A Guide to GST for Small Business Owners

Many new small business owners are faced with the question of whether they need to register for GST. While GST registration is compulsory for some businesses, others can choose to register voluntarily.

There can be benefits to registering for GST, particularly if your business has significant GST-inclusive expenses. However, registration also comes with additional administration and reporting obligations.

In this guide, Business Foundations explains the basics of GST and some of the key considerations to help you decide what is right for your business.

 

What is GST?

Goods and services tax (GST) is a 10% tax on most goods, services and other things sold or consumed in Australia. If your business is registered for GST, you generally need to charge GST on your taxable sales. You then report the GST you have collected and the GST credits you are entitled to claim to the Australian Taxation Office (ATO), usually through your business activity statement (BAS).

For example, if you provide a service for $1,000 plus GST, you would generally invoice your customer $1,100, consisting of $1,000 for the service and $100 GST.

The GST you collect is not business income in the usual sense – you are collecting it on behalf of the ATO. This is important to remember when managing your business cash flow.

 

What sales are subject to GST?

Not every sale is subject to GST. There are three broad categories you should understand:

• Taxable sales: GST generally applies at 10%.
• GST-free sales: You don’t charge GST, but you can generally still claim GST credits for eligible business purchases relating to those sales.
• Input-taxed sales: You don’t charge GST, but you generally cannot claim GST credits for purchases that relate to those sales.

Some examples of GST-free goods and services include:

• Most basic food;
• Some medicines;
• Some medical and health services;
• Some education courses and related materials;
• Eligible childcare services;
• Some religious and charitable services; and
• Certain exports.

Input-taxed supplies include certain financial supplies and residential rental properties. Because GST-free and input-taxed sales have different GST credit consequences, it is important not to treat the two categories as the same.

 

How do I know if my business needs to register for GST?

Businesses are required to register for GST if they meet any one of the following requirements:

• Your business has an actual or expected annual turnover of $75,000 or more;
• Your business is a not-for-profit with an actual or expected annual turnover of $150,000 or more; or
• Your business provides driving services, such as through a taxi, limousine or ride-share.

Even if your business does not meet any of these requirements, you can still elect to register for GST anyway. Although you will need to charge GST on your taxable sales, keep appropriate records and report your GST obligations to the ATO.

 

What is GST turnover?

GST turnover is not necessarily the same as your business’s total accounting revenue. The GST rules contain specific requirements about what is included and excluded when calculating your turnover. It is therefore important to monitor your turnover throughout the year rather than waiting until the end of the financial year to determine whether you have crossed the threshold.

If you become required to register for GST, you generally have 21 days to register. Failing to register on time can result in GST being payable on sales from the date you should have been registered.

 

Should my business register for GST voluntarily?

One potential benefit of registering for GST is that you may be entitled to claim GST credits for eligible business purchases. For example, if your business purchases equipment, stock, software or other business expenses that include GST, you may be able to claim the GST component as a credit.

On the other hand, registering for GST means you generally need to add GST to your taxable prices. For a business selling primarily to consumers who cannot claim GST credits, this can affect your pricing and profit margins.

For example, if you currently charge a consumer $110 for a service and then register for GST, you cannot necessarily continue treating the entire $110 as your income. If $110 is GST-inclusive, the GST component is $10 and the underlying sale is $100. For a business selling primarily to other GST-registered businesses, the pricing impact may be less significant because business customers can potentially claim the GST as a credit.

The right decision will depend on factors such as your customers, pricing, expected turnover, business expenses and cash flow.

 

What happens after I register for GST?

Registering for GST comes with ongoing obligations. You will need to:

• Charge GST on your taxable sales;
• Keep appropriate records;
• Issue tax invoices where required;
• Keep records of GST paid on eligible business purchases;
• Lodge your BAS; and
• Pay any net GST amount owing to the ATO by the relevant due date.

 

What if I don’t register for GST?

If your business is below the registration threshold and you choose not to register, you generally don’t charge GST to your customers and you cannot claim GST credits for your business purchases.

This can make administration simpler and may allow you to offer a lower price to customers who cannot claim GST credits.

However, you need to keep monitoring your turnover. If your business reaches the GST registration threshold, you may become required to register.

You should also remember that you cannot charge or collect GST if you are not registered for GST.

 

How do I register for GST?

If you decide that your business needs to register, or you choose to register voluntarily, you can generally register through the ATO’s Online services for business.

 

GST can seem complicated when you’re starting a small business, but understanding the basics can help you avoid costly mistakes. GST rules can vary depending on your industry and the types of goods or services you sell. If you’re unsure whether you need to register, how GST applies to a particular transaction, or whether voluntary registration is right for you, speak with your accountant or registered BAS agent.