Have you just started your small business, or earned over $75,000 per annum? Firstly, well done! Congratulate yourself for having reached a milestone many others are still working towards. Now that you have reached this milestone, you’ll no doubt be aware that you’ll have the extra implications of collecting and paying the Goods and Services Tax (GST) as well as lodging a Business Activity Statement (BAS) to the Australian Taxation Office (ATO).
If you’re getting your head around what you need to do, our short report will help you figure things out.
What is GST?
GST is a tax added to most products and services sold in Australia, at a rate of 10%. It was introduced in 2000 to simplify the tax system, replacing multiple state levies. GST is added to most products and services and must be collected when your business earns over $75,000 per annum.
Businesses that collect GST will need to add and collect an additional 10% on top of their invoice. The money is set aside from which GST paid credits can be deducted to work out the total amount payable to the ATO. This amount is registered and paid through a BAS.
Pro Tax Tip: Although most goods and services incur GST, some goods and services are GST-free and are mostly found in the healthcare, education, financial services and fresh food industries.
How Do You Calculate GST?
To add GST to the price of a product or service, multiply the amount by 10% or 0.1. For example, GST on a good or service invoices at $100 would be $10. This means the total invoice to your client would be $110. You’ll need to set aside the $10 and pay that to the ATO when you lodge your BAS.
Sometimes you’ll need to subtract the GT amount to work out how much GST is in a total invoice. To do this, you divide the total amount by 11. For example, if you pain an invoice of $110, you would divide that amount by 11. The GST will work out to be $10 and the price excluding GST is $100.
You’ll Need To Register To Collect GST
If you anticipate that your GST turnover will reach $75,000 in the first year of starting a business, you must register for GST. You must register within 21 days of becoming aware that your GST turnover will exceed the threshold. It’s recommended to review your turnover each month to avoid exceeding the limit.
You can choose to register for GST even if your turnover is below $75,000. However, if you do so, you must include GST in the price of most goods and services you sell, claim GST credits for most business purchases you make, and submit activity statements to report your total sales, GST on sales, and GST credits.
Pro Tax Tip: To register for GST you must have an Australian Business Number (ABN) through the Business Registration Service
You’ll only need to register for GST once, even if you operate more than one business. If you no longer need to collect GST, don’t forget to cancel your registration. You can register directly with the ATO or through your tax or BAS agent.
Every business is not required to register for GST, as specific criteria must be met, including exceeding the turnover threshold. Several conditions must be met, which include:
- A turnover of over $75,000 for your business.
- A turnover of more than $150,000 for your not-for-profit organization.
- The intention to claim for fuel tax credits (GST applies, regardless of turnover).
- Providing taxi or limousine services (GST applies, regardless of turnover).
- Overseas retailers with an Australian sales turnover of $75,000 or more.
Claiming GST Credits
Businesses registered for GST can reclaim the GST paid on business expenses by claiming GST credits or otherwise known as input tax credits. Input tax credits can be claimed when purchasing goods or services for the business, or when a customer leaves you with a bad debt. GST credits are calculated and claimed when lodging your BAS.
For example, the GST you’ve paid for a good or service may come to $7. When you invoice your customer, you collect a GST amount of $10. You can claim back $7 of GST credits. Your total amount payable to the ATO is $3.
When your business collects GST, you’ll need to issue a tax invoice to your customer and receive a tax invoice from your supplier.
Tax invoices are important for GST-registered businesses to show customers how much tax they’ve paid. In addition to purchase details, payment options, and customer information, tax invoices also clearly display the amount of GST included in each item and the total amount of GST paid. Keeping tax invoices is crucial for your business to accurately record the GST you’ve paid and offset the GST you’ve collected.
Pro Tax Tip: The ATO can ask for proof of your GST claims at any time. Tax invoices and receipts must be kept for 5 years.
Information Required On A Tax Invoice
Certain information must be shown on any tax invoice on sales of $82.50 including GST and over. For sales of $1,000 or more, tax invoices should include the following:
- The words ‘tax invoice’
- Seller’s name and ABN
- Date of the invoice
- Buyer’s name and ABN or address
- A description of the items sold, including quantity and price
- The GST amount or a statement indicating that the total amount includes GST.
Pro Tax Tip: For invoices less than $1,000, all the above information is necessary except for the buyer’s details. If your customer requests a tax invoice, you have 28 days to supply it to them.
What Is A BAS?
A BAS, or Business Activity Statement, is a form used to report business activity to the Australian Taxation Office (ATO) between one and twelve times a year, depending on the size of your business. It’s used to calculate your GST refund or bill, as well as other taxes such as business income tax, employee income tax, and luxury car tax.
Your BAS can be lodged online through various methods, such as via online accounting software, myGov account, ATO’s online business portal, or by having a registered tax or BAS agent do it for you. The frequency of BAS lodgement depends on your annual turnover, with different deadlines for monthly, quarterly, and annual lodgement.
Missing the deadline can result in penalties, and payment of GST owed is generally required on the same day. If you’re due a GST refund, the ATO will pay it directly to your nominated bank account.
The frequency for lodging our BAS is dependent on your aggregated (total) annual turnover. If your business earns more than $20 million, the ATO requires you to lodge your BAS monthly. If your business earns under $20 million you can still complete a monthly BAS, but the frequency is normally quarterly.
Quarterly reporting dates are as follows:
- Quarter 1 – July, August, September – 28 October
- Quarter 2 – October, November, December – 28 February
- Quarter 3 – January, February, March – 28 April
- Quarter 4 – April, May, June – 28 July
Pro Tax Tip: You can change your GST reporting cycle if there are changes in your income or circumstances
There are 2 reporting methods:
- Simpler reporting method in which you don’t need to complete a GST calculation worksheet of give as much information. This is usually for businesses earning less than $10 million per annum
- Full reporting method in which your report to the ATO should include total sales, export sales, other GST-free sales, capital purchases, non-capital purchases, GST on sales and GST on purchases.
ITP Accounting Professionals have helped Australian small business with their tax for over 50 years. If you have any questions about GST or lodging your BAS, an ITP tax agent is more than ready to help.