Goods and services tax (GST) can be an issue for many small businesses. As a business owner, you must know whether your business is eligible to get registered for GST.
If you want to learn more about GST and its applicability for small businesses, you have come to the right place. This article will give you a brief overview of the facts you must know as a small business owner regarding the goods and services tax.
What is GST
The goods and services tax is a general tax imposed by the Australian government on most of the goods and services provided in the country.
Currently, the GST rate is at 10% in 2022. Businesses will add this tax to the selling price of a good or service when selling it to a customer. Businesses can collect the GST charges from the customer, and the collected amount should be paid to the Australian Taxation Office (ATO).
What are the items exempt from GST?
All goods and services are not subjected to a GST. Some items are excluded from the tax.
Most basic food, some educational courses, some medicines, etc., are excluded from GST. Check out the detailed GST exempted goods and services list for more details.
Although you don’t charge GST for GST-free sales, you can still claim GST on the price of purchases that you used when making such sales.
Who should register for GST
Various thresholds are considered when deciding whether a business should be registered for GST in Australia. This mainly depends on the type and structure of the business.
Check out these thresholds to check whether your business must be registered for GST.
- When your existing business has a GST turnover (gross income from all sales minus GST) of $75,000 per year or more.
- When your non-profit organization has a GST turnover of $150,000 per year or more.
- If your new business is expected to surpass the above threshold within the first year of operations.
- When you provide taxi or limousine travel for passengers (including ride-sourcing), regardless of your GST turnover – this applies to both owner drivers and if you lease or rent a taxi.
- If you want to claim fuel tax credits for your business or enterprise.
Should you register before reaching the threshold
You should register for GST when the business exceeds the above thresholds. However, there is no rule saying you cannot register before exceeding the criteria.
There are few benefits of getting registered before meeting the thresholds.
- It gives a positive image of the business. When your business is registered for GST, it automatically plants an idea in the consumer’s mind that your business is well trusted by the customers and exceeds a turnover of $75,000.
- Can claim the GST credits. You can claim the GST on business purchases and expenses if your business is registered. This can reduce a significant cost at the year-end.
How can you register for GST?
Your business must have an Australian Business Number (ABN) before registering for GST. You will get an ABN when you register your business name.
You can register your business for GST by using the following options.
- By phone on 13 28 66.
- Through your registered tax agent.
What if you don’t register for GST
If your business is not registered for GST yet, you will get a grace period of 21 days to register for GST. This 21 days countdown will begin from the day you exceed the above thresholds.
If you do not register and pay the GST once you have exceeded the thresholds, you can face several issues.
You will have to pay the GST on sales from the date you were required to register. This could happen even if you don’t charge GST from the customers.
There might even be some penalties and interest payments involved if you neglect the GST.
Check out the detailed list of penalties you will be charged for neglecting the taxes.
How do you pay GST to ATO?
You must submit a Business Activity Statement (BAS) or an annual GST return when you report and pay GST to ATO and when claiming the GST credits.
You can follow various payment cycles when paying the due GST to ATO. These cycles are:
- Monthly – If your GST turnover is $20 million or more.
- Quarterly – If your GST turnover is less than $20 million (unless specified by ATO).
- Annually – If you are voluntarily registered for GST. That is, you are registered for GST, and your GST turnover is under $75,000 ($150,000 for not-for-profit bodies).
You can use the following payment options to pay the ATO after calculating the due GST amount.
- The fastest and easiest ways to pay the ATO is through BPAY or a credit or debit card.
- There are also other payment options such as electronic transfers, direct debits, pay in person at Australia Post, mail, etc.
What if you can’t pay the GST
If you can’t pay the GST on time, ATO recommends contacting them before the due date.
ATO also states that you must submit the BAS even if you can’t pay the tax on time. Otherwise, you can face penalties.
It is wise to contact the ATO before the due date and get into a payment plan since they are flexible with such plans.
Should you hire a tax agent
No, you don’t have to hire a tax agent to handle your taxes. You can do it yourself or even hire a permanent employee.
But preparing the books, BAS, and calculating the taxes can be stressful. As a small business owner, it can be costly to maintain a separate team for accounts and taxes. On the other hand hiring a professional third party would be less costly.
If you are looking for a professional who provides value for your money, then we can help you. We are professional bookkeepers and tax agents who have helped hundreds of small businesses. Don’t hesitate to contact us at (03)-99049261 for further information.