As a small business owner, you are faced with maintaining compliance with the Australian Taxation Office. Despite having exemptions for a plethora of different taxation requirements, small business owners need to understand when certain taxes are imposed in order to reduce the risk of warning letters and potentially receiving fines. One tax that confuses many business owners is the Goods and Services Tax (GST). This tax is imposed once your business reaches a certain sales threshold, calling on the need to understand when you are required to register and the benefits of early registration.
What Is GST?
The Goods and Services Tax, commonly referred to as GST, is a tax imposed once your business exceeds $75,000 in sales. The current GST rate is 10% for most goods and services sold. However, the Australian Taxation Office does allow you to claim a credit for GST imposed on goods purchased for resale, offsetting a portion of the liability.
Moreover, specified activities are excluded from the 10% tax rate. Common excluded items include sales related to food, education, health, childcare, religious activities, utilities, and public transportation. For a complete list of excluded items, visit the Australian Taxation Office’s website.
When Am I Required To Register For GST?
There are a few indicators that trigger GST. The most common threshold that small businesses meet is $75,000 in sales, or $150,000 in sales as a non-profit. One good year of sales can push your small business into GST liability, making it important to meticulously track growth.
Additional GST triggers include expected sales over the threshold in the first year of business, running a taxi or limousine service or if you are looking to claim fuel tax credits. If any of those items apply, you should apply for GST right away.
What Are The Benefits Of Registering For GST As A Small Business?
Even if you aren’t required to pay GST, you might still consider applying, especially as a small business. Most small businesses are concerned with making a profit with little regard to the actual sales figures. You may hit the $75,000 mark and not even know it, leading to applying for GST when setting up your business being helpful.
Additionally, having the GST application already completed can add the perception of credibility and legitimacy to your small business, ultimately attracting new customers. Gaining market share can be difficult, especially in the allied health and contractor industries, as competition is at an all-time high. Some may argue that a business with GST showing as "non-applicable" on their quotes and invoices come across as brand new or yet to grow, causing them to be questionable whether they can deliver on the quality or service promises, and those with GST on their invoices appear the opposite - more established or legitimate. Although this isn't actually the case, perception in your clients eyes can make or break a deal.
Next Steps
Is GST right for your small business? Most small business owners choose to register at the same time as business formation, however, you can easily register online, by mail, or through a registered tax agent. Registering for GST is one of the few things that small business owners can’t afford to put off, as there are stiff fines and penalties if you meet the sales threshold and aren’t properly registered. It might be a good idea to mitigate the risk of fines and penalties from the Australian Taxation Office by applying for GST right away, even if you aren’t required to just yet.
Another thing you should always consider when starting your new business is whether or not you're adequately covered with business insurance. It's one of those bills that sometimes goes forgotten until it's too late. Use our instant quote generator to get a quote in seconds today.
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