Running a small business in Australia comes with a host of financial responsibilities, and one of the most important aspects to understand is GST for small businesses. The Goods and Services Tax (GST) may seem complicated at first, but with the right guidance, it’s easy to navigate and ensures you’re on the right side of the Australian Taxation Office (ATO). This guide will explain the fundamentals of GST, including who must register, important responsibilities, and how to manage everything stress-free.
By the end of this post, you’ll have a solid grasp of how GST applies to your business and be fully equipped to meet your obligations.
What is GST, and How Does It Affect Small Businesses?
The Goods and Services Tax, or GST, is a 10% tax on the majority of goods and services that are sold in Australia. Understanding GST for small businesses means knowing when and how to collect it, when to pay it, and how to claim it back. At its core, GST is a value-added tax collected at each step of production and distribution.
GST for small businesses becomes relevant once your turnover reaches the $75,000 threshold. This implies that you have to register for GST if your company makes more than $75,000. GST is collected by charging your customers 10% on top of your goods or services, and you can then claim back the GST you pay on your business-related expenses. Additionally, it’s important to stay on top of your tax returns to ensure you remain compliant and claim back the correct amount of GST through your Business Activity Statement (BAS).
When Does GST Apply to Your Small Business?
GST applies to most goods and services, but exceptions include certain food items, healthcare services, and education-related services. Consult a business consultancy firm to help you plan your GST for sall businesses strategy if you want more specialised guidance on managing these exemptions and maintaining compliance.
Here is a brief summary of the situations in which small enterprises are subject to GST:
- The products or services that your company sells are liable to GST.
- You buy products or services that are taxable under the GST.
- You’re engaged in activities like providing professional services or renting out properties, which require GST registration.
Although it is not necessary to register for GST if your company makes less than $75,000 a year, many small business owners do so on their own initiative. This allows them to claim back the GST on business expenses, which can be beneficial in the long run.
Recommended Read: How to register a new business name?
Who Needs to Register for GST?
Although it is not necessary to register for GST if your company makes less than $75,000 a year, many small business owners do so on their own initiative. This applies to sole traders, partnerships, companies, and trusts. However, if your turnover is under $75,000, registration is optional. Many businesses opt to register voluntarily to claim GST credits on their expenses.
How to Register for GST?
You can register for GST through the Australian Business Register (ABR) or via your myGov account if you’re a sole trader. Registration is a straightforward process, but it’s always advisable to consult an accountant if you’re unsure.
Key GST Obligations for Small Businesses
It’s essential to understand the main responsibilities that accompany small business GST registration. The following are the main GST responsibilities for small businesses:
- Collecting GST on Sales
The price of any goods or services you sell must include 10% GST. For example, the customer will pay $110 in total, plus $10 for GST, if your product costs $100. This is an essential part of GST for small businesses—you collect the tax from your customers and send it to the ATO. The good news is you can offset this by claiming back the GST you’ve paid on your own business expenses. You can also learn about the Australian Tax law for small businesses for more clarity. - Paying GST on Purchases
When you purchase goods or services for your business, you’ll pay GST to your supplier. For example, if you buy office supplies for $500 (GST inclusive), $50 of that is GST. As part of your GST for small businesses obligations, you can claim this back when you lodge your Business Activity Statement (BAS). This helps reduce your overall tax liability by recovering the GST you’ve paid on business expenses. - Filing GST Returns (BAS)
One of the most important obligations when it comes to GST for small businesses is filing your Business Activity Statement (BAS). You’ll need to lodge a BAS either quarterly or monthly, depending on your business size and turnover. The BAS is used to report the GST you’ve collected from your sales and the GST you’ve paid on your business expenses. Additionally, the BAS includes other taxes like Pay As You Go (PAYG) instalments. Small businesses with a turnover of less than $20 million generally lodge quarterly, while larger businesses are required to file monthly.Recommended Read: Why are BAS agents essential?
- Record-Keeping
Keeping accurate records is key to your GST for small businesses obligations. You must save invoices, receipts, and supporting documents for sales and purchases. These help you complete your BAS correctly. The ATO requires you to keep these records for at least five years for potential audits. Well-organised records ensure you can claim back GST and avoid penalties.
By staying on top of these GST for small businesses obligations, you’ll ensure that your business remains compliant, avoid costly mistakes, and maximise the benefits of claiming GST credits on your business expenses. For expert guidance and business advisory services, ISM Accountants can help you navigate GST and other tax-related matters efficiently.
How to Charge GST: A Step-by-Step Guide
The most important aspect of GST for small businesses is accurately charging GST on your sales. Here’s how to accomplish it:
1. Add GST to Your Sales Price:
Always add the 10% GST to the sale price of your goods or services. For example, if your item costs $100 (excluding GST), the total sale price will be $110.
2. Create a Clear Invoice:
Ensure your invoice includes the following:
- Your business name and ABN (Australian Business Number)
- The customer’s details (if applicable)
- A clear description of the goods or services
- The sale price, excluding GST, the GST amount, and the total amount payable
- The GST rate (10%) applied
3. Use Accounting Software:
Managing GST for small businesses can be simplified by using accounting software like Xero, QuickBooks, or MYOB. These tools automatically calculate GST for you, saving time and reducing the chance of errors, or you can hire professional tax consultants.
GST and Small Business Tax Deductions
GST also affects your business tax deductions. The GST you paid on your business-related costs is refundable. Here’s an illustration:
- If you purchase equipment for $1,000 (GST inclusive), you can claim back the $90 GST.
- If you attend a seminar costing $500 (GST inclusive), you can claim back $45.
Remember to keep proper records of all purchases and sales to ensure you claim the correct amounts so that GST for small businesses is clear. Explore services provided by ISM Accountant for your help.
What are the Common GST Mistakes to Avoid?
Mistakes in managing GST for small businesses can be costly. Here are some common mistakes to watch out for:
- Failing to Register for GST: If your turnover exceeds $75,000, you must register for GST. Penalties may result from failure to comply.
- Incorrectly Claiming GST Credits: Only claim GST credits for business-related expenses. Don’t claim for personal expenses, as the ATO will not allow it.
- Not Keeping Proper Records: Proper record-keeping is essential in case of an audit. Make sure you have all the required paperwork, including invoices and receipts.
To avoid these mistakes and ensure compliance, ISM Accountants provides different taxation services, helping you navigate your GST obligations seamlessly.
How to Lodge GST Returns?
Lodging your GST return is an important part of managing your small business’s GST obligations. It’s how you report the GST you’ve collected and paid, and it ensures you’re compliant with the Australian Taxation Office (ATO).
- Lodge Online via the ATO Portal: If you have a myGov account, you can submit your BAS directly through the ATO portal.
- Use an Accountant or Bookkeeper: An accountant or bookkeeper can assist you with bookkeeping services and submit your BAS accurately and on time if you’re uneasy with the procedure.
GST Support for Small Businesses
If you need help with the GST duties of your small business, speak with a professional accountant. They can guide you through the process and ensure that you are abiding by all regulations. In order to help businesses manage their GST obligations, the ATO also offers a variety of tools and information.
Conclusion
It doesn’t have to be too difficult to handle GST for small businesses. You may simply remain on top of your GST requirements if you have the appropriate information and processes in place. Maintaining your company’s compliance and efficient operation requires knowing when to register, how to charge GST, and how important it is to claim GST credits.
Consult a qualified accountant if you have any questions concerning any part of GST for small businesses. They can assist you in avoiding errors and guarantee that your company continues to adhere to ATO rules. For small business accounting services, get in touch with the ISM Accountant.
FAQ’s
Companies must register for GST if their annual revenue is $75,000 or higher.
Small businesses with a turnover of less than $20 million generally lodge quarterly BAS, while larger businesses lodge monthly.
Yes, you can claim GST on business-related expenses, such as equipment, materials, and services, as long as they’re necessary for your business operations.
If you make a mistake, you can correct it by lodging an amended BAS. The ATO provides guidelines on how to do this.
Yes, the ATO provides resources on its website, and you can always consult with a professional accountant for expert guidance.
