Whether you know it or not, you’ve contributed to GST. The goods and services tax is something we all surrender some bucks to every time we purchase something, but for sole traders and small-biz owners on the other end of transactions, bringing GST into your business can bring a whole lot of confusion. We picked the brain of small-biz financial counsellor Rosemary Steinfort to find out how the heck the whole thing actually works.

WHAT THE FRICK IS GST? The goods and services tax is simply a 10 per cent tax that is added to all goods and services that a consumer pays when they purchase something. This could be anything from an artist selling handmade ceramics to a plumber unclogging your kitchen sink. “The tax is collected by businesses who are registered for GST on behalf of the Australian Tax Office (ATO),” Rosemary explains. “The tax collected does not belong to businesses but to the Australian Government, who may use the funds – among many things – for projects such as buildings hospitals, schools or roads.” So, every time your customers make a purchase, a li’l bit of that cash is going back into the country.

WHEN DO I NEED TO REGISTER FOR GST? To register for GST, you need to have an ABN. If your annual turnover or gross income is $75,000 or more, you absolutely must register for GST. If you’re under that, however, registering for GST is optional (except for taxis or ride-share drivers, who always need to be registered). Rosemary says that it’s helpful for bizzes earning under $75k to register for GST if they’re paying a lot of GST for purchases they’re making for their business, because by registering they can claim back GST credits if they end up paying more GST than they are receiving. A credit can then be claimed as a cash payment to the business.

WHY DOES AUSTRALIA HAVE GST? The way our GST system works here is a bit different to what you’ll find in other countries. Our GST helps to “simplify the tax system, so there are not different taxes added depending on locality – such as different states,” Rosemary clarifies. The advantage of a GST framework is that any GST paid on purchases by a small biz for goods and services will negate GST collected from the business’ sales of goods and services. “A simple example of this is that if a business charges $100 for a purchase, the customer will pay a total of $110,” Rosemary says. “If the business buys supplies for their business of $100, they must pay $110 including GST. So, the net effect is the business pays/owes zero GST to the ATO.”

HOW DOES THE ATO KNOW HOW MUCH GST I COLLECTED? Any GST you collect or pay must be reported to the ATO through your business activity statement (BAS) – either monthly, quarterly or annually. This is extremely (!!!) important because if you’re late with your BAS, you will be fined and charged interest on any outstanding GST that needs to be paid to the ATO. “Being organised is seen positively,” Rosemary points out. “The business is forced to maintain financial records which will allow it to better track profitability so it can meet its reporting requirements.” It pays to stay on top of things, folks! Your BAS will include information like total sales (total gross income for the period), GST on sales (total amount collected from customers) and GST on purchases (total amount the business is claiming on eligible business expenses).

HOW DO I AVOID DOING THE WRONG THING? People make mistakes, life goes on. There are, however, some mistakes that are more costly than others – especially when it comes to the price of doing business with the ATO. Rosemary says that one of the most common GST misunderstandings that she’s seen in her work with small-biz owners is that small operators use the GST they have received to fund the operation of their business, instead of setting it aside to pay the ATO. Thus, they’re unable to meet their obligations with the ATO – eep! A less innocent manipulation of GST is fraud, something that Rosemary says happened a lot during COVID. Just make sure you never incorrectly charge GST, like for items that are GST-free.

I’M REGISTERED FOR GST, NOW WHAT? OK, so what’s the deal once you register? First thing’s first, adjust your pricing by adding 10 per cent to all sales that are eligible and indicate to customers that the prices include GST. “Tax invoices must also be issued for any sale over $82.50 (including GST) within 28 days if the customer requests one,” Rosemary says. Other things to look out for include ensuring there is a valid tax invoice from a business you’ve made a purchase from when claiming GST credits, and lodging your BAS on time. “Also, ensure that cash flows are managed so that GST is kept separately – such as directed to a separate a bank account – to allow for payment of the BAS amount when due,” Rosemary suggests. Other than that, make sure that you’re maintaining records by ensuring all tax invoices and receipts are kept for five years, and that you keep business and personal expenses separate.

If you’re still full of questions and queries about the whole shebang, make sure to get in contact with the ATO or a (free and confidential) financial counsellor.

*Quick financial disclaimer. The information above doesn’t constitute financial advice, and it doesn’t account for your specific circumstances or financial goals. Make sure you get some independent guidance from a professional you trust. 

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