14th July, 2021
Three ways in which sole traders and small business owners can begin collecting GST effectively and maybe even save money at the same time.
Sole traders and small business owners with a turnover of more than $75,000 often find it tempting to treat Goods and Services Tax (GST) charged as extra money they can spend.
This can cause problems every quarter when they need to report GST collected amounts and hand them over (minus any credits) to the ATO.
You can generally claim GST credits for any good or service related to your business, as long as it’s a legitimate business purchase and the price includes GST.
READ: Managing BAS and GST
For all eligible purchases of $82.50 or more, you’ll need an invoice from the supplier clearly showing the GST amount.
GST credits all add up in a quarter and can help reduce what you owe.
Visit the ATO’s guide to Claiming GST Credits to learn more. The rest of the price (excluding GST) you pay for goods and services as business expenses will then be claimed as income tax deductions on your tax return.
GST is simply tax money collected by your business and held for a short amount of time. So, the best thing to do every time you earn money is put aside the GST you owe, on top of the amounts you need to cover income tax.
Keep things simple by committing to saving all the GST you collect. That way, any credits you can claim each quarter are bonus savings.
And don’t touch that tax money until you need to give it to the ATO.
One of the simplest ways to keep any money you’ll need for tax out of temptation’s way is to store it inside a high-interest saving account until it’s due to go to the ATO.
Compound interest is a beautifully simple way to make money while you sleep, and though the interest earnings count as income, the benefits of extra earnings outweigh the tax hit.
Visit a comparison website such as Canstar, Choice or Finder to help you choose a high interest savings account with the features you need, such as low- or no-fee, and a minimum deposit amount you can manage.
Next, make this saving habit even easier to adopt by automating it:
work out the amounts in your accounting software – or ask your accountant to do it.
Set up automatic transfers of these amounts as money comes in from your day-to-day bank account for your business into your savings-for-tax account.
The next simplest way to put tax money aside is to ask the ATO to automatically deduct your expected tax amounts (GST and income tax) from your nominated bank account.
Just keep in mind that while this PAYG (pay as you go) method will reduce your risk of getting into trouble, it will prevent you earning the interest you might otherwise accrue by holding onto the funds yourself.
You can get an estimate of your PAYG tax installments for each quarter by using the ATO’s PAYG instalment calculator.
Accounting software makes meeting your tax obligations easier and more accurate by speeding up many of the processes for capturing information from invoices, receipts, bills and records of bank transactions.
Most subscriptions to online accounting software also include tools for tracking and preparing GST and BAS and include alerts so you know what you’ll owe well before it’s due.
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This information is general in nature and does not constitute professional advice. For guidance specific to your situation, MYOB suggests engaging a specialist advisor near you ASAP.