What is GST and do I need to register for GST?
Goods and services tax, often known as GST, is collected by registered businesses. GST is a tax on most goods and services sold or consumed in Australia.
If your business is registered for GST, you will have to collect some extra money (one-tenth of the sale price) from your customers and pay it to the Australian Taxation Office (ATO) when it is due.
The Goods and Services Tax (GST) is a broad-based tax of 10 per cent on the sale of most goods and services in Australia.
GST applies to most businesses across Australia and it's highly likely that your business will be affected by the tax.
Do I need to register for GST?
You must register for GST if:
- your business has a GST turnover of $75,000 or more
- your non-profit organisation has a turnover of $150,000 per year or more
- you provide taxi travel for passengers in exchange for a fare as part of your business, regardless of your GST turnover. This rule applies to both taxi owner drivers and people who just rent a taxi.
As a business owner, it's your responsibility to register for GST if your turnover exceeds the $75,000 threshold or is likely to exceed it.
The ATO advises that if you've just started a new business and expect it to earn $75,000 or more in its first year of operation, you should register for GST.
GST turnover is your business's gross income, not your business' profit.
For example, if you run an online clothing store and you sell $80,000 worth of clothes, you'd have to register for GST because your GST turnover is over the $75,000 threshold. This rule still applies, even if you only get to keep $40,000, as GST turnover is different from profit.
If your business doesn't fit into one of the above categories, you don't have to register for GST.
When do I need to register?
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.
It's a good idea to check each month to ensure you're not likely to go over the limit. Keeping an eye on your GST turnover is important so you can register if necessary.
If your GST turnover is below the $75,000, registering for GST is optional.
You may choose to register if your GST turnover is below the $75,000 threshold, however this means that once registered, regardless of your turnover, you must include GST in your fees and claim GST credits for your business purchases.
How do I register for GST?
You need an Australian Business Number (ABN) to register for GST, as the ABN is part of the GST system. Your ABN will also be your GST registration number.
Once you have registered for GST, you become entitled to claim input tax credits for the GST paid on items you've bought for business use. If you're not registered, you can't claim input tax credits.
What are GST credits?
GST credits are a potential amount of money your business might be able to claim from the ATO.
If you are registered for GST, you can claim back the GST that has been included in the purchase price of something you've bought for your business.
For example, Laura runs an accountancy firm and has just bought a new computer for the office. The computer cost Laura $1,100, including GST. Because GST is one-eleventh of the sale price, Laura would have paid $100 in GST.
Laura is registered for GST because her business's GST turnover is more than $75,000. She is able to claim GST credits for the GST included in the sale price of her computer ($100).
If at the end of the year her GST credits are higher than the amount of GST she has to pay the ATO, she will be able to get a refund.
What happens if I don't register for GST?
If your GST turnover is under $75,000 and you don't register for GST, you won't include GST in your fees. You also can't claim GST credits for your business purchases.
Small business GST concessions
If your business has an annual turnover of less that $2 million, you may be able to access the following GST concessions.
Accounting for GST on a cash basis
You can account for GST in the same tax period you receive payments from your customers and claim input tax credits for making payments to your suppliers.
Paying GST by instalments
You can pay GST by instalments each quarter based on what you or the Australian Tax Office (ATO) estimates your GST liability to be. You can vary this amount each quarter.
Annual apportionment of GST input tax credits
You can claim a full input tax credit for a business purchase that you intend to use partly for private purposes and make a single adjustment to account for the private use percentage at the end of your income year.