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When you're running your own business, staying on top of your finances is vital. At a minimum, you'll need to have a basic knowledge of small business accounting . Many small business owners utilise specialist accounting software, like Xero or QuickBooks, to help them manage their accounts.
One of those all-important accounting responsibilities business owners need to know about is GST. But when do you need to register for it and how do you proceed once your business is registered? Read on to discover the answers to these questions and more.
What is GST?
Usually when you mention the words “GST” peoples’ eyes glaze over. But while it’s not the most glamorous topic, it is important for you to understand what it is, how it works, and what it applies to.
GST stands for Goods and Services Tax. In simple terms, it’s a value-added tax of 10% that is added to goods that are either sold or consumed in Australia. There are some exceptions, which we'll explain in more detail below.
Who needs to register for GST?
If your business falls into one of these three categories, it will need to become GST registered:
- Companies registered in Australia with an annual turnover of $75,000 or more.
- Not-for-profit organisations with a yearly turnover of $150,000 or more.
- All taxi drivers and ride-sourcing drivers, regardless of the turnover.
- Business that want to claim fuel tax credits, regardless of turnover.
If you're not currently required to register for GST, remember to check back on these criteria regularly.
When should I register for GST?
If you meet any of the above requirements, you must register for GST within 21 days of meeting any of the circumstances.
Failing to register for GST when you meet the above criteria could mean you'll have to pay GST on any sales that you have made since the date you were required to register. Penalties and interest may also be applied.
How can I register for GST?
Before you register for GST, you need to have an Australian Business Number (ABN). This is an 11-digit number given by the Australian Government to identify your business.
Once you have your ABN, there are three ways to register your business for GST:
- You can do it online via the ATO Business Portal.
- By phone, calling 13 28 66.
- Through a registered tax agent or BAS agent (Business Activity Statement Agent).
What do I need to do once I've registered for GST?
Now that you're registered for GST, there are several additional steps you need to follow:
- Remember to include GST in your prices for all goods and services you sell for over $82.50.
- You will need to issue tax invoices to your buyers. These should include information such as your ABN and the total amount to pay, including GST.
- Make sure you keep all your tax invoices.
- Lodge a Business Activity Statement (BAS) to report your sales and purchases. Then, at the end of the financial year, you will need to either pay GST or receive a GST refund.
How can I claim GST?
If you need to claim GST, you first need to be registered for GST. You can claim GST credit (also called input tax credit) on the GST included in the price you pay for things you use in your business. To claim GST credit you need to provide a tax invoice for the purchase.
You can claim GST back when:
- You have purchased goods or services for your business which are to be used for your business and the purchase does not relate to making input-taxed supplies.
- A customer has left you with bad debt.
You will need to calculate the amount of GST credits you’re due, but this can then be offset against the total amount of GST you owe.
What do I need to know about GST-free sales?
It’s important to know that some sales are GST-free, so if you're selling them, you shouldn't include GST in the price. If your transaction can be divided into different parts and one or more of those parts is GST-free, the sale will be partly taxable.
Some of the main GST-free products and services include basic food, health and care, some medical and some education courses. For full details, we recommend that you check the ATO website.
Where can I get more information?
GST doesn’t need to be complicated. Hopefully, this guide has helped to answer some of your questions. But if you’d like more information or have other questions about your tax obligations, get in touch with the ATO.
If you’d like to get more familiar with accounting practices and develop your skills, knowledge and experience, check out OC’s online accounting and finance courses here.