The GST regime has been with us nearly 20 years now, but there is still some confusion as to what it applies to, who should be charging and who should not be charging GST.The GST regime has been with us nearly 20 years now, but there is still some confusion as to what it applies to, who should be charging and who should not be charging GST. Start at the beginning.
On starting a business, the entity you decide to run your business through, a company, trust, partnership or as a sole trader, needs to have an Australian Business Number (ABN). If it is expected that the total sales of the business will be more than $75,000 in the coming 12 months then the business is required to register for GST.
If the turnover will not meet this threshold, then it can consider voluntary registration.
- If you are not required to register…
You do not prepare a Business Activity Statement
You do not charge GST on your sales to your customers
You do not claim the GST paid on your business purchases, however the total amount you pay, including GST, is a tax deduction against your business income.
- If you are not required to register, why would you?
You may be considering the purchase of substantial and expensive business equipment. If you are not registered for GST, you will not be able to claim back the GST portion of the transaction.
- You may be required to by law, ie Taxi and Uber businesses.
- If you are registered for GST.
You must prepare a business activity statement on either a monthly or quarterly basis throughout the year.
You are required to add GST to the cost of your sales or services, unless you provide GST free goods or services. Eg Doctors, fresh food merchants
You are entitled to claim the GST portion of your business purchases against the GST you have collected through your sales.
If this is more that collected via sales a refund is due. If it is less then a payment to the ATO is required.
- Care when claiming GST credits on your expenses.
Not all of your expenses will have a GST component. Some suppliers may not be registered for GST, and other items such as wages, superannuation, bank fees and most payments to government departments have no GST.Then there are the partly GST types of expenditure such as insurance premiums which need to be adjusted for the amount of stamp duty on the premium.
- Putting together your BAS..
For small businesses the ATO has what they call “simpler bas”. This report requires just the total sales, total GST collected and total GST paid. There are other items on the BAS, but for this exercise, we will only concentrate on the GST section.Other options available are to pay a GST instalment each quarter in anticipation of your net GST liability at year end. An Annual GST return is then prepared once per year to calculate the actual GST liability. Any excess over the amount of instalments is sent to the ATO, and if the total of the instalments paid during the year are more than the actual liability, they are refunded.
- The recommended way to do a BAS
We recommend that businesses report the actual figures for the period on their BAS. We do this for several reasons.The business has then paid / received exactly what is owed. There is no finding excess cashflow to pay a extra amount on the lodgement of the Annual Return and vice versa, the business has not foregone cashflow by paying too much in instalments. The business will have current management figures on which to make decisions on financing, growth strategies, stock levels, creditors management and tax planning. Current figures are invaluable is assisting the business to be the best it can be. By keeping the business records up to date will alert management to any trends that need to be addressed in a timely manner.
- If you require assistance in preparing your Business Activity statements, or any advice in relation to GST, please get in touch. If preferred we are able to setup your system and coach you in preparing your own BAS.