When your small business earns $75,000 per annum, you’ll need to register and start paying the Goods and Services Tax (GST). Your business will be obligated to lodge a Business Activity Statements (BAS) either monthly, quarterly or annually. Your BAS will determine the net GST your business will need to pay the ATO.
Don’t think of your BAS as an obligation. You can use it as a business indicator tool to keep your accounts up to date, in order and costs down. One of the ways you can reduce your costs is to make sure you’re streamlining your GST payable. Updating your costs when you lodge your BAS is the way to make sure you’re only paying what you need to, however there are pitfalls to be aware of.
Claiming GST Against All Expenses
GST is not included in all components of claims. Mistakes slip though when GST is automatically calculated and added into the BAS. This may trigger the ATO to audit your BAS and your small business. The most common expenses that don’t incur GST include:
- ASIC fees
- Bank charges and fees (credit card merchants to include GST)
- Google Adwords
- PayPal transactions
- A portion of your Insurance policies
- Land tax, council rates and water rates
- Partial GST components of car registrations. Apportion your GST accordingly
- Super and Salary payments
- GST free invoices
- Basic foods and health services
- Gift cards
Care must be taken not to ‘double dip’ GST credits. Car, plant and equipment hire and lease agreements can have GST claimed for the full GST component in the first quarter in which they were bought. Check that regular payments of GST made after claiming the full amount do not get included again on your BAS. GST cannot be claimed twice.
Conversely, you shouldn’t be charged GST on important services and digital products and low value imported goods (from 1 July 2018) even if you are registered for GST. The supplier is not required to provide tax invoices for these sales.
Click here to read our detailed report on foods and services that incur GST
Cash vs Accrual Accounting Methods
Your accounting method will determine when you report and pay your GST. If your business uses the cash method, you’ll generally pay the GST when you receive payment. If your business uses the Accrual method of accounting, you’ll need to pay the GST when you invoice your GST. You could pay tax on that income before your payment is received depending on the payment terms with your supplier. A majority of businesses use a cash system.
Pro Tax Tip: You must issue a tax invoice and receive a tax invoice from your suppliers of purchases of more than $82.50 (including GST) to claim the GST credits.
Include Cash Sales
Payments made by cash should always be declared in your business tax return, your personal income tax return and in your businesses BAS. The ATO will data match payments and declarations, as well as TARP declarations to make sure there isn’t a missing cash amounts.
Claiming Private Expenses
GST credits can only be claimed on the business portion of your cost if the purchase incurs both private and business uses. If you later find that your actual use differs from your original estimation, you can adjust your GST amounts you’ve claimed. Small business can account for the private vs business use and adjust their GST credits once a year rather than each activity statement. You can make an annual private apportionment election in your BAS.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax paid on the profits of selling assets – property, shares, cryptocurrency. Capital gains or losses are reported in your income tax return on which tax is paid. Gains will incur tax, losses will be able to offset current and/or future gains.
If your business incurs CGT, you’ll be liable to pay GST on the sale price, and can claim GST credits on related purchases.
Claiming GST on Non-Registered GST customers
Not all businesses are required to collect and pay GST – even if your business is required to. They will not need to issue a tax invoice and do not charge GST. As such, you cannot claim GST credits. If you’re in doubt, a simple ABN check on the ABN lookup page with their business name will show if the business is registered for GST or not. If they are not registered then they neither charge or collect GST.
If a supplier withholds their ABN; look for another document in which the ABN is quoted. Their supplier’s agent ABN or if your supplier is not entitled to an ABN or required to is the payment is less than $75.
Suppliers need to supply an ABN when you purchase goods and services. If a business refuses to give you their ABN, you’ll need to withhold a ‘No ABN withholding’ amount which is 46.5% of the total payment.
Pro Tax Tip: Your supplier has 28 days to provide you with a tax invoice after your request. You’ll need to wait for the invoice before you can claim your GST credits.
The ATO makes regular changes to BAS forms and claiming GST. If maintaining your BAS and keeping up with changes is too time-consuming or you need a little help setting up or interpreting results, an ITP Accounting Professional can help pave the way. With over 50 years of experience in Australian Small Business, there’s not a lot they haven’t seen and can’t help with. Phone 1800 367 487 and chat with a friendly professional today.