Whether you are starting or growing a business, you will probably wonder at some point whether GST affects you.
What is GST?
The Goods and Services Tax (GST) is levied on most goods and services sold or consumed in Australia. The general public ultimately pays this tax but the ATO relies on local businesses to collect the money on its behalf.
Do You Need to Register?
Before signing up to be ATO’s tax collector, you should be aware that registration is only required if you fall into one of these categories:
- Your business has – or you expect it to have – an annual GST turnover of $75,000 or more (or $150,000 for non-profit organisations)
- You provide a taxi or limousine travel service in exchange for fares
- GST turnover refers to your business revenue rather than profit
Startups and enterprises not registered for GST should assess sales figures regularly, as once your revenue breaches the annual turnover threshold, you will only have 21 days to register your business to avoid penalties and interest.
Calculating GST Payable
After registration, you must charge GST at the current rate of 10% when supplying goods or services that are subject to this tax.
So, if the value of your supply is $50 excluding GST, then:
- The GST you owe the ATO is 10% x $50 = $5
- The GST inclusive price of your supply is $50 + $5 = $55
Although these calculations are relatively straightforward, the trick is to ensure you only charge GST on supplies that are taxable.
You can potentially claim refunds for the GST you paid on business purchases. Known as GST credits, these are offset against the GST you owe to determine your net obligation to the ATO.
For a purchase with the GST inclusive price of $110:
- Your potential GST credit is $110 ÷ 11 = $10
- The purchase price excluding GST is $110 – $10 = $100
Reporting and Payments
Small businesses will typically have to complete a Business Activity Statement (BAS) and pay GST to the ATO every three months. These tax periods run from July to September, October to December, January to March and April to June.
If you calculate and pay your actual GST quarterly, you can choose to report quarterly or annually. However, if you pay quarterly instalments determined by the ATO, then you will report GST annually.
GST affects most businesses. Knowing the basics will give you a good start, but get tailored advice so that you can fully understand the demands of this tax.