What is GST?
GST is the Australian Government’s tax on consumer spending. ‘Goods and Services Tax’ is set at 10% and applies to most goods and services consumed within Australia. A few notable exceptions include exports, ie goods and services leaving Australia, and basic food staples.
The intention is for the end user to pay the tax. Businesses collect the tax on behalf of the ATO. Businesses are also able to claim ‘input tax credits’ whereby the ATO refunds GST paid to other businesses. This is a balancing act where the two figures are added together. You pay the ATO the GST you collected but receive a reduction (or refund) for GST you paid to others businesses.
When do I register for GST?
Compulsory registration for GST kicks in when your business’s annual GST applicable income exceeds the $75,000 threshold.
This is a two stage check that you should complete at business commencement and at the end of each month
- Has your taxable income in the last 11 months exceeded $75,000?
- Do you expect your taxable income in the next 11 months to exceed $75,000?
If the answer to either of these is yes, you must register within 21 days or penalties can apply.
If the answer to both of these questions is no, then registration is optional. Unless you also run a taxi or limousine travel service or want to claim fuel tax credits.
What do I need to consider?
The main consideration for online businesses is that sales to countries outside Australia are excluded from the GST threshold, anything you sell to the US, the UK, Europe etc does not attract GST as it is considered an export.
So it’s important to track this income separately so you can accurately assess against the income threshold.
Secondly, if you plan to grow your business above the threshold size, you will either need to increase your prices once registered or set your prices at the GST inclusive amount from the start. Adding an additional 10% may make you less competitive with similar sized businesses that aren’t registered.
Benefits and Obligations
The main benefit of registering for GST is being able to reclaim any GST you have paid to other suppliers. This may not be a benefit to businesses with low expenses such as service businesses.
The main obligation of registering is being accountable to the ATO for your business activities in relation to GST. You cannot pick and choose when to apply GST, once registered you are expected to remain registered for 12 months.
Most small businesses will be required to issue Business Activity Statements (BAS) to the ATO quarterly and pay any owing amounts within 21 days. This can create a cash flow problem if you aren’t prepared.
Registration
Registration can be completed either at the same time as lodging an ABN application or later as you reach the threshold.
The ATO offer online and telephone registrations if you complete them yourself, or through a registered tax agent.
Would you like our help figuring out your GST requirements and registration? Let’s chat here.
*As with all our blog posts this information is provided for reference only. It is not intended to, nor should it, replace the advice of a registered tax accountant who can deal with your specific business circumstances.