Starting a business is an exciting and action-packed time. You have stock to order, staff to hire, windows to dress, and marketing materials to design. The real magic starts happening when your customers make their first purchases and the money flows in.
As exciting as that cash flow is, it also brings with it a host of new obligations, with business taxes being one of the most confusing. A good bookkeeping platform will set you up for success, but it’s still crucial that you have a working understanding of your obligations to the Australian Taxation Office (ATO). To help you in this endeavour, we’ve created the following beginner-friendly guide to the Goods & Services Tax. By the time you reach the end of this article, you should have a strong working understanding of GST and how it affects your business.
What is GST?
GST – aka Australia’s Goods and Services Tax – is a tax you have to pay once your business earns an annual income of $75,000 or more. If you run a non-profit organisation, you’ll need to plan for and claim GST if your business earns over $150,000 per annum. Taxi services are a little unique in that they need to claim GST straight away, regardless of earnings.
If you reach any of these thresholds, you’ll have 21 days to register to collect GST.
Pro tax tip: Have you just determined that you’ll need to register for GST? No worries! You can do so online or over the phone. If you’re feeling a bit uncertain, contact ITP today, and one of our registered tax agents can help you understand your obligations and register if needed.
How does GST work?
The GST is an extra 10% charge you need to calculate when you invoice your customers. It is a consumer-based tax that you collect on behalf of the government. In other words, your customers pay the GST, not your business. The government funnels the money generated into roads, housing, public transport, and other services and infrastructure.
In order to collect the GST, you’ll need to generate a tax invoice for your customers. If you make a taxable sale, your tax-registered customers need an invoice from you to claim their tax credits for purchases. You’ll issue these invoices when goods are sold with the objective of resale.
How to write a tax invoice
Each tax invoice should clearly show the price of your goods or services, as well as the calculated GST. In Australia, tax invoices should generally include the following details:
- The words “Tax Invoice”
- Name, address, and contact details of the seller
- Invoice number
- Date of issue
- Name and address of the buyer
- Tax Identification Number (TFN)
- The quantity of goods/services
- The price per unit
- Total amount including taxes
- Tax charged for each item
- Payment details
You are legally required to issue a tax invoice for amounts over $82.50 and on request for smaller amounts. Your tax invoice will be used by your suppliers to claim back the GST component you have issued.
Why are tax invoices necessary?
There are legal reasons for supplying a tax invoice, which include:
- To support registered businesses’ claims on their GST credits
- To determine supplies made in a taxable time period
- To determine when the claim and account for input tax should be made based on the date of the tax invoice
Pro Tax Tip: Quality accounting software can keep you up to date, helping you calculate your taxes while making the invoicing process much simpler.
When do you include GST on your sales?
There are certain rules governing when you should apply and charge the GST. Most goods and services will incur the GST charge, meaning you’ll pass on the 10% flat rate to your customers. However, some goods and services are GST-free.
The most common GST-free goods and services include:
- Most basic food products
- Some educational courses
- Medical products and services
- Health and care products and services
If your business predominantly serves these categories, you won’t charge your customer GST. However, when you lodge your Business Activity Statement (BAS) with the ATO you can claim your GST credits.
If you offer goods and services that do not include GST, you cannot charge your customers and you generally cannot claim the GST-free credits when you lodge your BAS. These goods and services include:
- Financial supplies, such as lending and borrowing money
- The sale and rental of residential premises
Export products are generally GST-free. You don’t have to charge your overseas client, and you can claim the GST components for the GST you paid for input materials. Unfortunately, it’s not 100% straightforward. In some circumstances, you may still be required to pay GST.
Pro Tax Tip: ITP’s tax accountants have all engaged in ongoing study of the intricacies of Australian and international tax laws. If you’re unsure about your GST obligations, find your nearest branch and get in contact with us today. Our tax professionals can help you meet your obligations and keep you out of hot water with the ATO. Our Tax Agents can also liaise with the ATO on your behalf if there has been any confusion in the past, helping you sort your tax obligations out and get on the right track going forward.
Claiming GST credits
You are entitled to claim the GST paid on anything you have used to provide your goods or services to your customers. Specifically, you are entitled to claim back GST credits when:
- You purchased something to carry out your business
- GST is included in the purchase price
- You have paid for the item already and incurred the cost
- You have received a tax invoice from your supplier
You claim your GST credits through your Business Activity Statements (BAS). If you’re interested in learning more about BAS and your obligations as a business owner, check out our comprehensive guide on how to ace your BAS.
How to lodge BAS
The ATO will send you your BAS forms. Your obligation is to state how much GST you have collected and how much you have paid. You will need to use this form to claim back your GST credits and to work out how much GST you’ll need to pass on to the ATO. You’ll also use your BAS to cover other obligations such as Pay-As-You-Go (PAYG), Fringe Benefits Tax (FBT), Luxury Car Tax (LCT), Wine Equalisation Tax (WET), and claiming your fuel tax credits.
Depending on how much money your business generates, you’ll need to pay your BAS monthly, quarterly, or yearly.
|Monthly||If your GST turnover is $20 million or more|
|Quarterly||If your GST turnover is less than $20 million|
|Yearly||If you are voluntarily registered for GST and your GST turnover is under $75,000 ($150,000 for non-profit bodies)|
The due dates for each quarter are as follows:
|July, August and September||28 October|
|October, November and December||28 February|
|January, February and March||28 April|
|April, May and June||28 July|
How do you register for GST?
To register to collect GST, you will need your Australian Business Number (ABN). You can register for GST at the same time you apply for an ABN. However, if you’re registering as a company, you’ll need an Australian Company Number (ACN) before applying for your ABN.
You can complete your registrations online through the Australian Taxation Office’s website or the Australian Government Business Registration Service. If you’d prefer, you can also handle it over the phone or through a tax agent.
Many new business owners prefer to use a tax agent to register their business as this is an excellent way to keep things running smoothly. Your tax agent will advise on any missing information and fill out all necessary forms without mistakes.
Pro Tax Tip: Your BAS and GST obligations will run more smoothly if you have expert help. It often pays to hire a bookkeeping service to keep the financial side of your business organised. A good bookkeeper will also advise you on any red flags that come up. Crucially, they’ll know precisely what to do to iron them out. It’s also worth noting that your bookkeeping service is a business cost you’ll be able to claim on your expenses come tax time.
As Australia’s Income Tax Professionals, ITP maintains a nationwide collective of experienced bookkeepers who can help you with your GST, BAS, and other business tax obligations. Whether you need us one day or five days a week, our services are flexible and affordable but thoroughly comprehensive. Speak to one of our tax professionals today for advice on your BAS and GST obligations.