One of the most common questions we get at Digit is around the Australian Goods and Services Tax, commonly referred to as GST. The GST is a value added tax of 10% on most goods and services sales. Generally, businesses registered for GST pass on the cost to their customers and claim credits on the GST included in their purchases for business.
Do I Need to Register for GST?
If your business has a turnover of more than $75,000 per year, then you must register for GST. According to the ATO, it is your responsibility to register if your turnover exceeds or is likely to exceed this amount, and you must register within 21 days of reaching $75,000 in revenue. Of course, registration is required if you want to claim fuel tax credits, or if your business provides taxi travel.
There are benefits to registering for GST, so you do have the option to voluntarily register even if you don’t bring in $75,000 or more annually. One upside is that you can claim a deduction for the GST you pay on business expenses. This advantage is offset by the fact that you’ll also have to pay GST on the income earned to the ATO as well. Make sure you fully understand the costs and benefits of registering before you move forward.
If you’re not registered for GST, you are not allowed to charge the tax on your invoices!
What Records Should I Keep for GST?
Save all documents relating to sales and purchases, preferably electronically. GST records must be accurate to prevent errors in calculations throughout the year. You’ll also need to make sure all your invoices are tax invoices when necessary, and you must have a valid tax invoice to claim GST credits for all purchases over $82.50.
You should hold onto your tax invoices and other GST for at least five years. An unexpected benefit of keeping proper records of GST is that much like your profit and loss statement the information collected will help you assess where your business is heading and highlight potential liabilities!
Make sure you only claim GST credits from suppliers that are registered with GST. Don’t assume that the GST is built in and claim the tax as a deduction. If you’re not paying tax on their goods, you can’t claim a tax deduction. Likewise, if you are not registered make sure your clients know! They may try to claim a tax credit that doesn’t exist.
Do always keep all your records, but remember that some purchases never include GST, such as bank fees or water bills.
How do I Get Started with GST?
The ATO offers free on-site consultations to help you understand the GST and other tax obligations for small businesses. And Digit Books can help as well! Speaking to one of our knowledgeable staff will make navigating the complexity of starting your business a little less confusing. Contact us here for a free consultation!