One of the first decisions to be made when starting a new business is whether or not you should register for GST.
Registering for GST comes with a number of reporting requirements, so it’s not a decision to take lightly. Registering and charging GST is only compulsory when your business hits a certain revenue threshold. So, save yourself the paperwork and read this first to see if you need to comply.
Consider these key issues before registering for GST
What will your turnover be?
Many business owners automatically register for GST, unaware that in some circumstances it may be optional.
Currently, it’s mandatory to register for GST if you expect your annual turnover to be $75,000 or more.
However if your turnover will be less than this, registering for GST is optional, and you should consider the cash flow and administrative implications of your decision.
Cash flow implications of registering for GST
If you’re forecasting a turnover below the mandatory $75,000 threshold, not registering for GST means your selling prices will effectively be 10 per cent cheaper than those of your GST-registered competitors. Or you could charge the same price as your competitors and enjoy a healthier profit margin.
On the other hand, you won’t be able to claim back the GST on your expenses or on any goods you purchase for sale.
Also bear in mind that some businesses are wary of buying from those that are not registered for GST, perhaps questioning their credibility. This may affect your sales. Furthermore, some businesses prefer to purchase from GST-registered businesses just so they can claim the GST back.
On the negative side, GST registration means additional administration work, and reporting to the Australian Taxation Office (ATO), typically on a quarterly basis. A registered business has two distinct roles, the running of the business, and acting as a tax collector for the ATO.
However, being forced to maintain your financial records in a timely manner often provides valuable insights that assist in the management of the business, so the admin involved in completing your business activity statement (BAS) may be a blessing in disguise.
In addition, your decision about whether or not to collect GST has implications for the information you’re required to include on your invoices.
What type of business would benefit from not registering for GST?
A business with high service-based sales and minimal expenses and capital purchases may benefit from not being registered for GST, if that option is available to them.
For example, a GST-registered business with an income of $70,000 excluding GST, and outgoings of $10,000 excluding GST, would be required to remit $6,000 collected GST to the ATO. This creates a negative impact on their cash flow, as well as additional paperwork. On the flipside if your non-registered business turns over $70,000, it’s all yours – or at least until the time comes to pay your income tax!
As with all tax issues, you’ll need to speak to your tax accountant about whether or not you should register for GST in your individual situation.
This post was originally published June 23 2019 and was updated Aug 4 2021.
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