There is a lot to consider when running a business, and sometimes the to-do list only seems to be getting longer.
When most people start a business, they probably aren’t dreaming about learning how to calculate their annual Good and Services Tax (GST) turnover or figuring out how to lodge their Business activity statements (BAS) with the Australian Taxation Office (ATO). But it’s a must.
Let’s help explain what you’ll need to know about the Goods and Services Tax (GST) in Australia, how it works, how to register, and what to do next.
How Does GST Work in Australia?
GST is a broad-based tax of 10% that applies to most goods, services, and other items sold in Australia. A simplified explanation of how GST works is:
- Businesses and organisations register for GST (either due to requirement or voluntarily).
- They then add GST to the prices charged for their goods and services.
- This revenue is paid to the ATO and distributed to states and territories to pay for public services and infrastructure.
- However, in return, registered businesses and organisations can claim the GST for the goods and services they purchased for their business.
While GST is an added complication for businesses, only the end consumer pays it. GST is not intended to be an additional tax and can be claimed back for B2B (business to business) transactions.
GST Australia Exempt Items
While GST applies to most sales in Australia, there are notable exceptions. These include:
- Most basic foods
- Some medical services
- Some medicines
- Some education courses
- Exports (goods must leave Australia within 60 days of payment or invoice)
These products or services are referred to as GST-free sales. The ATO’s website provides further details regarding what counts and doesn’t count as GST-free.
Another type of service that doesn’t require GST in its price is input-taxed sales. These include financial supplies and selling or renting residential property.
It’s crucial to remember that registered businesses can still claim the GST they have paid on purchases used to make GST-free sales.
Who Needs to Register for GST?
Businesses or organisations must register for GST if:
- You’re a business with an annual current or projected GST turnover greater than $75,000
- You’re a non-profit organisation with an annual current or projected GST turnover greater than $150,000
- You’re a taxi, limousine, or ride-sharing (e.g. Uber, GoCatch, etc.) business (GST registration is compulsory irrespective of turnover)
- You want to claim fuel tax credits (irrespective of GST turnover)
Calculating Your GST Turnover Threshold
We’ve mentioned GST turnover multiple times. It’s important to differentiate it from total turnover. Annual GST turnover is the entire business income for the year after subtracting:
- GST included in sales to customers
- Sales not for payment and not taxable
- Sales not connected with your business
- Input-taxed sales
- Sales not connected with Australia, such as exports
Imagine a business reaches an annual turnover of $100,000. After subtracting the factors detailed above, their annual GST turnover is only $70,000. Therefore, they’re below the GST turnover threshold and are not required to register.
Another critical factor to consider is the difference between current and projected GST turnover:
- Current GST Turnover – income for the current month and the previous 11 months.
- Projected GST Turnover – income for the current month and the next 11 months (shouldn’t include sales of business assets or sales made due to ceasing or reducing operations).
If your organisation’s current GST turnover is above the threshold or, based on projections, it looks like it’ll be over the threshold in the next 12 months, you must register for GST.
Learn more about calculating GST turnover here.
Voluntary Application for GST
Any business can apply for GST even if they’re below the GST turnover threshold. For example, if you’ll be making significant purchases for your business, it may be financially beneficial to register for GST. This allows you to claim back the GST paid on purchases for the business.
What You Will Need to Apply for GST
To apply for GST, you’ll need an Australian Business Number (ABN) or when registering as a company, you will first need an Australian Company Number (ACN) before applying for an ABN. A new business can register for an ABN through the Business Registration Service.
You will also need to choose your method of accounting for GST. This can be on a cash or non-cash (accrual) basis, with most larger businesses requiring non-cash accounting. The way you choose will affect when you report, pay, and claim back GST refunds on purchases.
Cash accounting means GST is tracked on business activity statements (BAS) covering the period the company receives or makes payments. It’s ideal for smaller businesses with cash transactions and means cash flow aligns with GST payment.
Non-cash or accrual accounting means reporting GST on BAS covering the period in which the business received or invoiced the payment/sale. This method is often better suited to companies delivering services on credit, allowing them to reflect their true financial position better.
How To Register for GST
You must register for GST within 21 days of exceeding the GST turnover threshold. Failure to register within this period may result in additional penalties or interest. However, it’s possible to backdate your GST registration.
There are four options to apply for GST in Australia:
- Over the phone on 13 28 66
- Through a registered tax or BAS agent
- Or by completing the NAT 2954 “Add a new business account” form found online.
Registering for GST Online
The simplest method is to register for GST online. First, you’ll need to input your ABN, business structure, and contact details. Next, you must enter your GST details, which includes:
- Estimated turnover (not GST turnover)
- When you choose to send GST results to the ATO: upon receiving cash or invoice (cash vs accrual)
- How often you want to report to the ATO: monthly, quarterly, or annually (must have a turnover of less than $75,000 to report annually)
- Start date for GST registration
- Whether you import goods or services into Australia
What You Need to Do After GST Registration
Once registered for GST, you will need to do the following:
- Add GST (10%) to the prices for all applicable goods and services offered
- Issue tax invoices to customers, informing them of how much GST they paid
- Maintain records of receipts and invoices to claim back GST
- Lodge BAS with the ATO (depending on the timeframe specified during registration)
You can lodge BAS using one of four methods:
- Online accounting software
- Your myGov account
- The ATO’s online business portal
- Through a registered tax or BAS agent
The statement records the GST charged to your customers, and the GST spent on purchases. If your BAS shows you owe GST for the period covered, you are generally required to make payment the same day (online, mail, or in person at Australia Post). However, the ATO sometimes provides payment plans. If you paid out more GST than you collected, the ATO provides a refund.
Before you go…
GST can seem confusing at first, but there’s not too much to consider once you get your head around it. Just register, then track your GST ins and outs, lodge your BAS with the ATO, and pay or receive the difference.