- In spite of your business profile, you may have to register for GST and pay it to the Australian Taxation Office.
- But in order to register for GST, you first need to know all the requirements, methods and regulations of the procedure.
- Here is your ultimate business guide to GST registration that will definitely come in handy for you as a small business owner.
Goods and services tax, often known as GST, is collected by registered businesses. GST is a tax on most goods and services sold or consumed in Australia. If your business has GST registration, you will have to collect one-eleventh of the sale price from your customers and pay it to the Australian Taxation Office when it is due via lodgment of your Business Activity Statements. Currently, the GST rate is 10% on the sale of most goods and services in Australia and applies to most businesses.
When you should register for GST
You must register for GST if your business has an annual turnover of $75,000 or more, or your non-profit organisation has an annual turnover of $150,000 or more. You should also register for GST if you provide taxi travel for passengers in exchange for a fare as part of your business, regardless of your annual turnover for both taxi owner drivers and taxi drivers who rent the taxi.
It is the business owner’s responsibility to register for GST. Note, however, that the turnover is based on your business’ gross income and not your net profit. To register for GST is optional for a business which is not legally required to do so. You are obliged to register for GST within 21 days from the moment that you become aware that your annualised business income will exceed the $75,000 threshold.
Requirements needed to register for GST
To register for GST, you will need an Australian Business Number (ABN). Usually, your ABN is similar to your GST registration number. You can register for your ABN at the same time as you register for GST. Sometimes, if you are conducting a business enterprise which does not require for you to register for GST, you will still need to have an ABN.
This is because your customers will withhold 46.5% of your invoice amount if you do not have an ABN. Therefore regardless of your business’ GST requirements, it is highly recommended that you have an ABN registered for your business.
Registration for GST and ABN can either be lodged online and/or your accountant/tax agent can apply on your behalf.
Credits and Refunds
By the same token, if your business has GST registration and has remit 10% to the Australian Taxation Office, you are entitled to have GST credits/refunds for all your business-related expenses you have paid for and incurred provided that a valid tax invoice has been provided.
If you register for GST, your invoice must be a tax invoice which must include the GST component. If you do not register for GST then you must not include the GST component (and not charge or claim GST credits) and your invoices will be simply called invoice (not tax invoice) which therefore will not have any GST included.
Cash or Accrual Method
The GST system has two different methods on how to recognise income and expenses. These are the Cash or Accrual-based accounting methods. This is very important especially if the type and size of your business will be constantly impacted by cash flow constraints. The Cash Method recognises income and expenses when they are physically paid. For example, if you received a tax invoice dated in July 2014 and made the cash payment in October 2014, then you must claim the GST credits in the October 2014 Business Activity Statement.
Under the Accruals Method however, and using the same example above, you will be required and entitled to claim the GST credits in the July 2014 Business Activity Statement irrespective of when the actual invoice is paid. This is because the Accruals Accounting Method recognises income and expenses when they are incurred (date of invoice) and not when they are actually paid. Having taken this into consideration, however, you need to pay these accrued amounts as soon as possible because the Australian Taxation Office can deny these GST credits under the “Bad debts provision” rules. Ultimately, payment must be made at some stage!
To be eligible for the Cash method, your business plus related entities must have an aggregated annual group business turnover of less than $2 million. If this test is not satisfied then you must register under the Accrual Accounting Method.
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