“Nothing is certain except Death and Taxes.”
This famous quote from Benjamin Franklin from 1789 is as relevant now as it was then. When running a business, you are managing competing priorities and it can be easy to let your admin slip by. The Australian Taxation Office (ATO) cites failure to understand tax obligations as one of the key reasons small businesses fail. Knowing when to charge GST in this case is crucial, as you can face hefty penalties for failing to do so.
What is GST?
The Goods and Services Tax (GST) is a tax of 10% on most goods and services in Australia. Some goods and services don’t attract GST but these are limited to:
- Basic Food – such as unflavoured milk, cream, cheese and eggs;
- Education Courses, Courses Materials and related excursions;
- Medical, Health and Care Services;
- Medical Aids;
- Medicines;
- Goods produced for export
- Childcare services; and
- Religious services.
If you are not sure if your products meet the GST exemption, the ATO provides useful industry guides to assist you in determining if the goods or services you sell are subject to such exemptions.
Additionally, the ATO advises that even if you sell GST-free items, such as plain bread and bread rolls, you can claim GST credits for the GST included in the price of things that you buy to produce the items, for example, baking trays, measuring cups and mixing bowls. In order to claim GST Credits, you must be registered for GST. As always, seek professional legal advice to ensure you are meeting your requirements.
Do I need to register for GST?
According to the Australian Taxation Office, you must register for GST if any of the following apply:
- You are in business and your annual business income is $75,000 or more a year (or you think it will be);
- Your not-for-profit organisation has an income equal or greater to $150,000;
- You provide taxi travel as part of your business ( Taxi travel means transporting passengers by taxi or limousine for fares) ; or
- You want to claim fuel tax credits.
Once you have registered for GST you will need to lodge a Business Activity Statement (BAS) which reports and pays the GST your business has collected, as well as claims GST credits. The frequency of when you need to lodge your BAS varies depending on the amount of revenue your business generates. For example, if your GST turnovers is more than 20 million a year then you will be required to report your BAS monthly. If you are not sure of your reporting requirements you should contact the ATO.
Conclusion
No one enjoys doing their taxes, except maybe accountants and tax lawyers – but, understanding the tax liabilities that incur when operating your business is an important step for its success. Furthermore, understanding the GST components of your business can help you avoid unnecessary hassles with the ATO in future.
