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To register for GST, or not?

By Alee Cochrane

3 min read

So you’re starting a new business.  One of the things you will need to decide is whether or not to register for GST.

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

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

  • First and foremost GST was never intended to be a burden on businesses but on the consumer/end user of the services/products.
  • For businesses with a high volume of GST inclusive expenses, this acts to offset the GST collected on the sales of the business, so only the remainder of the GST collected less the GST paid is remitted to the tax office.

 

A positive impact on cashflow

  • For businesses who primarily provide services overseas or export, this may have a positive impact on their cashflow. If the GST being paid on expenses used to produce the product/service exceeds the GST charged on sales, they may well receive a GST refund.

 

A positive customer impression

  • As soon as a customer receives an invoice or quote without GST on it 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 they have been around and whether or not they are there for the long term.  It gives the impression of a little fish in a big sea.

 

Visibility into your business performance

  • The frequent lodgement of Business Activity Statements or Instalment Activity Statements requires you to keep your business accounts up to date. The positive of this is having greater visibility into the performance of your business.  If you are using one of the many cloud based accounting solutions, this can also allow for the exchange of information with your business accountant/advisors. In a world where new trends can quickly impact businesses, it’s vital to monitor the business’ performance regularly to head off any potential issues.

There are also advantages to not registering for the GST until you reach the turnover threshold:
 

Administrative costs

  • Once registered for GST you will need to submit your Business Activity Statements on a regular basis. Your invoices will also need to be compliant and contain specific information for them to be considered a valid tax invoice. So, for some small businesses, being a collector for the tax office is an administrative burden.

 

Cash Flow impact

  • A business in a highly competitive industry may be able to offer a cheaper price than their competitors, as they did not have to add the GST to their transaction. This can have a positive impact in two ways.
    • Firstly, the business may end up gaining more sales and increase the flow of cash into their business.
    • Secondly 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 with sales that have a high value of expenses that don’t have GST attached to them may actually be worse off registering for GST at the onset. For example a café – with a high volume of purchases being for fresh food and no GST attached will have to charge GST when they provide their services but there will be minimal GST to offset, thereby having a negative impact on their cash flow.

As with any business decision, whether or not to register for GST may also have tax implications, so it is wise to seek out tax advice from a tax professional.

To read more resources on Small Business Tax, please visit here.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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