GST for small business
If GST causes you stress, here are some simple concepts you need to understand, and some strategies for bringing GST for small business under control.
Should you be charging GST?
Businesses generating less than $75,000 of income per year are exempt from charging GST. But if you have the choice, that doesn’t necessarily mean you should avoid collecting GST.
If you’re working towards earning more than the threshold, then it’s smart to begin with the end in mind. Remember, most of your clients will expect to pay GST. This is particularly important if you’re providing products or services to other businesses, who generally don’t factor the GST component into their costs, business plans or budgets.
Also consider whether it will be beneficial to claim back the GST in the same quarter in which it is incurred. This applies particularly to soloists whose operating costs are a high percentage of their income. You’re able to claim the GST as an operating expense in your tax return, but it won’t have the same impact as claiming back all the GST each quarter.
GST and invoices
It’s important that your invoices state whether or not they include GST, and if you’re charging GST you must issue a Tax Invoice that clearly states the amount of GST it includes. On the other hand, if you’re not charging GST you’ll need to issue an Invoice that clearly states ’No GST has been charged’.
"One of the most important aspects of successful GST management is to remain aware that the GST you collect is not your money."
As a purchaser, when you receive an invoice from a supplier that doesn’t charge GST, you need to record it correctly, and make sure that you don’t inadvertently over-claim GST. The full amount is your cost.
Remember that it’s not really your money
One of the most important aspects of successful GST management is to remain aware that the GST you collect is not your money. It belongs to the ATO and is merely in your possession for a short time before you must hand it over.
If you’re not careful, collecting GST can cause problems for your cash flow, so I highly recommend that you create a separate bank account and regularly siphon off the GST you’ve collected into it. Whether you do it daily or weekly, put 10% of the funds that come into your business into that account.
My clients who do this never have BAS payment issues. There are numerous high interest accounts that are easy to set up and many don’t charge any fees. Stash the GST in one of them, and not only will you always have the cash in the bank to pay your BAS, but you’ll even earn interest on it. If you have employees, stash the PAYG tax into that account as well.
Choose a payment cycle that suits you
One of my clients has recently moved from paying GST quarterly to paying monthly because it’s easier for her cash flow. I can hear some of you groaning at the thought, but sometimes doing things more regularly does make it easier. If you struggle to keep on top of your BAS on a quarterly basis, this could be a good option for you.
Visit the ATO website for more in-depth details of GST for small business and its implications for invoices.
Are you a GST-genius who’s managed to tame the BAS-beast? Please share your expertise with others!