Should You Register For GST?
GST Explained to Help You Make the Best Choice for Your Small Business
I’ve been inundated with calls from new business owners wanting to know if they should register for Goods & Services Tax (GST), in recent weeks. While it’s fairly obvious that any new business has to apply for an Australian Business Number (ABN), the information surrounding GST for small business can be a little confusing.
In this blog, we will discuss the benefits and drawbacks of signing up for GST, the legalities surrounding it, and what to consider so you can make the best decision for you and your small business.
What is GST, and How Does it Work?
GST stands for Goods & Services Tax and is added to almost every product or service you purchase in Australia.
It’s a 10% addition that applies, whether you buy fuel, furniture, or plumbing services.
When applying for your ABN, you’re required to nominate whether you want to register for GST or not register for GST.
For businesses earning or expecting to earn $75,000 in twelve months period, or $150,000 for Not for Profits, registering for GST is mandatory, but this isn’t the case if you’re making under that threshold amount.
If you have registered your business for GST, you must charge and collect GST on your sales and can claim GST on your purchases. You’ll have to keep a record of these transactions to track how much GST you collect and pay.
If you collect more GST than you pay, you’re required to pay the difference to the Australian Tax Office (ATO); however, if you’ve paid more GST than you’ve collected, the ATO will refund the difference to you.
This is reported through the Business Activity Statement (BAS) that you will need to submit to ATO either monthly, quarterly, or annually.
When Does GST Apply?
GST applies to most everyday business transactions such as purchases of equipment, accounting and bookkeeping services, stationery, certain insurances, staff amenities such as toilet paper, cleaning products, IT services, telephone and internet, etc.
Certain items are GST Free, which means that you don’t pay GST on them. GST Free applies to staff amenity purchases such as tea, coffee, milk and sugar, fresh food, some processed food, some insurances and phone services, most overseas purchases (a specific method of calculation may be applied to some of these purchases), educational courses, export sales, and medical supplies, among other things.
Transactions that don’t attract GST and do not have to be reported to ATO include transactions within a business, drawings, depreciation, transfers between accounts, some government fees, and charges like stamp duty.
It’s important to remember that accounting software will auto calculate the GST on all transactions; therefore, you will need to ensure that you have set up the tax codes correctly so that GST and GST Free items are separated on the individual transactions.
Reporting Methods: Cash vs Accrual Reporting
If you choose to register for GST, you need to determine whether or not to report on a cash or an accrual basis.
If your business has a turnover of less than $10 million per financial year, you can choose to report on a cash basis.
This means that you pay GST within the period you receive payments from customers and only claim back the GST when you make the payments to suppliers.
However, if your business has a turnover of more than $10 million per financial year, you don’t have a choice and will need to report on a non-cash (aka accrual) basis.
Accrual basis reporting means you pay GST in the period that you invoice the customer or receive a bill from the supplier regardless of whether any money has exchanged hands
Reporting Periods
When you register for GST, you must choose the regularity of your reports to the ATO. If your business’ turnover is over $10 million per financial year, you will have to report monthly.
If your annual turnover is under $10 million a year, you have the choice of reporting on a monthly or quarterly basis.
However, if your annual turnover is under $75, 000, you’re able to opt to report on an annual basis.
Most businesses choose to report quarterly. If a business’ GST liability is large, it is advisable that the business reports on a monthly basis, to ensure cash flow can handle it.
Reporting is done through the Business Activity Statement (BAS) as per dates set by ATO.
BAS
Completing the BAS is a reasonably straightforward process, assuming you have coded every transaction with the correct tax code (GST, GST free, Not Reportable, as mentioned above). Accounting software will auto calculate the GST total for you to report on the BAS.
Simpler method
Simpler BAS will make it easier for businesses to do their bookkeeping to classify and code GST transactions. This method is used by most small to medium size businesses with a turnover of under $10 million. All that needs to be reported are:
- Total sales
- GST on sales
- GST on purchases
Instalment Method
If you choose this method, you report the BAS annually but can pay by instalments that the ATO calculates. Items to report on are:
- G1 – Total sales
- 1A – GST on sales
- 1B – GST on purchases
- 1H – GST instalment amounts reported in your quarterly instalment notices for the period shown on the annual GST return.
Detailed Method
This method is compulsory for businesses with a turnover of over $10 million. You will need to report monthly for the following items:
- G1 – Total sales
- G2 – Export sales
- G3 – Other GST-free sales
- G10 – Capital purchases
- G11 – Non-capital purchases
- 1A – GST on sales
- 1B – GST on purchases
PAYG
If your business employs staff, you will need to report the total gross wages and PAYG to the ATO. You’re also able to report this on the BAS or, if the BAS is reported quarterly, the business can choose to report PAYG monthly through the Instalment Activity Statement (IAS).
At Sudoku Bookkeeping, we endeavour to keep supporting you to ensure that your financials are a breeze, no matter the size of your business If you’d like more information, feel free to email us on: .