The Goods and Services Tax (GST) is a 10% value-added tax in Australia that is levied on most goods and services that are consumed in Australia. There are exemptions and concessions such as (but not limited to) basic food and essential products, education, health, farmland, exports, precious metals and the sale of a going concern.
Those that pay GST within the chain of production usually get a portion refunded in the form of GST credits. GST is levied on most transactions during the production process but is paid for by the final consumer. To charge or claim GST credits, a tax invoice is required from the seller stating the GST payable.
Registering for GST is mandatory for businesses if they exceed certain tests and there are wide-ranging implications for business owners. The Australian Taxation Office (ATO) states that you must register for GST if your business has an annual turnover of $75,000 or more. Not-for-profit (NFP) organisation’s that have a turnover of $150,000 or more register for GST. Taxi and limousine travel businesses and entities wishing to claim fuel tax credits must also register for GST according to the ATO. Read about when you should register for GST on the ATO website.
Any entity with an active Australian Business Number (ABN) can register for GST at any time and this can be done online via the ATO’s Business Portal, via phone or a registered tax agent. If you don’t already have an accountant or bookkeeper, it is important to understand the differences.
For business owners that are not GST registered, it is recommended by the ATO that they regularly check if the annual turnover threshold applicable has been reached. If the annual turnover threshold is reached, you will need to register for GST within 21 days. GST on sales made after the date you became required to register for GST will be payable irrespective of whether your business included GST in its sales.
GST ends up being paid for by the end-user. Businesses within the production process will receive GST from their sales and pay suppliers GST. A business that is GST registered will be able to also collect an additional 10% on top of sales which will not need to be paid to the government until the next quarterly BAS statement is due.
Being GST registered can also be an incentive for potential clients as there are GST credits that can be claimed by the purchasing business.
Being GST registered requires the business to deal with extra paperwork such as calculating the GST credits and charges when performing a quarterly BAS statement. It can also cost the business more money in paid taxes if the business does not raise its income by 10% to cover the cost of its GST charges as a result of being GST registered.
Businesses with a turnover under the $75,000 threshold will have sales prices that are 10% cheaper than their competitors. This can distort the pricing within certain industries which are extremely competitive.
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