A Beginners Guide To GST
Confused by GST and how it applies to you?
Let’s clear things up!
When does my business need to register for GST?
The ATO (Australian Taxation Office) stipulates that when your business turnover meets or exceeds $75,000 in a 12-month period, you must register for GST within 21 days.
Turnover = sales (income) less expenses or debt (fees, memberships, rent, investments, office expenses, etc).
If you establish an entity with the intention of turning over more the $75,000 in the first 12 months, I would highly recommend registering for GST upon commencement of business operations, as this will avoid confusion with clients during the GST Free > GST transition phase. As an extra advantage, you are able to claim GST on purchases, expenses and cost of goods sold.
Exceptions to GST rules
Taxi drivers and ride-sharing services must register and charge for GST regardless of their turnover. Not-for-profit organisations are exempt from registering for GST until they reach $150,000 in turnover.
How to register for GST
You can register for GST online via the Australian Business Register (ABR) website (www.abr.gov.au), or you can have your Bas Agent or Tax Agent register on your behalf via the ATO Business Portal.
How does GST work?
GST is currently 10%. This means if you charge $100 for your goods or services, you will add an additional 10% on top, and therefore your customer will be charged $110. The additional $10, will be collected and paid to the ATO. I highly recommend setting up a separate business liability bank account to transfer this GST amount to.
When you buy goods or supplies for your business you will be charged 10% in GST, which you can claim back as a credit.
At the end of each GST quarter, you will account for the GST collected and the GST paid, and the balance of GST will be paid to the ATO. You need to be mindful that not all services will be GST registered and any services or goods purchased outside of Australia will not attract GST. This is where having source documents is important as it helps to determine whether someone is GST registered.
How do I start charging for GST?
Once you are registered for GST, your clients will need to pay you an extra 10% more than they previously would have. The easiest way is to just add 10% on top of each service or product you offer/sell.
GST Reporting
GST is reported via a BAS (Business Activity Statement). You need to report all GST charged on sales and purchases as well as any PAYG (pay as you go tax), if registered for PAYG.
Businesses with a turnover greater than $20 million are required to complete a BAS monthly, otherwise, BAS are generally due quarterly.
Accounting for GST
When you make a taxable sale of more than $82.50 including GST, your GST registered clients must be provided with a tax invoice for them to claim the GST credit.
Tax invoices must display the following information:
The words “tax invoice”
Your ABN
Date of the tax invoice
A description of the items/service sold, the quantity and the price
The GST amount or the total amount that includes GST
There are two ways to account for GST: cash or accruals.
Business with a turnover of less than $10m can choose which method they prefer.
Business with a turnover greater than $10m, must use the accruals method.
If you choose the cash method, you must account for sales and purchase in the period in which they occur. Most business choose to report on the cash method. The advantage? Reporting is better aligned with cashflow.
If you chose the accruals method, you must account for sales and purchases in the period in which you invoice sales or receive an invoice for purchases.
How do I check my GST registration?
The ABR website is a great resource, https://abr.business.gov.au/
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Xero Quarterly Health Check + Bas Lodgement: $363 inc GST per quarter.
Let our team at The Kartel Solution (all registered BAS Agents with the ATO) review your Xero file and provide you with a health check every 3 months. This handy service is like regular doctor visits for your business, and will help to identify any issues before they become a problem!
We’ll ensure that your file is accurate, your bank accounts balance, your bank rules are in check, and your payroll is correct, plus advise on improvements and prepare/lodge your business activity statement on time, every time.