Everyone pays GST
It does not matter whether you are an individual, a business, a church or a charity, everyone pays GST. The only way to avoid GST is to not spend money. This is because most every time a service is provided or goods are sold GST is included in the price. The only transaction that escapes GST is when a good or service is provided by an unregistered business or individual.
Prior to July 1, 2015 there were four methods of calculating and claiming motor vehicle expenses for both individuals and businesses. From July 1, 2016 the 12% of original value method and the one third of actual cost method can no longer be used.
GST is an exclusive system
Unless a good or service is specifically excluded under the GST legislation it must have GST included in the price charged. The two categories of goods and services that don’t have GST included are GST Free and Input Taxed goods and services. If you do not sell or provide goods or services included in these categories, and you are registered or required to register, GST must be charged on all income of your business.
When must you register for GST
All businesses that produce more than $75,000 a year in income must register for GST. Charities that earn more than $150,000 in income a year must register for GST. The only time you can choose to register for GST is when your businesses earns income of less than$75,000. When a business becomes aware that its turnover is more than $75,000 a year it must register for GST within 21 days.
Most businesses do not effectively pay GST
GST will be paid by all businesses on nearly everything they buy. Any GST paid by a registered business can be claimed as a credit. This credit is used to either reduce the amount of GST collected, that must be paid to the tax office, or it can be claimed as a refund where the GST paid is greater than GST collected. This ability to claim a credit for GST paid means businesses do not effectively pay GST.
There are only three types of GST goods and services
The three types of GST goods and services are GST taxed, GST Free and Input taxed. If something is not classed as GST Free or Input Taxed it must therefore be GST taxed. GST Free goods and services tend to be the necessities of life such as unprocessed food, essential medical and health services and education. They also include goods and services that are exported. Input Taxed goods and services include financial services, such as bank interest and charges, and residential rent.
It does not matter how you operate your business
Where you fit into the GST system does not depend on how you operate your business. Sole traders, partnerships, companies, co-operatives and trusts are all treated the same. It is the goods that you sell, or the services you provide, that dictates how you are treated under the GST system.
Who can claim GST as a refund is the main difference
The only factor that distinguishes businesses from unregistered consumers, and one business from another, is the ability to claim GST paid as a refund. Registered businesses that sell or provide GST Taxed and GST Free goods and services can claim a credit for the GST they pay. Registered businesses that sell or provide Input Taxed goods or services do not charge GST but they cannot claim a refund of the GST they pay. Any person or entity not registered pays GST on all GST taxed goods and services and cannot claim a refund.
How to register for GST
There are three ways in which registration can be made. The first is to complete an application form and mail it to the address shown in the instruction booklet that accompanies the registration application. The second is to have your tax agent or accountant complete the application for you and they can lodge it electronically. The last option is to register via the Internet at www.business.gov.au and complete the registration on line.
What information is required?
The information required on the application is relatively straightforward and does not require a lot of judgement. In section 1 the questions require information to identify your business. Section 2 has questions that establish how you wish to be contacted. One of those questions asks for the mailing address of your business. Unless you are happy to deal with the tax office directly, on matters and correspondence relating to GST, this address should be the mailing address of your accountant. Section 3 gathers information that helps the tax office correctly classify your business for statistical purposes. Section 4 deals with information for new businesses and has two questions relating to GST registration. The last two questions in this section deal with the need to register for GST. The first asks if you are required to register for GST depending on the total income of your business, and the second gives you the choice of registering for GST if you are not required to register.
Answers you need to think about
The GST section of the application has questions directly related to registering for GST. After the question, which asks what the annual turnover of your business is, there are two questions that should be considered carefully. The turnover figure is important because of the choices open to those businesses that turnover less than $2 million and those that turnover less than $20 million. If your business turns over less than $20 million you have the choice of lodging your Business Activity Statement, and paying your taxes, on either a monthly or a quarterly basis. For businesses that turn over less than $2 million there is the choice of accounting for GST on a cash or accruals basis. In just about every case you should choose the cash basis. Under this method you will only have to pay the GST you actually collect. If you choose the accruals method of accounting your cash flow could be strained because you may have to pay GST to the tax office on income that has not yet been collected.
Do not worry if you make a mistake
If you have completed and lodged your ABN application, and made a wrong choice on the form, you do not have to worry. This might be having chosen the monthly option instead of the quarterly, listed your address instead of your accountant or incorrectly applied to be registered for GST and you did not need to. If you make a mistake you can ask the tax office to amend your application to show the correct information.
If you run a business and are worried at all about what you need to be doing with regard to GST, or you are not getting proactive advice from your current accountant, contact us.