The goods and services tax (GST) in Australia is a broad-based value-added tax that applies to most goods and services sold in the country. Like other economies around the world, the GST is an essential source of governmental revenue in Australia. Most employers will need to complete the process of GST registration, add GST to their prices directly, and will need to report this information to the Australian Taxation Office.
If you are a new business owner or unfamiliar with doing business in Australia, then knowing your obligations when it comes to GST is essential. When you have a better sense of your GST obligations, you can ensure that your business is compliant with national and state taxation laws. You can also ensure that your business will be financially protected from potential penalties and fines that come with non-compliance. Failing to collect GST when you are required to do so can also lead to you having to pay such taxes out of your own pocket.
Let’s look at some essential points that employers in Australia need to know about GST, and what your GST obligations are as an SME.
When am i obligated to collect GST?
Business owners need to register for and collect GST when their annual business turnover reaches a certain threshold. These thresholds slightly differ depending on the nature of your business. For most businesses, the GST threshold is an annual turnover of $75,000 or more. However, non-profit organisations have a GST threshold of $150,000 in annual turnover.
The primary exception to these rules applies to taxi and ride-sharing businesses. Owners of these businesses will need to register for and collect GST regardless of their annual turnover. However, this doesn’t apply if you provide ride-sourcing services. Therefore, if you are a registered driver for Lyft or Uber, this advice can be disregarded.
Finally, if your business intends to claim fuel tax credits, then you will need to register for GST regardless of what your annual turnover is. Businesses are always welcome to register for GST on a voluntary basis if their annual turnover is less than their appropriate threshold.
How do I calculate my annual turnover?
Determining your annual turnover is not as straightforward as totalling your profits. To calculate this amount, take your business income and subtract any GST applied to the sales, any sales that are not taxable, and any input-taxed sales that you have made. You will also need to subtract any sales that you have made that are not connected with Australia. Comprehensive guidelines for annual turnover calculations can be found on the ATO website.
In short, you should be deducting:
- International sales that are not connected with Australia
- Sales that aren’t taxable
- Sales that have been subject to input tax
- The GST of customer sales
- The sales that are unaffiliated with your enterprise
How do I register for GST in Australia?
GST registration is simple. First, you will need to acquire an Australian Business Number (ABN). This is a usual requirement for SMEs and it is likely that you already have one. With your ABN, you can register for GST through the ATO’s online portal, by phone, or through a third-party tax agent.
For those that aren’t registered for GST, you should check to ensure that you haven’t reached the threshold each month. Otherwise, it’s likely that you will find yourself unintentionally exceeding it. If you do exceed the threshold that is relevant to your business, you will have 21 days to register.
What if I don’t have an ABN?
Your ABN is a unique 11-digit identifying number for your business. This is an important part of registering your business, as it will be how your business is identified, both to the government and to the community. Your ABN will allow you to identify your business when invoicing and placing orders, as well as helping you to avoid PAYG tax and claim Australian domain names.
The actual process of registering for an ABN is simple. However, you will need to ensure that you have proof of identity, as well as details of your business activities and structure so your business can be accurately classified. Not everyone needs or is entitled to an ABN. Click here to find more information on eligibility.
What happens if I do not register for GST?
If you fail to register for GST when your annual turnover has passed your appropriate threshold, then you will be liable to fines and penalties from the ATO. You will also be required to pay GST amounts to the ATO backdated to the date when it became mandatory for your business to register for the tax. If you cannot pay this amount, then interest will also accrue.
For the purposes of GST, it is possible for related or connected entities to be formed into a single group/entity. Entities may also register a certain branch separately for the purposes of GST depending on the requirements of their accounting structure. That said, the GST of this combined group does not include transactions that occur between members of that group.
Backdating GST registration
As touched on in the previous point, backdating your GST registration is also an option for tax periods that commenced from July 1, 2012. Just keep in mind that your GST registration can’t be backdated by more than four years.
Meet your GST obligations
These are some of the essential guidelines for complying with your GST obligations in Australia. Read more about them on the ATO’s official website or consult with your registered tax agent, who will be able to provide you with information targeted to your specific field/industry.
As an SME, it is important to comply with GST obligations to keep your business a going concern and to avoid unnecessary penalties. So, to ensure that your business is safe and compliant, make sure that you have all the information you need regarding the GST obligations that apply to your business by consulting the ATO.