We’ve all heard of GST, but as a new business owner it can be difficult to understand your different tax obligations. For instance, what happens when you reach the $75,000 income threshold?
First of all, let’s take a look at how GST works.
What is GST?
GST is a 10% tax added to most goods and services sold in Australia. Businesses are only required to add GST onto their applicable goods and services when they hit an annual turnover of $75,000.
When you register for GST, you’ll need to add 10% onto the price of most items or services you sell; this amount is owed to the ATO. However, it also means you can then receive back the GST your business spent on goods and services; this is owed to you from the ATO. This process is performed through a Business Activity Statement or BAS – we’ll get to this in a moment.
How do I calculate the $75,000 threshold?
Calculating your GST turnover is a relatively simple process. Your GST turnover is your gross business income excluding:
- GST included in sales
- Sales that are not for payment
- Input-taxed sales, and
- Any sales made outside of Australia
If it looks like you will hit or pass the $75,000 threshold in the year ahead, you’ll need to register for GST.
What happens after I register for GST?
After registering for GST, there will be a number of obligations to meet.
Firstly, you will now be required to complete Business Activity Statements regularly (monthly, quarterly or annually, depending on your requirements).
A Business Activity Statement is the process through which you report the amount of GST you collected from the sales of your goods and services, and the amount you paid on expenses. The difference between the two amounts is the amount you will either pay to, or receive from, the ATO.
To do this, you will need to:
- Ensure that your record keeping system accounts for GST amounts on all sales and purchases for your business. This will make your reporting obligations easier when the time comes to complete your Business Activity Statement.
- Collect the extra 10% GST on most goods and services you sell on behalf of the ATO. Remember, however, that there are certain items that are GST free. If you’re unsure which items are GST, the accounting team at Greenhalgh Pickard can help.
- Claim back the GST you’ve paid on your expenses (it’s not 10% on everything! As mentioned, some things are part GST or GST-free).
What if I don’t register for GST?
Businesses who do not register for GST when they are obligated to may find themselves in trouble with the ATO, and if caught, you could face heavy penalties.
In Summary
It’s important to make sure that you stay on top of your tax obligations. If you’re unsure or require guidance, come and have a chat with the professional and friendly accounts team at Greenhalgh Pickard. We can help you register for GST and fulfill your BAS obligations.