As a business owner, your primary duty is to be aware of the number of taxes to be paid to the ATO (Australian Taxation Office). Among those taxes, one of the most important taxes is GST or goods and services tax.
GST, or goods and services tax, is a relatively complex tax (yet quite important), which is why it is essential for you to understand it. In this guide, you will learn what GST is, how it works and whether you need to register for GST.
What is GST or goods and services tax?
GST is a general tax added to most products and services consumed or sold in Australia. This tax can be described as VAT or Value Added Tax.
Generally, this tax is payable on the value businesses, and other organisations add at each stage of the commercial chain of both goods and services, which is further carried on between the businesses and the clients.
Australian businesses meeting certain thresholds have to register for GST and collect it to pay to the Australian Taxation Office.
How much is GST?
If you are wondering how much GST is, it is 10% (currently). However, it is recommended to check it through the ATO website regularly as the government has the right to raise or lower it.
How does goods and services tax work?
Goods and services tax is payable by those who supply (certain) goods and services. Generally, if not always, the end user in the complete commercial chain of transactions is the one who has to incur GST as a cost.
Not all businesses have to register for GST, as there are specific conditions that apply. However, since the threshold is relatively low, the majority of the businesses are subject to GST obligations at some point. The conditions are as follows:
- The business has a turnover of more than $75,000.
- The business is a not-for-profit organisation, and the turnover is more than $150,000.
- The individual wishes to claim fuel tax credits (in this case, GST will apply irrespective of the turnover)
- The individual provides taxi travel ( GST will apply no matter what the turnover is)
- An overseas retailer who has an Australian sales turnover of $75,000 or higher needs to register for GST.
The businesses that are registered with the ATO for GST purposes can claim back the GST paid on the business purchases. A business purchase is considered an ‘ acquisition’ for GST purposes, and the tax paid on the acquisitions is called input tax.
Not registering for GST can get you in trouble, and you might have to face the consequences, such as huge penalties and tax bills.
When do you need to register your business for GST?
If you meet any of the conditions mentioned above, you have to register for GST. In case your turnover is lower than the threshold amount, there is no legal requirement to register for it.
For those who have started a new business and are expecting to have a turnover value above the threshold value in the first year of business operation, it is suggested to register for GST. Once you reach the relevant threshold, you will need to register for GST within 21 days. For the same reason, it is recommended to go check the turnover monthly.
After GST registration, you can claim back the GST paid on goods and services you purchase while running your business. But you will have to ensure that you get a tax invoice at the time of purchase.
How to register for GST?
Before you go ahead to register for GST, you will need an ABN or Australian business number. You have to apply for the Australian Business Number (ABN) when you register your business name (or it can also be done after that).
Once you have your ABN, you can choose to register for GST through one of the following ways:
- Applying online through the ATO business portal
- Calling the ATO on 13 28 66
- Reaching out to a registered tax accountant or Business Activity Statement (BAS) agent
- Using form NAT 2954 (or the ‘Add New Business Account Form’)
The registration process is straightforward, and you need to register only once, even if you are running more than one business currently.
What would you need to do after you register for GST?
You shall receive your GST registration details from the ATO, which also includes the date it becomes effective. If you have not received your Australian business number (ABN) details, the ATO will send them as well.
Since you have registered for GST, your customers are liable to pay the 10% GST with the cost of goods or services. So you will have to do the following:
- Start including GST in the price of the products or services you offer.
- Claim GST credits on services or products you have to buy to run your business.
The collected 10% GST has to be sent to the ATO. When do you pay the ATO? The frequency of doing this will depend upon your business’s turnover.
Exemptions from GST
There are numerous products and services that can be sold without adding the goods and services tax on them. These include:
- Most basic foods
- Some medical and healthcare services
- Some educational courses
- Some medicine, medical aids and appliances
- Some menstrual products
- Some charitable activities
- and many more.
To learn more about such GST-free things, you can use the ATO website, where you will also find the list of food exempt from GST.
What about exports?
When it comes to exports, whether the goods are GST-free or not will depend upon some conditions. If the goods are exported within 60 days of either of the following, they will be considered GST-free:
- The supplier has issued an invoice for the goods
- The supplier has been paid for the goods
There’s an option of applying to the ATO in case you are seeking for extension of 60 days period. In case you are paying for the goods in instalments, the invoice or the payment has to be for the final instalment.
Supply of services abroad or anything other than goods, such as consulting, professional services etc., are Also GST-free as long as the recipient is outside of Australia.
Imported goods – are they GST-free?
Naturally, your next question would be, “What about imported goods?” Well, for imported goods, GST is applicable unless they fall under exemptions.
If you aren’t registered for GST, you will still be liable to pay GST on goods brought into the country. But, if you are registered for it, you shall be able to claim GST credits on the goods imported that will be used as part of your business activity.
The Department of Home Affairs is responsible for the collection of GST on imported goods. GST on imported products is 10% of the taxable importation value. This value is made up of the following:
- The customs value of the goods
- Amount paid for the transportation of goods to Australia, along with the cost of insuring them
- Customs duty payable
- Wine tax payable
Usually, a person is expected to pay GST before the goods are released. But, if you are a part of the deferred GST scheme, you can extend or defer this.
Paying GST to the ATO
You can pay your GST and claim GST credits (if any) by sending the ATO an annual GST return. Another way people do it is by lodging Business Activity Statements or BASs. The ATO sends a BAS to anybody registered for GST roughly around two weeks prior to the end of your reporting period (usually every three months).
The statement contains information like any payments to be made and the lodging date. But when it comes to the rate at which a person needs to pay, it solely depends upon the turnover.
If your turnover exceeds $20 million, you will have to use the full reporting method in which you report and pay every month. If this turnover is less than this amount, there’s nothing wrong if you wish to complete the BAS monthly using the full reporting method.
You can also choose the BAS reporting method as well if the turnover is less than $10 million. Another option is doing it quarterly.
If you wish, you can make voluntary early payments. As a result, you can offset the future BAS liability.
BAS reporting method
BAS reporting method is the default method for businesses that have a turnover of less than $10 million. In this method, you neither give as much information nor complete a GST calculation worksheet.
Full reporting method
For businesses with high turnovers, the ATO requests the following information:
- Total sales
- Export sales
- Capital purchases
- Non-capital purchases
- Other GST-free sales
- GST on sales
- GST on purchases
Since there are a lot of factors to consider when it comes to GST, it can be difficult for first-timers or even experienced taxpayers to understand. However, a good tax accountant can make the whole process much easier for you.
If you wish to know more about GST and its impact on your business, contact Clear Tax Accountants.
Disclaimer: The information on this website is for general purposes only and should not be relied upon for making legal or other decisions. The advice provided in this article is general in nature and is not subject to the personal financial situation and needs of any individual. Clear Tax tries to keep the information accurate and up-to-date; however, you should bear in mind with changing circumstances, the accuracy and reliability of the information will not necessarily remain the same. The information is by no means a substitute for financial advice.