If your business has an annual turnover of $75,000 or more, then you need to register for goods and services tax (GST). As a business owner you are obligated to register for GST if you reach the threshold of $75,000 or if it looks like you’re going to reach it. And then once you have passed any threshold on your business turnover, you have 21 days to register GST.
Registering for GST is not difficult; you simply need to head to the Australian Business Register and complete the process. There are a couple of exceptions to the $75,000 threshold; for example, taxi drivers and ride sharing drives need to register for GST no matter what their income, but a not-for-profit organisation has the option to reach an income of up to $150,000 before being required to register for GST.
The current rate of GST is 10% which means that if you sell something for $7 you are required to charge $7.70. The extra 70¢ is paid to the ATO. As part of your registration for GST, you are not obligated to pay GST on items you purchase which are used in the course of your business. While you do need to pay the GST up front, you can claim the GST paid on business purchases either quarterly or annually.
We know the process of claiming input tax credits can be a little confusing, which is why we wanted to share some information with you about how to claim easily. For more information and advice on registering for GST or claiming input tax credits, you can reach us on (07) 3608 4206 or get in touch with us online and we will get back to you.
Reporting your GST
You will likely have heard of something called a business activity statement (BAS). This is used to report all your business activities and to provide the ATO with information about your tax obligations. You will need to report the GST you have collected on sales and any credits which you have accumulated. In your BAS you will also need to show any PAYG instalments that you have made.
If your turnover is more than $20 million, then you need to complete your BAS monthly. This is non-negotiable. You can also choose to complete your BAS monthly if you prefer to – otherwise you’ll need to make your BAS quarterly.
- Your BAS is due quarterly 28 days after the end of the financial quarter
- The financial quarter ends on September, December, March and June
How to account for your GST
When you are charging GST in your business, you are obligated to provide a tax invoice which allows your customers to claim the GST portion of the sale. You must have a tax invoice in order to claim the GST input tax credit for purchases that are more than $82.50 including GST.
Your GST invoices need to show:
- The words ‘tax invoice’
- The date of the invoice
- Your name and your ABN
- The name of the buyer and their ABN
- A description of the items which have been sold, as well as the quantity sold and the price
- The GST amount and/or information that the total includes GST
When accounting for your GST, it’s important to include as much information as you need to so that the purchaser has a record of the transaction.
Claiming input tax credits
Any purchase that you make that includes GST can be claimed as an input tax credit provided that you have used the product as part of your business expenses. You can claim a credit for any GST included in the price you pay for things you use in your business including:
- Products used solely (or partly) for your business
- Products with GST included in the purchase price
- Products with invoices
Note that a four-year time limit applies to claiming any GST products. You can only claim GST credits on the portion for business use.
Examples of GST Credits and income tax deductions
If you are a business registered for GST, then you are eligible to claim GST credits and/or amounts of purchases as income tax deductions. We wanted to outline a couple of examples here:
Your business is registered for GST: Claiming GST credits and income tax deductions
Wendy is registered for GST in her café. She buys some café tables for $440 which includes $40 GST. Wendy can claim the $40 as a GST credit on her BAS and $400 as an income tax deduction for her tax return.
Your business is not registered for GST: Claiming GST credits and income tax deductions
Jason owns a café as well but isn’t registered for GST. He buys some café tables at the same cost but can’t claim the $40 as a tax credit; despite this, he can claim the full $440 as a deduction on his income tax return.
We would love to be part of your business’ growth moving forward and would be happy to discuss any of your thoughts or concerns about claiming input tax credits either on the phone on (07) 3608 4206 or via our contact us form.