The Complete Business Guide to the Goods and Services Tax [GST]

In the last few weeks, the Goods and Services Tax (GST) has been making headlines across Australia; from policies on its distribution, to online giants like Amazon blocking Australian customers from its international website.

There is a lot of talk around these three letters, but how does GST relate to the small business scene?

To answer this question, we have put together a guide that focuses on three things: GST basics, how to turn the tax to your business’s advantage, and a calculator to do all the number crunching for you.

Save time with our GST calculator

Download this simple tool and get started straight away.

Click here for access.

  1. What is GST exactly?
  2. What does the law say?
  3. What do you need to do to be compliant?
  4. Should you charge GST if you’re not legally obligated?
  5. Spotcap’s GST Calculator

What is GST exactly?

 
GST is a 10% tax businesses have to include in the cost of their goods and services if their annual turnover goes above $75,000. The tax affects all kinds of enterprises, from sole traders, to retailers, to consultancies. The only exceptions to the rule are the non-taxable purchases listed by the ATO.

If you’re obligated to charge GST, there are certain procedures you need to follow that we explain further in the guide. Your pricing and product strategies might have to change because of it. At the same time, as a GST-registered business owner, you’re also able to claim tax credits back on a quarterly or annual basis.

What does the law say?

 
You must register your business and pay GST if you fall into one of these categories:

  • You run an enterprise that generates more than $75,000 in annual turnover;
  • You run a non-profit that has more than $150,000 annual turnover;
  • You provide taxi travel services;

None of these describe your business? You still need to keep a careful watch on your gross income. If at any point it exceeds the non-taxable limit, the ATO states you have 21 days to register. Otherwise you’ll have to pay the Goods and Services tax even if you haven’t charged customers for it.

What do you need to do to be GST compliant?

     

  1. Registration: First, you need to register online, via phone /on 13 28 66/, or through a registered agent. The only condition you need to meet is having an Australian business number (ABN).
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  3. Invoices: The invoices you issue have to confirm the charged GST amount, and the same applies for invoices you receive as a client. The required details differ depending on whether the value of the sale is below or above $1000. Have a look at the ATO’s website to check out the recommended standard template.
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  5. Claims: As long as your supplier is registered, you’re able to claim a GST refund on business purchases. If their invoices don’t state an included tax, check their status via the ABN Lookup website. Consider investing in accounting software to keep a well-organised record of your receipts—these are critical to prove how many GST credits you’re owed back.
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  7. Managing GST: Sometimes it might be necessary to tap into your GST collections to boost your cash flow. Keep in mind, however, that it’s easy to lose track of the finance you have to set aside to balance things out. Some professionals recommend keeping the collected GST in a separate bank account. This way you avoid sudden dips in working capital once it’s time to pay the taxman.
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  9. Payment: How do you pay your GST? Payments are processed via your business activity statement (BAS), which is also where you state how many GST credits you’re owed. Alternatively, you could receive the credits through an annual tax return.

Should you charge GST if you’re not legally obligated?

 
It depends. If you want to claim GST or fuel tax credits, you have to be registered and add the tax to your prices.

You should also consider the preferences of your customers. Take yourself as an example—if you claim GST credits, you don’t count this part of the price as a permanent expense. But if one of your suppliers isn’t adding the tax, your expense management becomes that extra bit more complicated. In some cases, whether you charge the tax can influence a customer’s decision between you and a competitor.

If used strategically, GST credits can also ease cash flow burdens. There are two ways to make a claim: either via a quarterly business activity statement (BAS) or through an annual GST return. The quarterly claim can alleviate working capital fluctuations and keep your finances in better shape.

Are there any downsides to charging GST? Yes, the enemy of every business owner: extra paperwork. What’s more, calculating price adjustments and how much GST credits you’re owed is a task list of its own. That’s why we built this simple calculator that does the work for you.

Spotcap’s GST Calculator

 

Save time with our GST calculator

Download this simple tool and get started straight away.

Click here for access.

Here’s how it works. To calculate how much tax to add to your prices, go for the ‘Add GST’ function. Type in your pre-tax prices, and the calculator will tell you both the tax value and the final cost.

Use the “Subtract GST” option to calculate how many GST credits you’re able to claim from a potential purchase.

Note that it’s not as simple as taking 10% from the cost. If you want to see how the math works, check out the notes on the side of the calculator.

Punch in the value the vendor is charging and the calculator will show you the GST credit, along with the pre-tax price. Make sure that the vendor is registered, otherwise there are no credits you can claim.

And there you have it. GST might seem like another burdensome tax obligation, but there are more benefits to it than you might have initially thought. If you’d like to review any of the core questions again, click here to get back to the index.