Registering for Goods and Services Tax (GST) is a big step for many small business owners, and often means your business is growing – yay! Your GST registration essentially means you’ll collect an additional 10% of the cost of your products and services, and pay this on to the Australian Tax Office (ATO). You can also collect tax credits for GST you pay on your supplies. In this article, the Four Twelve team takes you through everything you need to know about registering your business for GST.
When do I need to register for GST?
You’re required to register for GST as soon as your business expects to earn $75,000 or more in revenue in a 12 month period and not necessarily limited to a financial year. You can register for GST at any time – including before you earn $75,000, but you’re not legally obligated to do so.
There are a couple of exceptions to this rule:
- Rideshare, taxi or limousine drivers must register for GST regardless of turnover.
- If you commence a new business and can reasonably expect your first year’s turnover to exceed $75,000, you must register for GST upon registration of your business.
- If your business is a not-for-profit, you don’t have to register for GST until your turnover reaches $150,000.
What if I think I’ll make $75,000 but I don’t – or vice versa!?
Great question! When it comes to registering for GST in Australia, it can be tough to know when your revenue will tick over that $75,000 threshold. Sometimes one big job or an influx of sales can push you over the GST turnover threshold out of nowhere. Don’t fret. The ATO recommends you check your turnover (yes, turnover, not profit!) each month to see if you’re approaching $75,000. If you exceed it unexpectedly, you have 21 days to notify the ATO and retrospectively register for GST. Phew!
What are the additional requirements that come with registering for GST?
When your business registers for GST, you’ll need to start lodging Business Activity Statements (BAS). Generally, these are lodged quarterly, but you also have the option for monthly. BAS statements are records of the sales you’ve made in your business and the GST you’ve collected on those sales, as well as PAYG withholding tax and your PAYG instalments. You’ll lodge any GST credits here, too, which is essentially claiming back the GST you’ve paid to other businesses on supplies you’ve purchased for your business.
Let’s look at an example:
Ellie runs a candle business and is registered for GST. Ellie sells her candles at $110 including GST. $100 is the price of the product, and $10 is the GST. To make her candles, Ellie buys soy wax and moulding supplies, on which she pays $4 of GST. When Ellie lodges her quarterly BAS statements, she will pay the $10 of GST she has collected, and claim GST credits for the $4 of GST she has paid.
Once registered for GST, it’ll reflect on your public ABN lookup (here). On your tax invoice to customers in addition to your business’ ABN, business name and details., you must show a separate line for GST on your sales.
Choosing an accounting method: cash or accrual?
When it comes time to register for GST in your business, you have two accounting options: the cash method, or the accrual method. Most small businesses have the choice of which they prefer, providing their annual turnover is less than $10million.
- The cash accounting method means you report revenue and expenditure for the period in which you were paid or made payment for the goods and services.
- The accrual method means you report revenue and expenditure in line with the dates the goods and services were invoiced.
Fancy another example? We love examples.
If you use the accrual accounting method and send an invoice for $10,000 + GST ($1,000) on 31 May but you are not paid until 18 July, you will pay the GST and other tax obligations within the Apr-Jun BAS quarter that it was invoiced. If you were using the cash accounting method, you would report that $10,000 + GST in the Jul-Sep BAS quarter in which you received the funds.
Many small businesses prefer the cash accounting method from a cash flow perspective. This approach helps you keep your BAS liabilities in line with the true revenue flowing into your business.
Can I switch from cash to accrual or vice versa?
If your business is eligible, you can switch your accounting method from cash to accrual or vice versa. There will be an adjustment to the first period of reporting for the transition.
Have more questions about registering your business for GST?
FourTwelve Accountants can help you make this important step in your business, and help you get used to BAS reporting, paying income tax and lodging your tax return after registering for GST. Contact us for more information, or head over to our blog to read more on tax topics.