Demystifying GST and BAS: A Comprehensive Guide for Business Owners in Australia

Including when and how to register for GST

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In business, navigating the intricacies of taxes is an inevitable aspect of the journey. Business owners need to possess a fundamental understanding of their reporting obligations and taxation necessities.

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What is GST and How Does It Work?

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GST stands for Goods and Services Tax. It is a tax applied to most goods, services, and items sold or utilised in Australia, at a current GST rate of 10%. Certain transactions, termed GST-free sales, are exempt from this tax, which can add a layer of complexity to the overall taxation landscape for some businesses.

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The Howard government introduced the Goods and Services Tax (GST), which took effect on 1st July 2000. The idea was to simplify the existing sales tax system, replacing all state and territory taxes with a unified tax.

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When businesses are registered for GST, they will generally charge GST on their services or goods provided, and claim credits (essentially a GST refund) for the GST paid in the purchase of business-related products and services (called input tax credits). When a business provides GST-free products or services, they do not charge GST. However, they will generally be able to claim GST credits for any GST paid in the production process of their goods or services offered.

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Some sales are classified as input-taxed sales. These are GST-free sales where you cannot claim credits for the GST paid for the price of any 'inputs'. The two main input-taxed goods and services are financial products (such as loans) and the sale or lease of residential properties.

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GST-Free Goods and Services

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While this list is not exhaustive, it includes the main GST-free products and services utilised by business owners in Australia.

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Goods and services that are generally GST-free:

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• Basic food items (such as flour, milk, sugar, etc.).
• Educational courses or materials.
• International travel, mail and exports.
• Precious metals.
• Sales through duty-free shops.
• Farmland.
• Telecommunications supplies.
• Eligible emissions units.

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When do I need to register my business for goods and services tax (GST)?

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Registering for GST is optional in Australia, except in cases outlined below where registration becomes compulsory.

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GST registration is compulsory if:

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• Your business has a GST turnover of at least $75,000. GST turnover is your total sales figure minus any GST-free sales. Your turnover is based on your revenue, not your profit. Non-profit organisations must register for GST once their GST turnover reaches $150,000.
• You offer a limousine or taxi service (including ride-sourcing). GST is compulsory regardless of the turnover amount.
• You wish to claim a fuel tax credit for your business.

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Revenue vs profit

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It's important to note the difference between revenue and profit when determining whether you need to register for GST. Revenue is the income generated from your regular business operations, whereas profit is revenue minus expenses.

For example, consider a business that makes $100,000 from the sale proceeds of widgets. Their revenue is $100,000. Their expenses in producing the widgets were $30,000, meaning their profit is $70,000 for the period.

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$100,000 revenue vs $70,000 profit. The GST turnover amount is $75,000. Even though their profit was less than the GST turnover amount, their revenue exceeded it. This means they must register for GST.

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If your revenue is nearing $75,000, it's important to see advice about whether or not you need to register for GST. If you do not have GST-free sales, you'll likely need to register.

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What is a Business Activity Statement (BAS)?

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Business Activity Statements (BAS) are mandatory federal government documents that GST-registered businesses are required to submit to the Australian Taxation Office (ATO). This form serves as a condensed overview of the business taxes anticipated to be paid to the government within a designated timeframe. Businesses typically fulfil this obligation on a monthly, quarterly, or annual basis, aligning with their specific reporting schedules.

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Taxes included in the BAS include GST for taxable sales, PAYG withholding, PAYG income tax instalments, fringe benefits tax (FBT) instalments, fuel tax credits, luxury car tax (LCT) or wine equalisation tax (WET).

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Understanding your GST accounting method and when to pay GST

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A GST-registered business with a gross turnover of under $10 million can choose whether to use the cash basis or the accruals basis of accounting for GST. Businesses earning over $10 million must use the accrual basis.

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Under the cash method, the business pays GST and claims credits during the period cash is actually received for goods or services. For example, if they issued a tax invoice on 30th June, and the customer paid on 1st July (being the next reporting period), the GST for that sale would not need to be reported until the next reporting period, and income tax related to the sale would be pushed into the next financial year.

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With the accruals basis, GST is reported and paid during the period the invoices are issued, regardless of when they are actually paid. For example, if the business issued an invoice on 30th June, but the customer paid during July (the next financial year and a different reporting period), the business would need to include the amount in their statement ending 30th June.

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Reporting and payment cycles

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Quarterly

A BAS statement will typically cover quarterly periods ending 30th September (quarter one), 31st December (quarter two), 31st March (quarter three) and 30th June (quarter four). The reporting and payment due date is generally the 28th day of the month following the end of the reporting period. For example, for the period ending 30th September, the BAS will be due by 28th October. The exception is the period ending 31st December, which is due by 28th February.

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Monthly

For businesses with a GST turnover of more than $20 million, a BAS must be lodged and paid monthly. The due dates for monthly BAS is the 21st day of the month following the end of the reporting period. For example, for the period ending 30th September, the BAS will be due by 21st October.

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Annually

Businesses with an annual turnover of less than $75,000 can choose to lodge an annual BAS. The due date for the GST return is 31st October.

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How to register for GST

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The simplest way to register for GST is online, using either Online services for business or the Business Registration Service.

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As commercial accountants, we can register for GST on your behalf, making the registration process even simpler! We also ensure your reporting and GST obligations are taken care of, ensuring stress-free taxation compliance.

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How to calculate Australian GST

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To calculate GST and add it to goods or services, you simply add 10%. For example, a $100 product becomes $110, including GST ($100 x 1.1 = $110).

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To work out the GST portion of a sale (i.e. how much GST has been added), simply divide the total amount by 11. For example, a GST-inclusive sale of $110 is made up of $100 for the product and $10 of GST ($110/11 = $10).

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We're here to help

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If you need help with GST registration, BAS preparation, lodgement, or bookkeeping, please get in touch with us today. We're always happy to help.

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GST FAQs

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1. Do I need to register for GST if my business turnover is under $75,000?
No, GST registration is only compulsory if your GST turnover reaches $75,000 or more. However, you can still voluntarily register for GST if you believe it will benefit your business.

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2. What is the difference between revenue and profit when calculating GST turnover?
Revenue refers to the total income from sales, while profit is the revenue minus expenses. When determining if you need to register for GST, you must use your revenue, not your profit.

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3. How often do I need to lodge a Business Activity Statement (BAS)?
Depending on your business's turnover and reporting preferences, you can lodge monthly, quarterly, or annually. Businesses with a GST turnover of over $20 million must report monthly.

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4. What happens if I forget to lodge my BAS on time?
If you miss the BAS lodgement deadline, you may incur late fees or penalties from the Australian Taxation Office (ATO). It's important to meet deadlines to avoid fines.

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5. What’s the difference between the cash and accrual basis for GST reporting?
With the cash method, you report and pay GST when you receive payment. With the accrual method, you report GST when the invoice is issued, regardless of when payment is received.

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6. Can I claim GST credits on all purchases?
You can claim GST credits for business-related purchases if the items or services are not input-taxed or GST-free. Ensure you keep records of valid tax invoices.

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7. How do I register for GST?
You can register for GST through the Australian Taxation Office (ATO) online or ask your accountant to register on your behalf.

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8. What goods and services are GST-free?
Some GST-free items include basic food items, medical services, educational courses, and international travel. Make sure to consult the full list to see if your products or services qualify.

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9. Can I lodge my BAS annually?
If your business turnover is under $75,000, you have the option to lodge your BAS annually.

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