Finance is a critical part of a business, and it is one of the most complex functions. Apart from all the trouble a business owner has to go through in its accounting and bookkeeping process, they must also be compliant with all authorities and report & pay all their taxes on time. One such tax is GST- Goods and Services Tax. Your accountant and bookkeepers must be aware of GST and its implication on the accounting process.
What is GST?
GST (Goods and Services Tax) is a value-added tax on most goods, services, and other items sold or consumed. The tax rate is 10% for goods and services with few exemptions (Check out ATO site to know about GST-free sales) on certain food, healthcare, and housing items. If you are a GST registered business, you have to collect GST over and above the product and service price from your customers. The GST is then paid to the Australian Taxation Office (ATO) when it is due. The government uses it to distributes to the states and territories to pay for public services and infrastructure.
Example: John sells a product price of which is A$ 100. Here the total amount will be A$ 110 (100 + 10% of 100). Now, if John was selling the product inclusive of GST in that case, the price of the product is A$ 90.91 (100 – 11% of 100)
Who Needs To Register For GST?
You need to register your business for GST if –
- Your business has A$75,000 or more GST turnover
- Your business is a non-profit organisation with A$150,000 or more GST turnover
- You expect your new business to cross the threshold of A$75,000 GST turnover in the first year of operation
- You operate a business which provides taxi or limousine travel. This is applicable regardless of your GST turnover and whether you own or rent and lease the vehicles
You must register for GST within 21 days of meeting any of the above circumstances, and once you are registered, you must stay registered for at least 12 months. You can also voluntarily register for GST, and you can do so if you want to claim fuel tax credits for your business.
We already stated that a business that crosses the GST turnover threshold of A$75,000 must register for GST. So, it is crucial to understand what is precisely a GST turnover. GST turnover is your total income minus the following –
- GST included in sales to your customers
- Sales that aren’t for payment and aren’t taxable
- Sales not connected with an enterprise you run
- Input-taxed sales you make
- Sales not connected with Australia
Don’t confuse income with profit. Additionally, make sure not to include the amount you receive for the sale of any business asset and any sale you make or are likely to make to close your business operation or permanently reduce your business’s size or scale.
How to Register For GST?
First and foremost, you need to have an Australian Business Number (ABN). You can also register for GST at the same time you register for an ABN. You can register for GST through ATO’s Business Portal, by phone, or with the help of a registered tax agent or BAS agent. This is a standard GST registration.
Once you have completed your registration, you must include GST in all your sale prices. You must issue a tax invoice for all purchases over $82.50. Tax invoices are not your regular invoices. They include the GST amount for each item along with its price. This tax invoice is useful for your customer as it will help them claim their full GST credits if they are eligible for it. Additionally, these tax invoices are important to you as you require them when lodging BAS (Business Activity Statement).
What Happens If You Don’t Register For GST And Are Required To?
In such a case, you may have to pay GST on sales made since the date you were required to register, even if you have not included GST in the price of those sales. Moreover, you may also have to pay penalties and interest.
How does GST work?
A GST registered business includes GST in the price of the goods and services it provides. Also, they claim credits for the GST amounts, which are included in the price of goods and services they buy for their business, i.e., the raw materials and expenses incurred in producing final goods and services.
How Does Input Tax Credit Work?
As a GST registered business, you can claim back the GST amount included in the price of things you’ve bought for your business used in the production of the final goods and services, which is called GST credits. If for any tax period, your GST credits are higher than the amount of GST your business has to pay the ATO, you could get a refund.
GST Accounting Method
There are two accounting methods for GST purposes – cash or non-cash (accrual) basis. Businesses with an aggregated turnover of less than A$ 10 million, GST turnover of less than A$ 2 Million or who use cash accounting for income tax can use either method. However, a business with a GST turnover of more than A$2 Million must account for GST on a non-cash basis. In the case of a non-cash (accrual) basis, GST is payable on sales when you receive the invoice and not when you have received the payment. This could lead to a cash deficit for a particular time, but the good part is that you can claim unpaid expenses for which you have a tax invoice.
Reporting and Paying GST
You can either lodge a BAS or an annual GST return to report or pay your GST amount and claim GST credits. This article “Business Activity Statements (BAS) for Small Businesses Explained” will give you a better idea about BAS, payment cycles, and other important details.
GST Concessions for Small Businesses
Small businesses are eligible for few GST and excise concessions provided their aggregated turnover is
- $10 million from 1 July 2016
- $2 million until 30 June 2016
GST and Excise Concessions are:
1. Accounting for GST on a cash basis
When following cash basis accounting for your business, you can account for GST and claim GST credits within the tax period, which is when you are paid or pay a supplier and not when the invoices are sent or received.
2. Paying GST by instalments
Based on the estimated GST liability, you can pay GST by instalments each quarter. This will help reduce your burden for paying a huge amount in one go.
3. Annual apportionment of GST input tax credits
For purchases that are partly to be used for private purposes, you can claim a full GST credit on your activity statements and make a single adjustment to account for the private use percentage after the end of your income year.
4. Excise concession
You can apply to defer settlement of your excise duty and excise equivalent customs duty from a weekly to a monthly reporting cycle.
We hope this article was useful for you to understand everything about GST, and you are more prepared for your GST reporting and filing time. You can always take the help of accounting and bookkeeping experts or with the help of an outsourced accounting services partner who can help you report and lodge your GST, BAS, and income return accurately on time.