover of less than $75,000 and there’s nothing wrong with this. However, it might not portray the right image, so some will want to consider registering for GST despite being under the GST registration threshold.
Cons of registering for GST
Once you register for GST, you will need to complete a business activity statement (BAS) each quarter. On this form, you will need to include your sales and expenses and the GST you have collected and spent. If you don’t have accounting software, it could take some time to do your GST. Learn more about completing a BAS and paying GST.
In addition to the paperwork, you will automatically have to charge 10% more for your goods and services. This could lessen your competitiveness in comparison to other businesses.
Seek professional advice on registering for GST
If you have a growing business, you will eventually need to register when you reach the annual GST registration threshold of $75,000. If you are below the threshold, you will want to weigh the pros and cons and get advice from a tax professional. If you are a sole trader, check out A Short Guide to Sole Trader Tax.