What is GST?
Goods and Services Tax (GST) is a 10% value added tax that is levied on most goods and services purchased in Australia. Usually, businesses who sell these products and services include the cost of GST in their prices which are incurred by consumers. By registering for GST, businesses can claim tax credits for any GST inclusive items that are expensed.
When/Why do I need to register for GST?
If your business:
- Has a turnover exceeding $75,000 ($150,000 for non-profit organisations)
- Is expected to have a turnover to reach the GST threshold in the first year of operation
- Provides taxi or limousine travel for passengers (including ride-sourcing), regardless if you meet the threshold.
You must register for GST.
A business which does not meet the above criteria is not required by law to register for GST. Regardless, it may be beneficial to register anyway. This is because registration allows you to claim tax credits.
If you purchase GST inclusive items for the sole use and purpose of your business you can incur GST credits. These credits can be submitted to offset any GST you may owe to the Government, reducing your taxable income. If your GST credits are greater than any GST obligations, you will be entitled to a tax refund.
For example, let’s say you purchase a computer for $1100 to solely use in your business. Within that price, $100 is GST. You can later claim that $100 as a GST credit during tax reporting season. If you later sell that computer for $2000 dollars, you will be obliged to pay $200 worth of GST. However, you can use your $100 offset to reduce that $200 liability.
With that in mind, even if you do not meet the mandatory criteria it may be beneficial to register for GST. This is especially the case if you:
- Are thinking of purchasing another business. This allows you to purchase the business as a going concern, which can bring about significant tax benefits.
- Deal with other businesses as your customers. As these businesses are likely also registered for GST they will not mind paying an extra 10% on their products as they know they can later claim tax credits.
How do I register for GST?
You must have an Australian Business Number, which you can obtain from here.
Once that is done, you can register for GST through the ATO’s Business Portal here.
Alternatively, registration can be performed by your registered or tax agent or filling out a “add a new business account (NAT 2954)” form.
In order to receive GST credits, you must submit an annual Business Activity Form or an Annual GST return.
GST Exempt Goods:
Not all goods and services require you to pay GST.
Examples include:
- Food
- Medical aid and appliances
- Disability support articles
- Goods sold for export within 60 days
- Some precious metals
Division 38 of the GST Act contains a more detailed list of exceptions.
Summary:
GST is a 10% value added tax applied on most goods and services in Australia. It is essential to register for GST if your actual or projected turnover exceeds $75,000. Registration for GST allows you to claim tax credits which you can receive at the end of the financial year by submitting a Business Activity Form or GST return. Registration requires an Australian Business Number and can be performed through the Australian Business Portal.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
