Are you starting a new business in Australia? Or are you looking to understand how GST works in the country?
Either way, this article can help you get a good understanding of what GST is and how it works in one of the largest economies in the world.
The Goods and Services Tax, or GST, has been a part of the Australian tax system since the 1st of July, 2000.
It came into effect to replace the Wholesale Sales Tax (WST) and has been one of the biggest sources of revenue for the Australian Tax Office (ATO) ever since.
In Australia, if you purchase any goods and services for your business then you are entitled to reclaim any GST paid when purchasing those goods or services.
This is called the input tax credit or GST credit.
Claiming GST credit can help your business recover revenue that would have otherwise been debited as tax payments.
You can claim GST credit if:
1. The item purchased is to be used solely for business purposes and is not going to be related to the making of input taxed supplies.
2. GST is a part of the purchase price of the goods or services being acquired.
3. The entity liable to pay or paying for the goods and services is you or your business.
4. You own a GST invoice (if the purchase price is upwards of AUD 82.50).
The GST rates charged by the Australian Tax Office currently are at 10% of the price of the goods or services being sold.
This means that if you are selling a product worth AUD 200 then you’ll have to mark it up by adding 10% of AUD 200, i.e. AUD 20. So, your final selling price, with GST added, will be AUD 220.
The goods and services that are not included in the GST credit claimable list include:
● Property purchased under the Australian margin scheme.
● Entertainment expenses and such other purchases that cannot be claimed as IT deductions.
● If you purchase a car after the car limit amount for the relevant financial year has exceeded, the price of that car is excluded.
● Any employee wages paid, payroll does not fall under GST.
● Any products without GST included in the price, e.g. GST free goods, imputed-tax, and suppliers not registered for GST.
The Goods and Services Tax in Australia is levied on nearly everything you can purchase in the country.
The tax is designed in such a way that instead of the entity supplying the goods or services, it is the end-consumer who is going to be paying the tax.
A universal GST tax rate of 10% is charged on all transactions where the supply of goods and/services are involved.
Another important point to note about GST regulations in Australia is that while businesses can reclaim any GST they have paid on goods or services procured for business purposes, consumers cannot.
GST is applicable to the majority of goods and services that are imported into the country.
GST on imported goods in Australia is calculated by adding it to shipping costs incurred with the price of the product.
This amount might be payable before your shipment is released by the Australian customs authority.
For most cases, these costs can be recovered by businesses when filing for GST returns.
Moreover, if your business is GST registered you are not required to pay GST taxes on services or subscriptions procured from overseas suppliers.
GST on exports from Australia is not charged if the goods are exported within 60 days of either one of the following occurring first:
● Payment for the goods is received by the supplier.
● An invoice is issued by the supplier for the goods.
If you are paying for the goods via installments then the final installment is the one on which GST invoice or payment should be issued.
Suppliers can also extend the 60-day threshold by applying for the same to the Australian Tax Office.
Supply of other exports (e.g. services, various rights, or other professional services) is usually GST-free if the entity receiving the service is outside Australia.
Your business’s turnover, or gross income, is an important factor for deciding whether you should get your business GST registered or not.
Once it crosses the AUD 75,000 threshold (AUD 150,000 if you are a not-for-profit) you’re legally obligated to get registered.
If you are a small business in Australia then getting registered before this threshold hits can save you a lot of hassle in the future.
Here’s how the Australian Goods and Services Tax affects small businesses:
1. GST for taxi services and ride-sharing businesses:
Taxi services and ride-sharing businesses (e.g. Uber) are obligated to get GST registered regardless of their income threshold.
2. New businesses with a substantial forecasted turnover:
If you fall under this category and at the same time have a projected turnover of AUD 75,000 or more for your first year you are recommended to get GST registered, as directed by the Australian Tax Office.
If you cross this threshold without getting registered you will have to do so within 21 days of hitting the AUD 75,000 mark.
3. Part-time businesses and hobbies:
Even if you are partaking in a part-time business or a hobby, if you are making a profit via your sales or activities it is considered to be a functional business.
Therefore, GST regulations will apply to you as to any other business.
4. Businesses below the threshold:
If however, your business’s turnover falls under the AUD 75,000 threshold, GST registration is optional, yet encouraged.
Note that if you are under the threshold and choose to get registered you will still have to pay GST.
Here’s all you need to know about GST registration in Australia, how it works, its nuances, and how you could navigate getting your business registered:
If you are running or starting a business in Australia, you’ll have to get GST registered if;
● You are an Australia-based business and you have an annual turnover of or above AUD 75,000.
● Taxi and ride-share drivers, regardless of turnover.
● You are a not-for-profit organization and your annual turnover is at or above AUD 150,000.
● You are a business that wants to or does claim fuel tax refunds.
● You are an international retailer whose sales in Australia are at or above AUD 75,000.
In case your turnover is not at these required benchmarks you can still obtain GST registration; you can get it done voluntarily.
If, however, any of these criteria apply to you, GST registration is mandatory.
Staying compliant with GST regulations is a must for any business looking to flourish in Australia.
Here’s how getting GST registered benefits businesses across the country:
Starting out is easier: The monthly, quarterly, and yearly Business Activity Statement (BAS) requirements stated by the Australian Tax Office can be hard for new businesses to navigate.
Keeping track of and managing these regulations is easier said than done.
Instead, however, if you have a GST registered business you only need to file taxes once, at the end of a year. This makes starting a new business far less daunting.
Tax filing is easier: Being a GST registered business in Australia means you’ll only have to file taxes once every year.
This ensures that your accounting teams will have far less paperwork and hurdles to go through in comparison to the older WST filings.
Recover resources: Not only does the Goods and Services Tax in Australia simplify tax filing and management, but it also gives businesses the avenue to recover resources utilized for business purposes.
If you are a GST registered business you can claim any GST paid for goods and/or services procured for business purposes.
Getting GST registered in Australia costs nothing and is quite easy.
Before you start your GST application, however, you’ll need to obtain your Australian Business Number (ABN) & Australian Company Number (ACN).
The Australian Company Number or ACN is issued to businesses newly getting registered in Australia; it serves as a registration number.
On the other hand, all business entities operating in Australia; including sole traders, companies, trusts, and partnerships; are issued a unique 11-digit number by the Australian Tax Office.
This 11-digit number is your Australian Business Number or ABN.
The two are often confused with each other because the ATO uses the Australian Company Number as a basis for the Australian Business Number of the same company.
You can follow three distinctive approaches to accounting for GST in Australia:
Cash accounting - You are entitled to using the cash-based form of accounting only if your aggregated turnover is less than $10 million.
In Cash-based accounting, the period in which you receive or make payment for your sales and purchases is the one on which you have to account for GST on your Business Activity Statement (BAS).
Accrual basis accounting - Non-cash or accrual-based accounting is to be used by most big businesses to account for GST. Smaller businesses can choose between cash and accrual-based accounting.
When using the accrual method you need to account for GST on your BAS that covers the period in which you either:
● Have issued the tax invoice before receiving payment (for a sale) or have received payment.
● Have made any payment for a purchase or have received the invoice from your supplier before making the payment.
Simpler accounting method - Other businesses like small food retailers, bakeries, etc. can use the GST simplified accounting methods (SAM).
If you are running such a business you can calculate your GST on food or other sales via the simplified method where the Australian Tax Office has pre-calculated business norms and percentages for different types of food retailers.
You can get your business registered easily by following a simple online GST application process. Here are the steps you’ll have to follow:
Step 1: Before you can register for GST you’ll first have to get your hands on your Australian Business Number or ABN and Australian Company Number or ACN.
These numbers are an essential part of the Australian GST application process.
To get your ACN you’ll have to get your business registered under the Australian government.
After this, you’ll have to apply for an ABN to the Australian Tax Office
Step 2: Once you’ve obtained an ACN and an ABN for your business you can start your online GST application process.
Once you’ve submitted your GST application the Australian Tax Office will review your application, evaluate it and approve your application accordingly.
After you’re officially GST registered you then have to:
● Club your prices with GST tax rate.
● Issue tax invoices to customers.
● Store receipts and invoices for claiming GST refund on business expenses in the future.
● Fill out and submit BAS to the Australian Tax office.
● Payout taxes that are due.
The purpose of a GST invoice is to inform the purchasing customer of the amount of tax they have been charged on that purchase.
According to Australian tax regulations, if you’ve made a taxable sale and the amount of that sale is above AUD 82.50 (including GST) then you are obligated to provide a GST invoice to the customer for them to be able to reclaim GST paid on that purchase.
A GST invoice must be clear enough for it to convey the following information:
● That the document is intended to be a tax invoice.
● Identity of the seller.
● Australian Business Number (ABN) of the seller.
● Date of issuing.
● A description of the sold goods or services with clearly mentioned prices and quantities (if applicable).
● Payable GST amount (if any) – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, you may include a statement which says 'Total price includes GST'.
● How much of each sale on the invoice is taxable?
Note that while a receipt and tax invoice are similar they are not one and the same.
If a receipt is printed out at the point of sale it is called a tax invoice, the tax invoice must also contain the aforementioned information as well as the words ‘tax invoice’ clearly mentioned.
If it doesn’t match these criteria it is a receipt and not a GST invoice.
If you are making a sale of goods and/or services that is taxable under GST then you need to issue a GST invoice that contains the following information:
● ‘Tax Invoice’ prominently written
● Business name
● Business address
● Business contact details
● A unique invoice number
● The date you issued the invoice
● Customer name
● Customer address
● Australian Business Number (ABN)
● A brief list of the items sold, including quantity and price
● Pre-GST price
● Total value of GST added
● Total amount due
● Due date
● Payment terms and details
While GST calculation itself isn’t particularly difficult, keeping track of transactions, however, is.
To start with GST calculation you’ll first have to consolidate all sale and purchase transactions in one place.
Once you have your transaction records in place, verified, and sorted, you can proceed to calculate GST.
From here, working out your GST refund or bill is a simple matter of comparing the amount of GST you have paid on purchases with the amount of GST gathered via sales.
Here are three straightforward steps you can follow for easy GST calculation:
Step 1: Calculate the total amount of GST you have paid on purchases you have made. This can be done by reviewing GST invoices received during purchase and totaling the GST amounts.
Step 2: Next, Calculate the total amount of GST you have paid on purchases you have made for business purposes. This can be done by reviewing GST invoices received during purchase and totaling the GST amounts.
Step 3: Once you have your GST on purchases and sales totals you can then proceed to run the GST formula;
GST payment = Total GST collected - Total GST paid
If the result of this calculation gives a negative number you’re entitled to a GST refund worth that amount. If not, the number you get is the total GST amount payable by your business.
Running a GST calculation at tax time can put a lot of pressure on your finance teams.
Not only is processing an entire year’s worth of sales and purchases a time-consuming and expensive process, it always comes with a high probability of mistakes and errors going unnoticed.
Instead, avoid these issues by running GST calculations after regular intervals.
Regular GST calculations make life much easier for your finance teams and at the same time ensures your bookkeeping is efficient and always tax-ready.
While regular GST calculations are better than sitting down with your books at the end of the year, it’s still not the best approach to processing GST.
The very act of gathering, sorting, and classifying transactions under particular categories can take hours to complete and a lot of manpower.
What you really can do to completely eradicate these issues is automate.
With the right tools in place, automation can be your books’ best friend. As we’ve already observed, the actual GST calculation itself is not the hardest part.
Difficulties arise when accountants have to sift through piles of data before they can reconcile total GST paid or collected via purchases and sales.
With automation, this entire process can be done with the click of a few buttons. expense management SaaS tools can do all the heavy lifting for you.
Regardless of whether you account for your Goods and Services Tax via the cash-based or the accrual-based method, accounting automation is essential for your company to get the best out of GST in Australia.
Softwares that provide accounting automation services are capable of cutting down the effort and resources required by companies to process GST in half. The whole step where accountants have to dig out transactions from piles of data can be completely automated.
Accounting programs that do this track and record each and every transaction as and when they occur. They also then sort and categorize these transactions as per custom parameters that you yourself can set.
Once these transactions are categorized, they’re compiled and displayed on a comprehensive dashboard.
From this dashboard, you can maintain control and get full visibility over your entire bookkeeping system. What’s more, is that these softwares also give you in-depth analytics and actionable insights on your accounts payables.
The Business Activity Statement you submit is going to be the basis for your GST calculations.
For all GST registered companies, a blank BAS is provided by the Australian Tax Office one month before the tax date is due.
Accounting softwares can also be used to submit a Business Activity Statement electronically.
In case you are following a quarterly payment timeline ensure you include the following details:
1. Total sales
2. Export sales
3. Other GST-free sales
4. Capital purchases
On the back of the BAS form, you will find spaces where you can include the total amount of goods and services tax you have paid for purchases and the amount you have received from sales.
The amount of GST you owe can be calculated by finding the difference between these two figures.
This number is usually positive. If, however, you get a negative number, you are entitled to a refund from the Australian Tax Office.
If you’re running a GST-registered business in Australia you’ll need to inform the Australian Tax Office of how much tax you’ve collected via sales and how much you’ve paid on purchases.
The BAS, or Business Activity Statement, is the document through which you’re going to have to report and pay taxes.
Here’s all you need to know about the BAS in Australia:
The BAS or Business Activity Statement is a form that every GST registered business in Australia is legally required to fill out for the Australian Tax Office to work out your company’s tax payables.
Depending on your business size, you’ll have to fill out this form anywhere between one to twelve times a year.
The BAS is used is work out a company’s GST dues or refunds.
It’s also used for business income tax (if you’re in the pay-as-you-go system), employee income tax, fringe benefits tax, luxury car tax, wine equalization tax, and fuel tax credits.
Here’s all the information you need to when filling out your BAS:
1. A record of total GST collected by your company via sales.
2. A record of total GST paid by your company on purchases.
3. Any extra information about your business, its income, and any employees.
While you’re not required to submit tax invoices when you lodge your BAS, it is recommended to keep them ready and on hand in case the Australian Tax Office demands them.
Lodging your BAS is fairly straightforward. You can use a variety of channels. However, the easiest approach is to do it online, here’s how:
● You can submit your BAS via online accounting software.
● If you are a sole trader you can also lodge BAS through your myGov account.
● BAS can be lodged via the Australian Tax Office’s online business portal.
● By having a registered tax or BAS agent (generally an accountant or bookkeeper) submit it for you.
According to Australian tax laws, BAS due dates are determined by a company’s annual turnover.
There are three thresholds, each with its own guidelines for submitting BAS:
1. Annual turnover more than AUD 20 million:
BAS lodging frequency: Monthly.
Deadlines: BAS must be submitted within 21 days of the month's closing.
2. Annual turnover less than AUD 20 million:
BAS lodging frequency: Quarterly.
● Q1 (July-September) due on 28 October.
● Q2 (October-December) due on 28 February.
● Q3 (January-March) due on 28 April.
● Q4 (April-June) due on 28 July.
If your turnover is less than AUD 10 million, you may be able to lodge annually – but you’re still required to pay a quarterly installment of the GST you owe.
Annual turnover under AUD 75,000 (or AUD 150,000 for non-profits)
Deadline: Submit with income tax return
In case you fail to lodge your BAS document by the due date without good reason you are liable to pay FTL penalties to the Australian Tax Office.
Details on how these penalties are calculated are discussed in depth at the end of this article.
Your BAS numbers will determine whether you have to pay goods and services tax or get a refund.
You are responsible for making these payments on the same day as lodging.
However, in case you are unable to make the payment on time, you may be able to avoid fines and penalties if you lodge your BAS on time and work out a payment plan with the Australian Tax Office later.
If the GST calculation amount you get is negative that means you have paid more goods and services tax on purchases than you have accrued via sales.
You can recover this excess amount by submitting a GST claim.
Once your claim is approved the amount will be deposited directly to your nominated bank account.
Related read: Open business bank account in Australia
When filing your BAS there are a few things you need to keep in mind. While filing BAS isn’t particularly difficult it is still easy to get the small wrong.
To avoid mistakes and other obstacles ensure that:
1. Fill in the pay-as-you-go (PAYG) instalment and other relevant information regarding your company.
2. Review and check all totals and amounts for errors.
3. You have to have round figures for your amounts, decimals are not permitted in a BAS.
4. Lodge BAS and pay your tax liability by the due date.
5. Update your business details within 28 days.
Once you’ve gone through the steps of GST calculation, lodging BAS, etc. you then have to pay the actual tax owed by your company, if any.
Here are a few ways in which you can make your goods and services tax payments out to the Australian Tax Office:
1. Pay via BPAY.
2. When making the payment put the correct payment reference number (EFT code) to ensure that your money is transferred to the correct account.
3. Use a credit card or debit card that is any of the following - Visa, MasterCard, or American Express card.
4. Make an online payment.
5. If you want to pay via phone you can call the Government EasyPay service.
For GST payments that are made after due dates the Australian Tax Office levies penalty charges.
Delays are a part of life and a business might miss GST payment dates for a number of reasons.
Regardless of the reason, however, charges are applicable under a particular set of conditions.
Penalties on late payments in Australia are calculated as per:
● A statutory formula, based on your behavior and the amount of tax avoided
● Multiples of a penalty unit.
To under how penalties for late payment apply to your business refer to the information below:
● Small entity:
Company size: Annual turnover under AUD 1 million.
Number of units: 1 penalty unit for each period of 28 days overdue.
● Medium entity:
Company size: Annual turnover of AUD 1 Million or below AUD 20 million or having PAYG withheld amount totaling between AUD 25,001 and AUD 1million in the previous year.
Number of units: 2 penalty unit for each period of 28 days overdue.
● Large entity:
Company size: Annual turnover of AUD 20 million and above PAYG withheld amount totaling to AUD 1 million in the previous year.
Number of units: 5 penalty unit for each period of 28 days overdue.