GST in Australia — when to register and how it works

Goods and services tax (GST) touches almost every Australian business, yet it is a common source of confusion and avoidable errors. When do you have to register? What does it actually cost the business? Which sales attract GST and which do not? This guide explains the essentials in plain terms, so you can get the basics right and know when to ask for advice.

What GST is

GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. Registered businesses add GST to the price of their taxable sales, collect it from customers and pay it to the ATO. In turn, they can usually claim back the GST included in the price of things they buy for the business. These are called GST credits or input tax credits.

GST is designed to be a tax on final consumption. For a registered business it is largely a matter of collecting and passing on, but the business is responsible for getting it right.

When you must register

You must register for GST if:

• your business or enterprise has a GST turnover of $75,000 or more (the threshold is $150,000 for non-profit organisations)
• you provide taxi or ride-sourcing travel as part of your business, regardless of turnover
• you want to claim fuel tax credits

GST turnover is your gross business income, excluding GST, input-taxed sales and certain other items. Check how it applies to your income with your accountant or the ATO. Importantly, the test looks both backwards and forwards: you must register if your current turnover (this month plus the previous 11 months) or your projected turnover (this month plus the next 11 months) reaches the threshold.

Once you become required to register, you have 21 days to do so. Registration is through the ATO, either directly or via your registered tax agent, and you need an ABN.

The threshold applies to your projected turnover too. A business that signs a large contract can be required to register before its past income ever reaches $75,000.

Registering voluntarily

If you are under the threshold, you can choose to register. Voluntary registration lets you claim GST credits on business purchases, which can help during setup when costs are high. The trade-off is that you must charge GST on your taxable sales and lodge activity statements. Whether it makes sense depends largely on your customers. GST-registered businesses can claim the GST back; for consumers, it effectively raises your prices or cuts your margin.

How GST works on your sales

Sales fall into three broad categories:

• Taxable sales — GST of 10% applies. This covers most goods and services.
• GST-free sales — no GST is charged, but you can still claim credits for the GST in your related purchases. Examples include most basic food, many health and medical services, many education courses, and exports.
• Input-taxed sales — no GST is charged, and you generally cannot claim credits for related purchases. The main examples are residential rent and financial supplies, such as lending money.

To work out the GST in a GST-inclusive price, divide by 11. As an example, a taxable sale of $1,100 including GST contains $100 of GST and $1,000 of income for the business.

Prices advertised to consumers generally need to show the total price, including GST. With businesses, make every quote and contract clear on whether a price includes GST.

Claiming GST credits

You can generally claim a credit for the GST included in the price of goods and services you buy for your business, provided:

• you are registered for GST
• the purchase is for your business, not private use (if it is partly private, you claim only the business portion)
• the price included GST
• you hold a valid tax invoice where required

A tax invoice is needed to claim a credit on a purchase that costs more than $82.50 including GST. A tax invoice must show certain details, including the seller's identity and ABN, the date, a description of what was sold, and the GST amount or a statement that the price includes GST. Invoices of $1,000 or more must also identify the buyer. If a supplier's invoice is missing key details, ask for a corrected one before claiming.

You cannot claim credits for purchases that relate to input-taxed sales, for private spending, or for some specific items such as certain entertainment expenses. Wages, superannuation, bank fees and most government charges carry no GST, so there is nothing to claim on them.

Reporting and paying GST

GST is reported on your business activity statement (BAS). For each period you report the GST you collected on sales and the GST credits on purchases. If collections exceed credits, you pay the difference. If credits exceed collections, for example in a period of heavy investment, you receive a refund.

Most small businesses report quarterly. Businesses with GST turnover of $20 million or more must report monthly, and others can choose monthly reporting, which can help if you regularly receive refunds. Some voluntarily registered businesses below the threshold may be able to report annually. Check which option suits you with your accountant or registered tax agent. Our BAS preparation checklist walks through getting each return right.

Cash or accruals

Eligible smaller businesses can choose to account for GST on a cash basis, reporting GST when payment is received or made. Others use the accruals basis, reporting GST when an invoice is issued or received, whether or not it has been paid. The cash basis can ease cash flow, but eligibility depends on turnover and other factors, so confirm it before choosing.

GST and buying or selling a business

GST matters when a business changes hands. The sale of a business can be GST-free as a going concern if specific conditions are met: broadly, the buyer is registered or required to be registered, the seller supplies everything necessary for the business to continue operating, the seller carries on the business until the day of sale, and both parties agree in writing that the sale is of a going concern. If the conditions are not met, GST may apply to the full price. Get advice on this before contracts are signed.

Common GST mistakes

• Registering late. If you should have registered earlier, you may owe GST on past sales even though you never charged it.
• Claiming without a tax invoice. Keep proper records for every claim.
• Claiming on private use. Only the business portion is claimable.
• Wrong GST codes in your software. A poorly set up chart of accounts can apply GST to wages, bank fees or GST-free sales.
• Spending the GST. It is not your money. Set it aside, ideally in a separate account, so the BAS payment is never a surprise.

How we can help

Whether you are deciding when to register, setting up GST correctly in your software, or working through the GST on a business purchase or sale, we can help you get it right. See our accounting services and business sales and purchases pages, or contact us for a conversation.

This article is general information only and does not take into account your circumstances. Speak to a qualified adviser before acting on it.