Do you understand your GST obligations?


Small and medium-sized enterprise (SME) owners will no doubt be familiar with Goods and Services Tax (GST). This broad-based levy is charged on the majority of products and services that Australian businesses sell, which means you must be aware of your obligations to pay the tax.

The current rate is 10 per cent and it applies to businesses that have a GST turnover of $75,000 or more within a financial year. Non-profit organisations can earn revenues of up to $150,000 before the tax applies, while taxi operators must register for GST regardless of their turnover.

Businesses typically add GST to the goods and services they sell, while also claiming credits for the levy included in the price of goods and services they purchase for their own organisation. The Australian Taxation Office (ATO) advises people who start a new company to register for GST if they believe their revenues will exceed $75,000 in the first year of operation.

For comprehensive information on GST, you should contact a qualified accountant who can examine your records and provide more detailed advice. Meanwhile, here are some of the regulations that you must follow with regards to GST.

Registering for GST

You can apply for GST registration through the ATO Online Business Portal or over the telephone. Organisations require an Australian Business Number (ABN) to register, although you can apply for GST and an ABN using the same online form for tax registrations. Registered tax agents can also apply for GST registration on your behalf.

If you are going to exceed the $75,000 turnover threshold, you must register for GST within 21 days. For those starting a new business, you will need to complete your GST registration during the set-up process if you predict your revenues will be over $75,000 a year.

Many business owners ask whether or not they need to register for GST when their earnings are below the mandatory limit. In these circumstances, registration is optional, although if you decide to do so, you'll need to include the tax in the prices you charge and will be able to make claims for GST credits on your organisation's purchases.

How to claim GST credits

When you buy goods or services for your business, you may be entitled to GST credits. However, not all purchases are eligible, so it's important to understand what you can claim for.

There are four stipulations that you must meet to claim GST credits:

  • The price of the goods or services includes GST.

  • The purchase will be used solely or partly for carrying on your business, and it does not relate to making input-taxed supplies.

  • You have provided or are liable to offer payment for the purchase.

  • You are in possession of a tax invoice from the supplier (required for purchases worth more than $82.50).

Consequently, there are certain instances where GST credit claims are not allowed. For example, GST-free items - such as basic foods - can't be included. You are also unable to receive credits for bank loans and interest payments or for purchases from businesses that are not GST registered.

Similarly, you cannot claim for anything bought with the intention of using it privately or for domestic purposes, as well as various goods and services that are not income tax deductible, such as entertainment. This can be a complex area of GST, so you may wish to consult with your accountant while considering your credit claim options.

Managing your GST responsibilities

You must report and pay GST, as well as claim credits, via the ATO by lodging a business activity statement or annual GST return. The process can be challenging for some organisations, but there are various ways to handle it more efficiently.

The ATO suggests using business accounting software to streamline your GST collection and monitoring procedures. Depending on your organisation, you may also want to separate the GST you collect and keep the money in a separate bank account so that it's easier to track.

There are also two different GST accounting methods: cash basis and non-cash basis. Larger organisations (generally turnover exceeding $2m) must use the non-cash basis. Each method has advantages and disadvantages depending on the way your organisation conducts business, but identifying the correct option can significantly improve cashflow.

Regulations for reporting and paying your GST also depend on the size of your business. Organisations with an annual turnover of more than $20 million must do so monthly. Smaller enterprises can report and pay quarterly, unless the ATO states otherwise. Those businesses that register for GST on a voluntary basis and have turnover under $2m may only be required to submit their forms annually.

Remaining compliant with GST rules may seem complicated, but with the right help and advice, your business can fulfil its obligations and achieve full tax efficiency. Get in touch with your Crowe Horwath tax specialist to learn more.