GST (Goods and Services Tax) is a value added tax levied on the supply of goods and services in Australia. GST is a comprehensive indirect tax that is charged at every stage of the production and distribution process, and it is designed to be a more efficient and transparent tax system, replacing multiple indirect taxes that existed previously.
The purpose of this blog is to provide an overview of GST in Australia and to help businesses understand whether they need to register for GST. We will explore the criteria for GST registration in Australia, the advantages and disadvantages of GST in Australia, and the consequences of non-registration for Australian businesses.
What is GST?
In Australia, the Goods and Services Tax (GST) is a 10% tax that applies to most goods, services and other items sold or consumed. It is a consumption tax, meaning it is paid by the end consumer, but collected and remitted to the Australian Tax Office (ATO) by businesses in the supply chain.
How it Works
GST is a value-added tax, which means that it is levied on the value added to a product or service at each stage of production or distribution. Businesses that are registered for GST charge GST on their sales (known as output tax), and can claim back the GST they pay on their purchases (known as input tax credits). This system ensures that the tax burden is shifted onto the end consumer, rather than being borne by businesses along the supply chain. The ATO provides guidelines and regulations for businesses to follow in order to correctly calculate, collect and remit GST.
Who Needs to Register for GST?
Businesses in Australia must register for GST if their annual turnover exceeds $75,000 or they expect it to exceed $75,000 in the next 12 months. Some businesses such as non-for-profit organisations, have a higher threshold of $150,000.
Most businesses that provide goods and services in Australia must register for GST if they meet this turnover threshold. This includes sole traders, partnerships, companies, trusts, and non-for-profit organisations. Businesses that import goods into Australia or sell goods to Australian consumers through an online marketplace may also be required to register for GST.
There are some businesses that are exempt for registering for GST, even if their turnover exceeds the threshold. These include businesses that only sell GST-free goods or services (such as basic food items, medical services, or education services), businesses that are not carrying on an enterprise in Australia, and businesses that are registered for the Pay As You Go (PAYG) withholding system but have no other GST obligations. Additionally, some businesses may be eligible for GST voluntarily, even if their turnover does not exceed the threshold.
Advantages of GST Registration
- Ability to claim input tax credits: Registered businesses can claim back the GST they pay on their purchases as input tax credits, which can reduce their overall business costs. This can be particularly beneficial for businesses with a high volume of purchase or those operating in industries with a high level of GST input.
- Access to larger market: Registering for GST can enable businesses to sell to other businesses or government agencies that require a GST invoice to claim back their input tax credits. This expands the potential market for the business, and can increase their competitiveness.
- Professionalism and credibility: Registering for GST can provide businesses with a level of professionalism and credibility, as it demonstrates that the business is operating legally and in compliance with tax laws. It can also help businesses to build trust with customers and suppliers, as they can provide a GST invoice which shows that they are a registered business.
Disadvantages of GST Registration
- Increased administrative costs: Registering for GST requires businesses to keep detailed records of their sales, purchases and GST collected and paid, which can increase administrative costs. Businesses also need to submit regular GST returns to the ATO, which can be time-consuming and require specialist knowledge.
- Impact on cash flow: Collecting GST on sales means that businesses have to pay this amount to the ATO, which can affect their cash flow. This is particularly relevant for businesses that have to wait for payment from customers before they can pay their GST liability. However, input tax credits can help offset this impact to some extent.
- Compliance burden: Registering for GST means that businesses must comply with a range of regulations and requirements set by the ATO. This includes keeping detailed records, issuing GST invoices, and submitting regular GST returns. Non-compliance can result in penalties and fines, which can be a significant burden on businesses. The complexity of the GST system can also make it difficult for some businesses to understand and comply with the regulations.
How to Register for GST
Businesses can register for GST online through the Australian Business Register (ABR) website. The steps for registration include providing details about the business, such as its ABN, business structure and contact information, as well as information about the business’s activities and expected turnover. Once the registration is processed, the business will receive a GST registration number and be required to start charging and remitting GST on their sales.
When registering for GST, businesses will need to provide their Australian Business Number (ABN), their business name and contact information, details about their business structure, and information about their expected turnover. Depending on the business structure, additional documentation may be required, such as identification for individual proprietors, partnership agreements, or company registration documents.
Businesses must register for GST within 21 days of reaching the $75,000 turnover threshold or the expectation of exceeding it in the next 12 months. If a business is not yet operating but expects to reach the threshold, they can register for GST before they start trading. Businesses that are registered for GST must submit regular GST returns to the ATO, which are usually submitted on a quarterly basis.
Consequences for Non-Registration
- Penalties and fines: Businesses that are required to register for GST but fail to do so can face penalties and fines. The ATO can issue a penalty of 1 penalty unit (currently $222) for each day that the business is unregistered, up to a maximum of 75 penalty units ($16,650). The ATO can also impose a fine of up to $10,500 for each false or misleading statement made in relation to GST.
- Interest charges: Businesses that fail to register for GST or fail to pay their GST liability on time can be charged interest on the amount owed. The current interest rate is 8% per annum.
- Legal consequences: Non-registration for GST can also have legal consequences. The ATO can take legal action against a business that fails to comply with GST obligations, including seeking a court order to wind up the business or appoint a liquidator. In some cases, non-registration can also result in criminal charges and prosecution.
Streamline Your Business Finances with Agilis
Registering for GST is an important step for businesses in Australia, but it can be complex and time-consuming. Partnering with a professional accounting firm such as Agilis CA can help businesses stay compliant and financially stable. Agilis offers personalised services tailored to the unique needs of each business, including bookkeeping, financial reporting, tax planning, and GST filing. By working with Agilis, businesses can focus on their core operations while leaving the accounting and GST obligations to the experts. Contact Agilis CA today to streamline your business finances.