As Aussies, we deal with GST every day, in almost everything we buy, and yet we rarely need to stop and think about it. But if your business is required to register, GST becomes a big part of your pricing, your record-keeping, and your obligations to the ATO.
All new businesses must evaluate whether to register for GST when they launch. If you’re not required to straight away, you may be required to later down the track as your business grows, so it’s still important to understand the basics.
What is GST?
GST stands for Goods and Services Tax. In Australia our GST is 10%. The GST regime allows our Government take their slice of the goods and services produced in Australia. This money is used to pay for social security, schools, hospitals, infrastructure and more
What Does GST Mean for My Business?
If your turnover exceeds the ‘GST Turnover Threshold’ of $75,000, you must register for GST. We’ll cover the technicalities of this in more detail in a moment. You can also register voluntarily.
Once you are registered, you must generally include GST in the price of your sales and forward this to the ATO. You may also claim back the GST credits included in the price of your business purchases. You must also issue tax invoices to your customers, and report your GST transactions to the Tax Office by lodging a Business Activity Statement (BAS) on a regular basis (usually quarterly).
Do I Need to Register for GST?
If your ‘GST Turnover’ exceeds $75,000 you must register for GST.
Here’s how to work out whether you exceed the $75,000 threshold:
- Take your gross business income received from customers (that’s your sales/invoices/fees received etc. not including expenses) over either:
- the current month plus the previous eleven months, known as your Current GST Turnover, or
- the current month plus the next eleven months, known as your Projected GST Turnover
- Exclude any one of sales of capital assets (cars, equipment etc.)
- Subtract any GST you have charged on that income (if you’re already charging GST)
If the result of the above calculations is over $75,000 you must register for GST.
If you use the projected method, you must be able to justify your estimates to the tax office if requested.
(Note: there are specific rules for taxi drivers, not-for-profit organisations and sales not connected with Australia. See the ATO website for more info on these)
I’m under the GST threshold. Should I register anyway?
Generally speaking, most small business prefer not to register unless they have to. These are the two most common reasons:
- The hassle and cost of lodging quarterly Business Activity Statements to the Tax Office.
- If you register for GST, you have to charge customers a higher total price to compensate for the fact that you’ll be handing 1/11th of your profits straight to the ATO.
On the other hand, if you’re not required to register just yet, but believe you’ll hit the $75,000 threshold in the foreseeable future, you may consider registering from day one anyway. If you’ll have major startup costs such as cars, equipment or even building a website, getting the GST back on these costs could be a big help to cash flow in the early days of your business. In the long run once your sales increase you will be paying GST each quarter, however hopefully by this stage you’ll be better positioned to manage it.
If you voluntarily register for GST, you must stay registered for at least 12 months.
Thinking of starting a business?
How To Start A Business is your plain English guide written especially for small businesses, by Jess Murray, CPA accountant and small business expert. Choosing the right structure, how to register your business, GST, employees, bookkeeping and much more.