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Arrows guiding managers on GST registration

GST Registration Guide - how to register for GST?

When you’re starting a new business you have numerous decisions to make. You need to pick a business name, decide on a business model, figure out if you’re going to hire that cousin your mom told you to hire — the list goes on and on.

As an Australian business, one of the things you will need to decide on is whether or not to register for the goods and services tax before you reach the income threshold.

Naturally, anything having to do with taxes is likely a big decision. Deciding to register for the GST is no different. It’s a big decision with big implications. So, what is this tax, and how do you register for GST? Let’s find out.

What is GST & GST Registration

The GST, or goods and services tax, is a tax of 10% that’s placed on many items in Australia. This tax (as of writing in March 2023) is required for any for-profit organisations, sole traders, businesses that have an annual turnover of over $75,000 and any business that provides taxi or limousine services regardless of turnover.

For non-profit organisations, the threshold is $150,000, at which point the organisation must register for GST. The tax itself applies to most products and services in Australia.

How to register for GST

If you’re ready to take the plunge and become a GST business, rest assured GST registration isn’t too complex.

  1. Ensure your business has an Australian Business Number (ABN). If not, this can be done through the Australian Taxation Office (ATO) via an online form, a mail-in form, or an in-person visit to their offices.
  2. Once you have an ABN, head on over to the ATO website business portal to begin the process online. Otherwise you can apply through a registered tax agent or via other channels on the ATO page.
  3. Fill out business registration form, NAT 2954, and return it to the ATO offices.

Then, you wait. If you’re a non-resident of Australia and you want to become a GST business, you may have to provide proof of identity.

After reading this you may be thinking you should avoid registering for the GST until your sales hit the GST turnover of $75,000. Not so fast!

While you aren’t required to register until your annual sales turnover is greater than $75,000, there are some factors you should consider before you decide whether or not to register for GST.

The perks of GST

Surprisingly, registering for the GST isn’t an automatic detriment to your business. Sure, businesses under GST often have to boost their prices 10% to counter the tax. But, there are some advantages to registering for GST from the outset.

The ability to claim back the GST on purchases made in the course of business

Yes, the 10% GST tax has to come from somewhere. And yes, this is usually the consumer. But, if you’re pricing your products properly, 10% should be doable, as many competitors in your industry are likely GST businesses as well.

The best part about registering for that 10% is that, in most cases, you can get GST credits. These credits can entitle you to a tax refund for purchases your business makes that also have the GST tax of 10%. Essentially, any products or services you sell that are marked up to account for the 10%, can likely be submitted for GST credits come tax time.

You can also submit purchases for business use if they have GST applied and receive credits. When it’s time to file your taxes, you can use the GST credits to offset any GST owed to the ATO. If done properly, you should end up paying very little of the 10% at the end of the year.

A positive customer impression

When a customer gets an invoice and sees GST tax, they know (or at least think) your business income is in excess of $75,000 or that you’re simply a more professional small business. In either event, it can reflect well on your brand and help you look established against lesser-known brands.

As soon as a customer receives an invoice or quote without GST, they will know that your turnover is less than $75,000. This may lead them to question the experience of the business they are dealing with, how long your business has been around, and whether or not you’ll be there for the long term. It gives the impression of a little fish in a big sea.

Visibility into your business performance

GST requires regular and annual lodgement of Business Activity Statements or Instalment Activity Statements. These require you to keep your business accounts up to date.

The benefit of this is that you’ll have greater visibility into the performance of your business and financial year overall. If you’re using one of the many cloud based accounting software solutions available, this can also allow for the exchange of information with your business accountant or advisors. In a world where new trends can quickly impact businesses, it’s vital to monitor the business’s performance to head off any potential issues.

As an added bonus, being on top of your financials throughout the year makes it easier to file your taxes, and get your tax return in a quicker manner.

The cons of GST

Naturally, the GST can’t be all positives. There are also disadvantages to registering for the GST before you reach the turnover threshold.

Administrative costs

Once your business is registered for GST, you’ll need to submit your Business Activity Statements on a regular basis. Your invoices will also need to be compliant and contain specific information to be considered a valid tax invoice.

For some small businesses, being a collector for the tax office is an administrative burden. This could eat up a lot of your valuable time, or require you to hire an accountant or bookkeeper. In either event, you’re spending money or having to take your attention away from your day-to-day business happenings and big picture planning to take care of administrative tasks.

Cash flow impact

Once you’re registered for the GST, you have to get the 10% tax somewhere. It’s unlikely you’ll want to pay for this yourself, so naturally this 10% will be tacked onto your sales price.

A business in a highly competitive industry may be able to offer a cheaper price than their competitors if they do not have to add the GST to their transaction. This can have a positive impact in two ways:

  • The business may end up gaining more sales and increase their flow of cash into.
  • The business may choose to charge the same price as competitors, but because they do not need to remit GST they are able to keep the additional margin for themselves.

A business selling high-expense items that don’t have GST attached to them may actually be worse off registering for GST at the onset.

For example, a small cafe that sells prepared food will now have to charge GST when they provide their services. But, because the cafe purchases fresh food ingredients to run their business and because there’s no GST on fresh food, there will be few expenses that they can offset with their GST credits. So, registering for the GST before they hit the income threshold will have a negative impact on the cafe’s cash flow.

Making the right choice on GST

No single choice will be right for every business. Deciding to register for GST early is a big move and one that could have a big impact on your business — good or bad. As with any business decision, it’s wise to seek out tax advice from a tax professional. When in doubt, contact the Australian tax office directly and see if they have anyone who can help advise your business.

At the end of the day, if your business earns less than $75,000, it’s your decision and yours alone. Business owners are faced with numerous decisions, and you’ve already overcome so many of them. Think carefully, consult with your business partners, and make the choice that feels right. No matter what, you’ve done what so many others wish they could do: taken initiative and created a business that’s your own.

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