Goods & Service Tax Explained
Once your Annual Business Turnover is $75,000 or more, you will be required to register for Goods and Services Tax (GST) and to complete and lodge a Business Activity Statement (BAS) with the Australian Taxation Office (ATO).
GST is levied at 10%. This means that you must add 10% to your sale price (yes, the ATO essentially makes you a tax collector!). You must set aside the 10% to the ATO once your total BAS liability is calculated at BAS time. You are required to lodge your BAS quarterly or monthly, depending on the size of your GST collections.
Pro-Tax Tip: When you collect your GST from your customers, it’s a great idea to bank it into a separate BAS bank account. This helps you keep your own money separate from the ATO’s money. Large amounts of GST in your operating account can give a false sense of security and make it impossible for you to see your true cash position. When your BAS becomes payable, you will have the money ready to pay to the ATO.
What are GST claims?
GST claims are credits that you have paid as part of business expense on items used to create your income. These are Input Tax Credits. The Australian GST system allows you to claim back these GST credits.
To calculate your eligible input tax credits, you’ll need to calculate the GST that you have paid (or in some cases, are liable to pay) on your business expenses.
On the one hand, you collect GST on your sales and on the other hand you claim back GST on your purchases. The amount that you send to the ATO at BAS time is the net of these two amounts.
For example, you might have invoiced your customer $220, which includes $200 of your sales plus 10% GST. You should set aside $20 into your BAS bank account.
Say you paid expenses of $33 including $3 of GST, you are able to claim back the $3 of GST paid.
At BAS time you will owe the ATO $ 17 being $20-$3. The details of your sales, GST Collected, and GST claimed are all returned on your BAS form and sent to the ATO.
Business Criteria
Before you make a claim, you must be sure that you meet the criteria. You must demonstrate that you are in a business by:
- Striving to make a profit
- Keeping records on your invoicing and expenses
- Providing commercial goods or services
- Marketing and advertising
- Developing a business plan
You cannot claim GST expenses for any activity that the ATO considers to be a hobby. Your activity will be considered a hobby if:
- Not trying to make a profit.
- Not going about it in a business type manner.
- Is irregular inactivity
- Done for enjoyment and satisfaction
If you have claimed GST for a hobby, you should cancel your ABN and GST registrations. You must also amend prior BAS forms where you have claimed GST credits for your hobby and repay that to the ATO.
What are the rules about claiming GST Input Tax Credits?
There are complex rules that dictate your entitlement to claim GST credits. Expenses must be related to your business-related and incurred as a part of your expenses from which you have provided your goods. If your expenses have any personal portion, you will need to calculate and claim the business-related portion only.
If the purchase price, including GST, is over $82.50, you must keep document evidence in the form of an invoice or receipt. If your invoice doesn’t list GST, check your suppliers GST status. If you’re unsure that your supplier is GST registered, you should check the GST registration on the ABN Lookup Website.
In order to claim the GST credit, you must have paid, or be liable to pay, the GST on the item. You must keep the tax invoice as a hard copy or digital copy, as proof of the purchase made.
There are certain items that you cannot claim GST credits on. They include wages, GST free purchases, loans, interest expense, Some Bank fees, Any items purchased for private use, entertainment expenses, residential accommodation, and land purchased. Special rules relating to GST credits for some motor vehicle costs.
If you’re unsure about what to claim, it’s best to seek advice.
A2B Bookkeeping – We can help!
Accurate and timely bookkeeping is vital to making correct GST claims. It is best to use an experienced bookkeeper. This will give you time to work on your business and ensure that you avoid unwanted ATO attention.
Our specialist bookkeeping division has cost effective Bookkeeping & BAS services to streamline systems and maximise your BAS and Tax claims. All our team work from our office in Capalaba (Brisbane), and we do not outsource to staff overseas.
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Material on this website is general in nature and does not take into account your particular circumstances. Before you make any financial decision based on this advice, you should consider, with an adviser, whether it is appropriate to your individual financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Every effort has been made to check the accuracy of the information contained on this page and on this website, Accountants 2 Business, its officers, representatives, employees, and agents disclaim all liability, for any mistake or omission contained in this website for any loss or damage incurred by anyone relying on the information.
