Profit Analysis with Paypal fees + GST

[electricblue]

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Hey Guys,

I’m trying to figure out where I should consider GST…

In one sentence: If a customer pays $500 for a service through paypal, would the GST be 10% of the $500, or would it be 10% of the monies I receive after paypal takes their cut through transaction fees?

Details: Paypal charges me 3.4% +.30 of the $500. That fee once calculated is $17.30. Subtracted from the $500 it leaves me $482.70. Would the GST that the government takes be 10% of the $500 or 10% of the $482.70?

Why I need to know this:
I need to know this as I’m trying to figure out my exact profit margins when considering the costs of production.

Thanks everyone,

-E

[electricblue]

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Hey guys,

Actually – now I’m getting really confused. How does one figure out how much GST they’ll be taxed? I read somewhere that it could be up to 30% of the monies I receive, not 10%.

Which is it?

Thanks,

-E

[ScopeDrafting]

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Hi E,

GST is always 10% and is calculated (if you are registered for GST) on the invoice amount. The cost involve in collecting your money does not affect that. However if you pay GST on costs then you will receive a credit for that in you BAS.

It sounds like it would be worth your while gettingsome advice about GST from the ATO or a small business advice office.

Nathan

[Anonymous]

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Hi electricblue, and welcome to the forum.

There are some good introductory articles on GST over on the main part of the site, which might help you wrap your head around things in advance of chatting with your accountant. This one is a good starting point:
http://www.flyingsolo.com.au/finance/business-tax-tips/gst-for-small-business

Also: http://www.flyingsolo.com.au/finance/business-tax-tips/should-you-register-for-gst

Good luck, and we’ll look forward to learning all about your new venture.

Jayne

[electricblue]

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ScopeDrafting, post: 85547 wrote:

Hi E,

GST is always 10% and is calculated (if you are registered for GST) on the invoice amount. The cost involve in collecting your money does not affect that. However if you pay GST on costs then you will receive a credit for that in you BAS.

It sounds like it would be worth your while gettingsome advice about GST from the ATO or a small business advice office.

Nathan

Hey Nathan,

Thank you. I’m still a little confused. I’ll read the articles recommended by Jayne (thank you Jayne) shortly, but in the mean time could you clarify a few more specifics?

First note: we’ll be getting together with an accountant in the next month to officially set-up the business properly. However, in the next few days we will be taking sales internationally and domestically via paypal. So …

A. Regarding GST being 10% calculated on the invoice amount. Please clarify: if using paypal and having transaction fees, would that invoice amount be the $500 I originally charged the customer or would it be the $482.70 paypal leaves me with?

B. I understand now I can add GST on purchases that the customer would have to pay. (1) Can I charge GST at this point before the business is properly set up (even though we will be getting it set up), and (2) can the GST be charged internationally.

…

Essentially guys, where I’m at is this:
1. I know I need to get really clear on all the intricate details of running a business and get with an accountant and study up ASAP.
2. Since we’re launching a product in the next few days I need to at least figure out these basics ASAP, with the little time I have, before officially setting it up. While I had already calculated our profit margins – I neglected to consider the paypal fees or the 10% GST. In the end, it’s a matter of A. Having GST charged to the customer (thus not changing profit margins at all if I don’t consider that extra 10% they give me as ‘mine’ since it will be going to the government) B. Not charging the customer GST and noting I need to save aside 10% of the $500 for the government, or C. Not charging the customer GST and noting I need to save aside 10% of the $482.70 for the government.

Thanks everyone for your help, I sincerely appreciate it.

-E

[Anonymous]

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An ATO rep told me last week that international customers, technically, should see an amount inclusive of GST, but given that GST is not payable by international customers, it’s considered appropriate to offer the 10% as a discount on the advertised price… BUT… whether you do that or not is really up to you as it’s almost impossible to police.

As to whether you can charge GST on sales made prior to being registered, the answer to that is, no. However, if you register for GST in the same financial year that you made sales that were not inclusive of GST, then the GST you owe the ATO can be backdated to cover all sales from the start of the FY.

Similarly, if you’re not registered for GST, but during the FY you hit the $75k mark that then requires you to be registered, you would also have to pay GST for all previous sales back to the beginning of the FY.

So it might pay to add 10% to the price of sales you make before you are officially registered.

Save for the last sentence, that’s the advice I got from the ATO dude.

Ticcer

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