Most goods and services sold or consumed in Australia include a goods and services tax (GST) of 10%. GST is also referred to as Value Added Tax or VAT.
Small businesses generally aren’t required to pay GST when they’re just starting up, but as the business grows, they will have to register online to do so.
Here’s everything you need to know about the goods and service tax rules and regulations in Australia. It’s best to understand the process and be prepared so that you can act accordingly and avoid penalties.
What is GST in Australia?
Businesses registered for GST are required to add 10% to their prices. That extra money is then sent to the ATO at the end of each GST period on a quarterly basis.
Your business is also charged 10% GST when you buy supplies for the business. You can claim that back on your tax return.
Every quarter, a GST-registered business is required to complete a business activity statement (BAS). This allows you to input the GST you have collected through sales, minus the credits incurred on the supplies you purchased for your business. The difference is how much you have to pay to the ATO.
If your claims on purchases are more than the debits on sales, they are carried over to the next quarter.
Smaller businesses with an annual turnover of under $75,000 can choose whether they want to register for GST or not. If they are spending a lot on supplies, it could be feasible to claim the GST back — for example, if the GST on purchases is more than the GST charged to customers.
Who Must Register For GST in Australia?
If your business’s turnover is $75,000 or more per year, or if it looks likely that you will reach it soon, you need to register for GST. Once you have exceeded the $75,000 annual turnover threshold, you are required to register within 21 days.
If your business makes less per anum, you can decide whether you want to register for GST or not.
You can easily register for GST online through the Australian Taxation Office (ATO). You’ll first need an Australian Business Number, which can be applied for via the Australian Business Register (ABR) website.
Most Australian charities and not-for-profit organisations are endorsed to access GST charity concessions. To do so, they must reach a turnover of $150,000 and then they are required to register.
Meanwhile, taxi drivers and ride-sharing drivers are required to register for (and charge) GST, regardless of their annual turnover. They must register before they can even begin operating.
How to Report Your GST to the ATO
GST reporting on all your periodic business tax obligations and entitlements is done via the business activity statement. This is for ATO purposes.
As well as reporting the GST charged on your sales and the claims on your business purchases, you need to report your pay-as-you-go PAYG installments and withholding tax.
Your BAS must be lodged quarterly, by the 28th day after the end of the financial quarter (September, December, March, and June).
Once your business grows to generate a turnover of more than $20 million, you will be required to complete a monthly BAS rather than quarterly. Until this time, you can also choose to lodge monthly if there are cash flow benefits to your business.
Note that monthly lodging must be done by 21 days after the end of the month.
How to Account for GST on a Tax Invoice
If you’re registered for GST, when your business makes a taxable sale of more than $82.50 with GST included, you are required to issue the customer with a tax invoice. If they request one and you are unable to provide it immediately, you have 28 days in which to do so.
Tax invoices are important because customers who are registered for GST need them to claim the GST back.
Tax invoices differ from regular invoices; they either display the GST amount for each item or state somewhere that the total price includes GST.
Sales of goods and services, including GST, require invoices to display:
- The business name
- The ABN
- The words ‘tax invoice’
- The date of the invoice
- A description of the items
- The quantity of the items
- The price of the items
If the invoice is for more than $1,000, it also needs to have the buyer’s name, ABN and address.
If your business has less than $2 million in annual turnover, you can use the cash basis to account for GST. With the cash basis, you have to account for sales and purchases when you are paid and when you pay for purchases. Many smaller businesses prefer this method because the GST reporting is better aligned with cash flow.
Businesses that have less than $2 million turnover per anum have to apply the accruals basis. In this case, you must account for sales and purchases that you invoice and receive an invoice for the purchases.
How Income Tax Deductions Work With GST
If you buy something for your business and want to claim an income tax deduction, you have to claim the net amount that doesn’t include the GST. This rule is to prevent people from using the same amount twice to get relief on taxes.
Some goods and services are exempt from GST, including
- Salaries and wages
- Fresh food
- Real estate
Other goods and services are input-taxed. This means that GST isn’t charged on items sold, but the GST that is paid by that part of the business cannot be claimed as an input tax claim. Examples of this are rental income and financial services.
If there isn’t any GST credit for that purchase, you can claim an income tax deduction for the gross amount that includes the GST.
How KNS Can Help With Your Goods and Services Tax (GST)
KNS Accountants can set you up with a registered tax agent from our team to assist you with your requirements and questions.
We can help you from the very beginning by registering your business with the Australian Taxation Office for GST. After you’ve registered, we can guide you through all the work involved, including GST obligations such as:
- Tax invoices
- Income tax deductions
Our professionals can help you remain compliant with the relevant laws, ensure you’re submitting within the reporting period, and help you optimise your credits.
Contact the KNS team today to get started on your GST obligations.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.