In Australia, there are certain financial thresholds instituted to determine whether or not a business needs to register for GST. If a business or sole trader has a turnover greater than $75,000, they are expected to register for and pay GST.
But if this business or sole trader operates as a not-for-profit organisation, the threshold turnover is $150,000 or more. However, the ATO recommends new businesses that are likely to earn $75,000 in their first year to register, and if they do not but then believe they will, they have three weeks (21 days) to register for GST.
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What is a GST?
GST, also known as goods and services tax, is a 10 percent value added to a sale in Australia. In terms of calculating GST, it is more or less charged and paid for by small businesses and sole traders who have registered for GST. If you are registered for GST and charging it, this rolling figure is expected to be documented and reported on.
Note that this happens at various points in the year, with GST totals reported to the ATO through BAS (business activity statement). How often this BAS is submitted will depend on the size and nature of your business. The level of information required will also differ, with businesses turning over less than $10 million a year not needing to complete worksheets and detailed supporting documentation.
What is the Current Rate of GST?
The current rate of GST in Australia is 10 percent. It simply means that if you charge $100 for your goods or services, your customer will be charged $110. The additional $10 is the GST which needs to be paid to the ATO. Have it in mind that when you buy supplies for your business, you will be charged 10 percent in GST which you can claim back as a credit.
At the end of each GST period – usually quarterly but occasionally monthly – you need to account for the GST you’ve collected on your sales minus any that you have paid (the credits) on your purchases.
In Australia, businesses with a turnover of less than $75,000 are offered the choice of registering for GST because if a business is spending extensively on supplies, the business might want to claim the GST credits back. This is more or less the case if GST credits on purchases exceed the GST charged to customers.
Notably, the business activity statement (BAS) is used to report all your periodic business tax obligations and entitlements. You are expected to report all the GST charged on your sales and the credits on your business purchases on your BAS as well as your pay as you go (PAYG) installments and PAYG withholding tax.
Have it in mind that businesses with a turnover greater than $20 million are expected to complete a BAS on a monthly basis and other businesses can also decide to do this if they prefer (for instance, if there are cash flow advantages to your business).
Otherwise, BAS forms are due quarterly. You are also expected to lodge your BAS quarterly by the 28th day of the month following the end of the financial quarter (September, December, March, June). If you lodge monthly, your BAS will have to be lodged 21 days after the end of each month.
Step by Step Guide on How to Register for GST in Australia
Normally, consumers are the ones who end up paying GST, but it is up to businesses providing goods and services to tax those consumers appropriately, then pass those earnings on to the ATO. So if you think you need to register for GST, here’s a guide to walk you through the process.
Note that before you can register for GST, you will be expected to get or have an ABN. Applying for an ABN is free and can be done via the ATO’s business register portal, which will direct you to your MyGov account, or you can call them on 13 28 66.
Log in to Your Business Portal
Once you have your ABN, you will be able to set up and log into your business portal. It is advisable you spend enough time getting to know your business portal, especially since you will have to use it for most of your interactions with the Australian government on behalf of your business.
After you must have logged into Business Portal, you will see a small pop-up window. From the left-hand menu, select “Business registration details.” From there, you will see a screen with your basic information. Scroll to the bottom where it says “Select one of the following options to view these details.” Then select “Registrations” from the box and hit “Next”.
Choose Your Account and Tax Type
On the next screen, you will have to see your accounts listed, including one that will say something like “Activity statement.” Select this, then hit the “Tax type summary” button.
Choose Add GST and Enter Your Details
At this point, you will see a list of tax types to add. You will want to select “Goods and Services Tax,” then hit next. On the next screen, you will be asked to enter your details.
Select Cash or Accruals
Note that when filling out these details, you will have the option to choose between cash and accruals. Don’t let the terminology confuse you—for freelancers and sole traders, “Cash” is almost always the best and simplest option. It simply means you record your income, expenses and any GST on the day you get paid or purchase the item.
Very simple! Meanwhile, Accruals mean you record your income and expenses on the date the invoice was issued. This can be confusing and is nearly always unnecessary for sole traders. When all of your information is filled in, hit “Next” again.
Submit Your Application and Verify
On the next screen, you will be asked to submit your information and authorise the submission. Once that is done, you are finished with the application process.
There are a number of benefits to registering for GST, including looking professional to your clients who know that your annual turnover is greater than $75,000. It also helps in your first few years of business with all those expenditures that are normal with setting up a new business, as all that GST you paid will then go against what you earn and could reduce what you have to pass on to the ATO.
Also note there are certain exemptions for GST, which include some food and beverage items, some education courses and various exports and medical spends. If in doubt, query whether or not this is an acceptable spend of GST before you make the purchase.
There is a lot to consider as a small business owner or sole trader, but GST shouldn’t be something that you feel unsupported in. Keeping meticulous records will go a long way in this space, and will make the reporting process seamless for you or your tax agent.
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