GST is a major tax in Australia that most businesses will need to deal with. As a new business owner, it can be difficult to understand all the different tax obligations you have. However, to help small business owners we have created this guide to help you get through the first stages of your GST obligations when you reach the $75K threshold.
How does GST work?
GST is a 10% tax added on to most goods and services sold within Australia. A business is only required to add GST onto the goods or services they sell when they hit a $75,000 annual turnover threshold. For charities, this threshold is $150,000 per year (GST must be charged from the get-go for Uber or taxi drivers). When you register you will need to add 10% onto the price of most items you sell.
When you register for GST you can also receive GST your business spent on goods and services back. This is known as GST credits. Calculating GST, whether on the amount you paid for an item or the amount you need to add is simple.
To calculate the amount of GST you paid on an item simply divide the price by 11 and you will get the amount of GST you paid. Adding GST requires you to simply add 10% of the price you want to sell a good or service for on top of that price.
How do I calculate the $75k threshold?
Your GST turnover is your gross business income excluding GST included in sales, excluding sales that are not for payment, input-taxed sales, and any sales not connected with Australia. This makes calculating your GST turnover simple. All you need to do is take any of the above exclusions away from your gross business income.
If your future projections for the next 11 months look to push you over the $75k threshold, or the previous 11 months plus the current month push you over the threshold, then you will need to register for GST.
What are my obligations after registering for GST?
After you have registered for GST you will have a series of obligations you must fulfill. Firstly, you will be required to charge the extra 10% GST on most goods and services you sell. There are certain items that are GST free, if you are unsure which items are GST free talk to your bookkeeper or accountant.
You will also be required to submit a quarterly or monthly business activity statement (BAS). A BAS is where you report the amount of GST you collected from the sales of your goods and services. This is also when you will send the money you collected from GST to the ATO.
What happens if I don’t register for GST?
Not being registered for GST could impact your customer relationships and cashflow. Your clients will be encouraged by the ATO to find out whether you are registered for GST or not by searching for your business on the ABN Lookup website.
If you are not registered for GST, your clients will be unable to claim GST credits after they have purchased your products or services. This could result in them choosing another business over your own. You will also be unable to claim GST tax credits yourself, potentially negatively affecting your cashflow.
Businesses who also do not register for GST when they are obligated to may find the ATO chasing them. If caught, you could be penalised heavily. Penalties may include being required to pay all GST owed, potential interest on repayments, and potential fines.
To ensure that you stay on top of your tax obligations you should talk to your bookkeeper and accountants about which tax obligations you must fulfill. They will be able to help you register for GST and fulfill your BAS obligations. Talk to Link Strategies today about fulfilling your obligations.