Businesses are required to have a GST registration once their turnover hits the GST threshold. Having GST registration means the business now needs to collect GST on its sales and remit them to the ATO. It also means you get to claim any GST you pay on expenses in your business. So in essence you become the tax collector for the ATO. Wonderful right?
So although GST registration is optional if the turnover is less than the GST threshold, being registered can “legitimise” the business. Many other businesses don’t like to deal with unregistered businesses because it means they are very small and may lack the capability and capacity to service their needs, and/or handle the administration correctly. It may also raise doubts about how much experience you’ve got and how long you’re going to last given the fairly high failure rates of small business in Australia.
But if your business sells to consumers rather than other businesses, and your turnover doesn’t require registration you may choose not to register because consumers can’t claim any GST, so they are looking at the total cash price of your services. Not having to charge GST means you can keep more margin in your business, or be able to keep your prices lower to attract more volume of sales.
GST registration is required when;
- When your GST turnover hits $75,000 or more
- If you’re setting up a new business and your forecast annual turnover is likely to exceed $75,000 per year or more
- If you’re a rideshare (Uber, Didi, Ola etc) or Taxi driver you must register upon applying for your ABN – in other words your GST threshold is $0
- If you’re a not for profit your GST registration threshold is $150,000
What is GST?
Hold up let’s go back a step. So now you know when you need to register for GST, I think it’s important that we clarify what GST is because many businesses treat it as their own money and get quite cranky when they have to pay it to the ATO.
GST is a value-added-tax that replaced sales tax. It’s been part of our taxation system since the year 2000. Value added taxes are widely acknowledged as a fairer way to levy tax, because those who earn the most, usually spend the most. It also allows the government to keep income taxes lower but still collect sufficient tax revenue. By keeping income tax lower, people have more cash to spend in the economy which creates employment, which creates more taxation and around it goes. It’s important here to note, that GST is only paid by consumers – not businesses (because businesses claim back any GST they have paid on their BAS).
Therefore the simple fact is GST is not your money. You’ve added 10% to your sales price to collect the GST. So even though the cash goes into your bank account, it actually isn’t and never has been yours. You’ve just been using it for working capital purposes – in effect an interest free, short term loan from the tax office.
So get into the mindset that it isn’t yours, and you’ll find it a much easier process to part with the cash when it’s time to do so. My recommendation here is an active treasury function. Set up a separate bank account and move cash into it each day/week to cover the GST you’ve collected, and PAYG Instalments. That way when BAS time comes around you’ve got the cash to pay the piper
All the best managed businesses also use this strategy for PAYG Withholding and Superannuation. Getting this wrong is one of the common mistakes that draw heat from the ATO.
So each payrun transfer the PAYG Withholding you’ve withheld from your employee’s wages, and the superannuation you owe them into a separate bank account. Then come BAS and super time you’re all square.
If you then need additional working capital look for some business finance, that’s not the bank of Australia and/or your employees.
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Registering for GST is done electronically these days, it’s a simple process for your BAS agent or tax agent. They can log onto the ATO Portal and add it in seconds. But if you want to do it yourself here’s some options on how;
Use the business registration service
Sign up to the business portal
Call the ATO on 13 28 66
When you’ve registered for GST, you will then need to complete a Business Activity Statement (BAS) to report the sales you’ve made, the GST on those sales, and the GST you’ve paid on your expenses. If you have employees, you’ll also report the wages you’ve paid and the tax withheld on them. You then pay the net of all these to the tax office using this formula;
GST on Sales + PAYG Withholding + PAYG Instalment – GST Paid = Payable/(Refund) Amount
This will depend on how you register for GST and your actual turnover. For most businesses the BAS are due at the end of each quarter and paid a few weeks later.
Note: Paper lodgements and payment dates are due earlier than electronic lodgements.
Some businesses choose (and large businesses are required) to do them monthly and some very small ones with fixed GST amounts choose annually (this is fraught with danger in my opinion for two reasons;
1. Most people can’t manage the cash flow and the temptation to use the cash means they don’t have the GST at the end of the year when its due
2. If you’re expecting a refund of GST at any point (like buying new equipment) you’d have to wait until the end of the tax year to get that GST back. Sucky.
GST registration process itself is easy, but the implications mean you are taking your business to a whole new level of responsibility and compliance obligations.
Make sure you’re on top of how this is going to affect your pricing, cash flow and administration workload. Are you going to do the BAS yourself or use an accountant? How will you save for the GST etc. These decisions will make a big impact on the success of your business.
The businesses who manage this well and keep up to date and squeeky clean are the ones with the best chance of success. The business failure statistics are littered with the bones of businesses who got buried by GST, PAYG Withholding and Superannuation they didn’t budget for or administer properly.