Starting a new business is both an exciting and daunting time for any entrepreneur or business owner. The setup phase requires managing an overwhelming number of tasks such as getting an Australian Business Number (ABN), registering your business and domain name, buying or leasing premises, and managing all the required licenses, permits and tax regulations. It is possible then, that some important aspects of taxation, including Goods and Services Tax, may not get the attention that it deserves.
GST is broadly defined by the ATO as a 10% tax on most goods and services sold in Australia. This is a tax that the final consumer of a good or service pays, leaving out the intermediate businesses. As a business owner, should you qualify for GST, you must charge GST on the goods and services you supply to your customers. You will also be entitled to reimbursements for the GST paid on your business inputs and can claim a credit for any GST included in the price of the goods and services you buy for your business. This is called a GST credit (or an input tax credit – a credit for the tax included in the price of your business inputs).
Knowing if your business needs to be registered for GST?
GST applies to you if:
- You are a business (for profit organisation) with a GST turnover exceeding $75,000
- You are a non-profit organisation with a turnover exceeding $150,000
- You provide taxi travel to passengers, as a car owner or as a business owner renting taxi services, irrespective of turnover
Business owners can register for GST later on, especially if they did not anticipate an initial turnover of $75,000. In such cases, they can choose to register for GST before reaching this value. It is important to note that although new businesses may choose to not register at the beginning, one would still need to register within 21 days of reaching the threshold value as per regulation standards. To ensure that you do not delay tax payments, ensure that you track your business’turnover on a monthly basis.
Registration for GST may be done online via the ATO Online Business Portal. You can find more details of the registration process here. You may also register for GST voluntarily, even if your turnover does not reach these numbers. This is usually for the purpose of claiming GST credits or refunds for purchases made for your business.
Setting Up and Managing GST
Here are some of the next steps and important points to note regarding setting up and managing GST for your business:
- As defined, GST must be charged on “most” goods and services. For any business, know when you should be charging GST.
- Many basics, including some food items, education, healthcare services and exports are categorised as GST-free. This means that businesses may sell these to consumers without charging GST on them, but are still able to claim GST credits on supplies purchased to prepare them. For example, basic breads are non-GST items, but baking supplies may appear in your GST credits. Some other instances such as sale of an ongoing business may also be free of GST.
- Tax invoices are an important component of your GST reports to the ATO. Hence, ensure that the invoices follow the ATO’s assigned formats. You can inform your clients about the amount of GST amount you are charging them via the invoice.
- Upon registration for GST, you can include projections for payments and credits as part of your business plan.This would help you in managing your operating expenses.
How Often Should You Pay GST?
Companies may report, pay GST and claim GST credits through a Business Activity Statement (BAS) or through annual GST returns in some cases.
- Businesses with a GST turnover exceeding $20 million arerequired to report and make payments on a monthly basis.
- Businesses with less than $20 million in turnover may report and pay GST at quarterly intervals. This excludes businesses that have been mandated by the ATO to pay monthly for any other reasons.
- If your business is registered voluntarily, you may report and pay GST annually.
Common Mistakes with GST
Here are some common errors that businesses make when dealing with GST:
- Claiming GST credits without a proper invoice attached to it
- Incorrect GST claims on salary payments or on GST-free purchases
- Failing to report GST on incentive schemes or government grants that are inclusive of GST
These, and some other common errors, are described in detail on the Taxpayers Australia knowledge base. Although the ATO may allow you to reconcile errors in a subsequent BAS, there are still penalties and fines for some offences so make sure you get your documents right.
It is important to professionally set up and manage your GST in order to enjoy all the benefits as a business,while avoiding any penalties for non-compliance. Get help from an experienced agent who can explain to you the nuances and details of GST, and assist you in setting it up for your new business. Superior Accounting Group has helped many business owners with their taxation needs, so they could focus on growing their business. Contact us today to make your start up journey an effortless one.