Businesses who generate less than $75 000 per year are not required to charge GST. In general there is a GST component of 10% in most of your business transactions. Some basic foods, education courses, medical health care, ie Doctors services and medications are exempt from GST.
Benefit of Voluntary Registration
If you have registered for business activity, have been issued with an ABN (Australian Business Number), you are providing goods and/or services and are earning a weekly average income of less than $1,442, which is below the $75,000 threshold you can consider to voluntarily register for GST.
By planning ahead for GST registration, a business can maintain price stability for customers and therefore avoid an increase in pricing at the time of switching to GST. Also, GST registration is beneficial to claim back any GST on expenses. For a start up business voluntary registration of GST, even if you earn less than the threshold, will help you claim back any GST you have paid out in setting up your entity. In the early days of starting your enterprise, you could find yourself paying far more expenses than income and be surprised how quickly this adds up. This in turn will help put money back into your cash flow.
Consequences of not registering GST after exceeding the $75,000 threshold?
If your business exceeds the threshold of $75,000 you must notify the ATO within 21 days and register for GST. If you do not register, the ATO could request that you pay GST on the excess amount you earned, along with a fine and interest on the excess amount.
Please remember the GST collected is not your money and you should place this into your bank account until you have to pay to it to the ATO. You will need to have financial discipline to separate this GST collected from your operating cash flow. As accountants, we have seen the serious cashflow problems when this has not been managed effectively. Therefore, it is highly recommended to create a separate bank account and regularly transfer the GST portion which you have collected to avoid spending the money basically held in trust on behalf of the ATO.
Once registered for GST it is mandatory the TAX invoice you issue states whether or not it includes GST, and if you are charging GST your invoice must clearly state the amount of GST included. On the other hand, if you are not charging GST you will need to issue an invoice that mentions no GST has been charged. Please be mindful if your supplier invoice does not include GST on their services, as in this example, there would be nothing to claim. For more information regarding GST and Invoicing, read more here
Business Activity Statements
Business Activity Statements will be automatically sent by ATO after you register for GST. You need to maintain a good system to keep track of the GST on Income and GST claimed back on your expense, this is then reported to ATO via your BAS. As of July 1, 2017 the ATO are simplifying the details required to be reported on these forms.
TEAM EASE can help you with this decision, so be sure to make an appointment with one of our experienced team members who are willing to help. Using software like the XERO platform can provide an online, real time view of your business at a glance which is available on most devices, at any time of day. It will help you to record transactions easily and provide you with the data to complete your Business Activity Statement.
Your success is our success, that’s why we recommend you seek your advice with EASE