All you need to know about GST registration and calculation
Most Australians will immediately recognise the Goods and Services Tax (GST) as the 10 percent tax slapped onto most goods and services provided in Australia.
Many don't give it much more thought, however - how does GST affect you personally, particularly as a small business owner?
Your business and GST
With GST being applied to so many goods, most Australian small businesses will likely have some GST obligations. This will be reflected in the sales price of your products or services sold to both consumers and businesses.
Even though your business may pay GST on items, or add GST onto your own goods and services, you may qualify for GST credits for some transactions.
GST credits are a way to claim back some of the GST that you’ve paid and redirect that money back into your own business - more on this later, though.
What items are GST-free?
Not everything available for sale in Australia has GST attached to it. Many important goods and services are exempt from GST. These include basic foodstuffs, some education courses and certain medical, health and care products.
Things that are GST-free include specific:
- Foods (these food basics include bread, cooking ingredients and oils, milk, cheese, eggs, meats, tea and coffee, fruit and vegetables, fish, soup and baby food and infant formula)
- Education courses, course materials and related excursions or field trips
- Medical, health and care services
- Menstrual products
- Medicines, medical aids and appliances
- Childcare services
- Religious services and charitable activities
- cars for disabled people to use, as long as certain requirements are met
- international transport and related matters
- precious metals
If the scope of your business lies outside of these specific goods and services and you haven't already, you'll likely need to register for GST.
Registering for GST
If you're a business with GST obligations (which accounts for most businesses in Australia), you'll need to register for GST. You must register your business for GST with the Australian Taxation Office (ATO) if the following criteria apply to you:
- Your annual business income is, or is expected to be, $75,000 or more a year. This number increases to $150,000 or more for non-profit organisations
- You provide taxi travel as part of your business, (you charge passengers for transport via taxi or limousine)
- You want to claim fuel tax credits
There are three ways you can register for GST:
- Visit the Australian Taxation Office (ATO)'s Business Portal
- Call the ATO on 13 28 66
- Through your registered tax or BAS agent.
Claiming GST credits
GST is a tax paid by individuals, not businesses, so you're able to claim back the GST that is factored into business-related items you purchase.
Credits can be claimed if the GST is included in the price of business-related items and if the following conditions apply:
- The purchase in intended (solely or partly) to be used in the running of your business
- The purchase does not relate to making input-taxed supplies
- GST was already included in the purchase price of the good or service
- It was you who paid, or will be liable to pay, for the goods/services purchased
- You have a tax invoice from your supplier (for purchases more than $82.50).
If you're regularly claiming GST credits for purchases costing over $82.50 (GST included), it's good to get into the habit of asking suppliers for an invoice every time you make a business purchase.
Items costing less than $82.50 (including GST) will usually just require a standard receipt. If you're GST registered just make sure to keep your dockets, receipts and invoices to validate your GST claims.
Although it might be tempting to get rid of the tax invoices and business receipts you accumulate, it's a good idea to keep them for at least five years. Having them on hand will make life a lot easier for you come reporting time, and in case of auditing.
Issuing tax invoices
Tax invoicing goes both ways. If you're receiving tax invoices, there's a good chance you'll also be sending them to your own customers.
When you make a taxable sale of more than $82.50 (including GST), your GST-registered customers will need a tax invoice from you to be able to claim GST credits for their own businesses.
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Understanding GST reporting obligations
GST is reported to the ATO over four tax periods: the July-September quarter, October-December quarter, January-March quarter, and April-June quarter.
GST reporting is contained in a Business Activity Statement (BAS) in each quarter. In this tax form, business owners declare the GST collected on sales income. In the BAS, there are three options you can choose from on how to report your GST information.
You can elect from the following:
- Calculating GST and reporting quarterly.
- Calculating GST quarterly and reporting annually.
- Paying a GST installment amount (available to businesses with a turnover of $2 million or less).
These are touched on in more detail below.
Calculate GST and report quarterly
Available to all quarterly businesses, with this option report on all the GST labels on your activity statement and pay your actual GST amount.
Calculate GST quarterly and report annually
Available to businesses with a turnover less than $20 million, this option allows for the calculation and payment of actual GST amounts but you need only reportthe GST collected and paid, in addition to total sales for each quarter.
Then, report amounts for exports, other GST-free sales, capital purchases and non-capital purchases on an annual GST information report. You can also lodge at the same time as your annual income tax return.
Pay a GST installment amount
This option allows businesses to pay a quarterly GST installment amount determined by the tax office. Businesses are also able to report actual GST information annually.
To be eligible you need to have reported actual GST amounts for at least four months (or two quarterly activity statements), and you must not be in a net refund position.
The option you choose also depends on your current accounting situation - the only way you can accurately complete GST reporting requirements is to have all your business transactions up-to-date and reconciled.
Small business tips for managing GST
As a GST-registered business, issuing tax invoices, collecting GST from customers and sending information to the ATO alongside your BAS can be a bit of a handful.
Here are three easy tips to make this process a little simpler:
- Regularly put the GST you collect in a separate bank account, so you’re not caught out at reporting time
- Use business accounting software to produce tax invoices and automatically generate reports of your GST liabilities and credits at BAS time
- Take advantage of the ‘cash accounting’ option to better align your GST liabilities with your business cash flow
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