GOODS AND SERVICES TAX (GST)
Goods and Services Tax (GST)…
Australian Goods and Services Tax (GST) is a broad-based tax. It is at the rate of 10% on the sale of most goods and services. Many questions proliferate the minds of small business owners. Thus far, some items do not include GST. They are GST-free sales. Some complications occur to distinguish GST-free sales. It requires proper management. Further complexity is about thresholds and Business Activity Statement (BAS) lodgements.
In fact, the business needs to meet Australian Tax Office (ATO) requirements. So far, there are many software on the market to manage GST. It must generate tax invoices, and manage input tax and general accounting. Normally, registered businesses include GST in their sales. So, they issue tax invoices with each sale. The tax invoice must include the GST component. Thus far, the customer uses it to claim back GST on the products they purchase.
GST thresholds
Small businesses in Australia that turnover less than $75,000 per annum are exempt to pay GST. So, they don’t charge customers GST. They cannot claim back GST they pay for goods and services too. These businesses don’t need to register for GST. Thus far, they do need Australian Business Number (ABN). In fact, small businesses have a choice when it comes to paying GST. They can choose to charge GST if they believe they may exceed the threshold. Thus far, it is prudent to charge GST if the business is targeting this result. When you operate a taxi service or are a ride-share driver you must always pay GST, regardless of income.
Another exemption applies to the registered not-for-profit organisation. Thus far, it does not have to pay or register for GST if the turnover is less than $150,000.
GST mechanics
It is important to know how GST works for small businesses. Say, a lumber yard sells logs for $110.00 inclusive of GST. So, GST on sale is $10.00. If the GST credit is $0.00 then the business pays $10.00 to ATO. Now, a furniture maker manufactures chairs from the log. These chairs are sold to a retailer for $220. GST on the sale is $20.00 and the input tax is $10.00. So, the net GST payable to ATO is $10.00. The retailer sells them for $330.00. GST component now is $30.00. So, less GST credit for the purchase of chairs is $20.00. Hence, the net GST paid to ATO is $10.00. In effect, the consumer in the end pays $30.00 GST. It passes on to the consumer at every step. However, they can’t claim it back.
Ultimate payer
Thus far, the lumber company, manufacturer, and retailer can claim back credits. So, if they need to pay, they on-charge up the chain. In a nutshell claim credits for the GST are included in the price of goods and services they buy for their business. Ultimately the consumer pays all the GST due.
GST limits
GST limit for small businesses is the threshold. So the magic GST threshold for small businesses in Australia is $75,000. To be compliant with the ATO’s GST requirements pay attention to turnover at all times. Apart from the GST threshold, there are a few more factors to consider. As a small business, it does not include GST in the price if the business sells GST-free items. Thus far, the business can claim credits for GST that is included in the cost of items the business uses to create those products.
Limit examples
For example, say, you grow oranges and sell them at a market. You don’t include GST in the price. However, you can still claim GST credits on the business purchases you made in order to grow those oranges. These may include farm equipment or fertilisers. So far, most basic food and some exports are GST-exempt. Some medicines, religious services, and charitable activities are exempt too.
Benefits for small business
There are small business benefits to registering for GST. It’s even if you are below the GST threshold. A good example is if you’re purchasing expensive business-related equipment. You may use a car mostly for business activities. So, when you buy a car it is to your benefit to claim back GST if you were registered. This is particularly true if the customers are GST-registered entities. It actually means when completing BAS you can claim GST credits on business-related car purchases. Thus, the business receives a decent GST refund. This is despite earning less than $75,000 per year.
So, if the business is not registered for GST, the business cannot claim any GST credits.
The benefit of registering is essentially a calculation based on your circumstances.
The cost of your business-related purchases influences it too.
Business perception
In fact, there is a business perception too. Others may consider the company is more professional. To register
If you want to look like a larger, more professional company then registering might help. Otherwise, you may give across the image that you’re a small or new business. Thus, not charging GST. Of course, every business turning over $75,000 must register, so if your tax invoice doesn’t include GST, you’re sending your buyer a signal in terms of your business size and earnings.
There are other reasons businesses choose not to register for GST. It is often competitive. So, if the price is lower, the price is lower by 10%. It helps in competitive market. In fact, you don’t need to add 10% GST. It means the prices are attractive. The customers pay less. However, the turnover threshold needs to comply too.
