GST is one of the most common taxes paid by businesses in Australia. As such, it’s important to know how it works and what kind of reporting and record-keeping obligations most businesses have.
In this article, we’ll cover topics like:
· What exactly GST is
· When you need to register for it
· How you can register and pay
· And why registering for GST can actually be a good thing for businesses
Let’s get into it.
What is GST?
Goods and services tax (GST) is a consumption tax charged on most goods or services sold in Australia. It’s 10% of the sale price of a good or service. For example, if your GST-registered business sold a product worth $100, your business would owe the federal government $10 in GST.
Depending on the good or service, GST may be included in or excluded from the sale price. If you bought a TV for $1,000, for example, the store wouldn’t normally charge you an extra $100 to cover their GST – instead, they’ll pay the government $90.9 in GST from the $1,000 you paid.
Many professional services, on the other hand, exclude GST from their prices. That’s why many invoices have a subtotal without GST, and then a total with GST.
Why is Registering for GST Important?
Unlike other taxes, not every business has to pay GST. In this section, we’ll look at why registering for GST can actually be a good thing.
Claiming GST Credits
Although registering for GST means you have to pay more tax, you can also claim GST credits on eligible business purchases.
GST credits are effectively subtracted from the total GST you owe the government at the end of the financial year. For example, if you owed the government $20,000 in GST, but you’d been charged $5,000 in GST on business purchases, you would only end up paying $15,000 in GST.
Importantly, though, you can only claim GST credits on GST that is included in the price of any goods or services your business buys. If a good or service price doesn’t include GST, you can’t claim GST credits for it. Common GST-free purchases include:
- Sales to you that are input-taxed, like residential accommodation, bank fees, and loan interest
- Sales from suppliers that are not registered for GST
- Most basic food
- Certain medical services
- Duty-free sales
- Certain education courses
- Certain medicines, medical products, and hygiene products
You also can’t claim GST credits without proof. For purchases over $82.50 (including GST or $75 excluding GST), you’ll need a tax invoice from the supplier.
Should I Register for GST as a Sole Trader?
Whether or not you should claim GST as a sole trader depends entirely on your individual business circumstances. If you earn over $75,000 per annum in GST turnover, you are legally required to register. If not, you should talk to your accountant about whether registering for GST is the right choice for your business.
Registering for GST does mean you need to lodge quarterly business activity statements, which, for some businesses, can add an extra administrative burden. Generally though, lodging a BAS is good for your business – it helps you keep on top of your finances throughout the year. Many businesses also choose to delegate their BAS statements to virtual bookkeepers for better convenience.
When Do I Need to Register for GST?
Once a business meets certain criteria, they are legally obligated to register for GST. These criteria include:
- Being a business earning more than $75,000 per year in GST turnover
- Being a non-profit organisation, earning more than $150,000 per year in GST turnover
- Providing taxi travel, including ride-sourcing for companies like Uber or GoCatch
If you haven’t registered for GST, and you become aware that your GST turnover will exceed the $75,000 per year threshold, you will have to register for GST within 21 days. GST turnover is your business’s gross income, not your business’s profit.
Do I Have to Pay GST If I Earn Less Than $75,000 pa?
The only businesses that are legally required to register for GST if they have annual GST turnovers of less than $75,000 are those that provide taxi travel. This includes sole trader taxi drivers and contractors working for companies like Uber and GoCatch.
All businesses that provide taxi travel, regardless of how much they earn, must be registered for GST from their first day of operation.
How to Register for GST
There are three ways to register for GST.
- You can register online through the federal government’s Business Registration Service. If you don’t have an ABN (which you need to register for GST), you can apply for an ABN and GST registration at the same time.
- You can contact the ATO directly, via phone, online chat, writing, social media, or face-to-face meeting.
- You can register through a registered tax agent (who will normally be your accountant).
Registering online is generally the easiest option, but, if you run into any issues, you can always ask your virtual bookkeeper for assistance.
How Much Does Registering for GST Cost?
Registering for GST is free! There are no administrative costs or fees associated with goods and services tax.
How to Check GST Registration
If you started a small business a while ago and have only recently hit the $75,000 per annum GST turnover threshold, you might be wondering whether you already registered your business for GST and forgot.
Here’s how you can check:
- Go to the Australian Business Register’s ABN Lookup tool.
- Search for your business using your ABN, ACN or name.
- Find and click on your business in the search results.
- Check whether you’re registered for GST. Below, we’ve included an example of JTRB’s GST registration.
Knowing how to check GST registration is also important if you’re onboarding a new supplier (anyone who sells your business goods and services). You should always check the ABN and GST registration status of new suppliers – if a supplier charges you GST but isn’t registered, you can’t claim back that GST from the government.
If you can’t find your supplier using the ABN lookup or they’ve charged you GST when they aren’t registered for it, ask them to re-issue their invoices with the correct business details and/or the correct amount.
How to Backdate GST Registration
If you’ve started a business and you’ve made a lot of big purchases, it can sometimes be helpful to backdate your GST registration. For example, if you incurred $100,000 in GST-eligible expenses, you’d be entitled to claim $9,090 in GST credits – which, if your revenue was relatively low, could be helpful for you.
The ATO allows businesses to backdate GST registration for up to four years for tax periods commencing on or after 1 July 2012. To backdate registration, you’ll need to contact the ATO.
Keep in mind that backdating GST means you can claim GST credits from the backdate, but you’ll also have to pay GST on applicable goods or services that you sold. The four-year backdating window also only applies if you’re voluntarily registering for GST – in cases of fraud or evasion, the ATO can backdate your registration for longer periods.
Your sales will normally fall into one of three categories, which may differ depending on the good or service sold:
- Taxable supplies (goods/services that you need to charge GST on)
- Non-taxable supplies (goods/services that you don’t need to charge GST on)
- No GST status (you’re not registered for GST)
Non-taxable or GST-free supplies still have to be reported, although there are some GST-free supplies that don’t have to be reported. Talk to your BAS agent or accountant about classifying your sales correctly.
Can I Charge GST If I’m Not Registered for GST?
You can’t charge GST if you aren’t registered for GST. Although the onus is generally on the purchaser to make sure that you’ve registered for GST if you’re charging it, they may report you to the ATO if you’ve incorrectly charged GST.
GST is reported and paid when you lodge your business activity statements (BASs). You will also need to claim your GST credits when you lodge your BAS.
Activity statements are lodged either monthly (for businesses with over $20M in GST turnover), quarterly (for businesses with less than $20M in GST turnover), or annually (for businesses with less than $75,000 in GST turnover).
Under current ATO rules, the standard reporting option for businesses with less than $10M in GST turnover is Simpler BAS, which only requires three pieces of information:
- Your total sales for the reporting period
- Your total GST on sales
- Your total GST on purchases
Although you still need to keep proper records for income tax purposes, Simpler BAS means you can lodge and pay more easily. The alternatives are the full reporting method (which requires seven pieces of information) and the GST instalments (paid quarterly with reports lodged annually).
You can lodge your BAS and pay your GST via the ATO’s online services hub.
Reverse Charge GST
Although GST is normally paid to the government by the seller, there are cases when the purchaser may actually have to pay GST instead. This ‘reverse-charged’ GST works like normal GST – it is reported in the same way and is 10% of the purchase price.
Reverse-charged GST is only charged when all the following conditions and circumstances apply:
- The purchase is solely or partly for the purpose of a business that is carried on in Australia.
- The purchase is partly of a private or domestic nature, or relates partly or solely to making input taxed supplies.
- The purchase is for payment, not a sample.
- The purchaser is registered, or required to be registered, for GST.
- The purchase is done or performed outside of Australia and the sale is NOT made through a business that the overseas supplier carries on in Australia.
- The sale is ‘connected with Australia’, i.e. the purchase is done or performed in Australia; the seller makes the sale through a business they carry on in Australia; the sale is of a right or option to acquire ‘another thing; and the sale of that ‘other thing’ would be ‘connected with Australia’.
- The sale is not made through a business that an overseas supplier carries on in Australia; the item that has been purchased is done or performed in Australia and is an Australian-based business recipient.”
Although reverse-charged GST isn’t a common tax, it’s still worth being aware of if you make a lot of purchases from overseas suppliers.
Although GST can be simple to lodge and pay, getting it right can also be very complex – there are plenty of confusing situations and purchases that can be challenging to navigate.
Like most taxes, though, it’s not something you want to get wrong. Incorrectly claiming GST credits or not charging GST on eligible sales can throw your bookkeeping into disarray, which is why working with a registered BAS agent can be helpful (especially for small businesses).
If you’d like to check whether your GST is on the right track, take our free BAS quiz. It’s a short, 10-question quiz specifically designed to help small business owners find out whether their GST knowledge is up to par.
Still doing your books yourself? Find out why you should hire a BAS agent here