Registering for GST (goods and services tax) is not an option for big business. But for small business owners and tradies, there are pros and cons, depending on the amount of annual turnover.
What is GST?
GST is a broad-based 10 per cent tax on most goods and services sold or consumed in Australia. Exceptions include basic foods, education and health, precious metals, farmland and exports, along with the sale of businesses as going concerns.
According to the Australian Taxation Office (ATO), you are required to register for GST if your business has annual GST turnover (gross income less GST) of $75,000 or more; if your non-profit organisation’s GST turnover is $150,000 per year or more; if you provide taxi or limousine travel; or if you wish to claim fuel tax credits.
How to register for GST
It is possible to register for GST at any time, providing you have an Australian Business Number (ABN). GST registration can be done online via the ATO’s Business Portal, via telephone to the ATO, or through a registered tax agent.
The ATO suggests business owners check each month to see if the threshold for GST registration has been reached. If it has, you have 21 days to register, otherwise you may have to pay GST on sales made since the date you became required to register – even if you did not include GST in those prices. There is also the risk of having to pay penalties and interest.
Benefits of GST registration
For small businesses, having GST registration can provide a boost to credibility, while some businesses prefer to buy from GST-registered businesses so they can claim the GST credit. This requires a tax invoice from the seller clearly stating the amount of GST payable.
There are also cash flow benefits in charging GST, since you will be collecting an additional 10 per cent on sales which will not have to be sent to Canberra until each quarterly business activity statement (BAS) is due.
You can also claim GST credits on anything bought for use in your business, such as petrol or telephone costs. If the GST credits exceed your GST liability, you will be entitled to a GST refund for the difference.
Cons of GST registration
For businesses not expecting to reach the $75,000 turnover threshold, not registering will automatically make your sale prices 10 per cent cheaper than competitors. Alternatively, you could simply hike your prices by 10 per cent and enjoy superior profit margins.
Registering for GST also entails extra paperwork in acting as a tax collector for the ATO, such as calculating all the GST credits and charges each quarter. However, doing so will also give you more information on the financial health of your business.
However, for most small business owners and tradies, registering for GST is a sign of confidence in your business’s future success. And if you do need more funds for expansion, contact Prospa for a small business loan to help your business grow.
NB: The information on this website is intended to be general in nature and is not financial advice.