This is the $64m question that doesn’t really have a right or wrong answer. Basically, if you are expecting to generate under $75,000 in your business for a financial year period, then you do not have to register for GST. Once your business exceeds this threshold, or even if you anticipate it might, then you must register for GST.
GST, or Goods and Services Tax, is applied to anything that attracts a tax according to the Australian Government. This can be a good or service as the name suggests. If you have a business selling clothing for example, this attracts GST. The GST in Australia is currently set at 10% (as at 2017). Therefore, a 10% tax is added to the overall product or service cost, which is then paid to the government. As a business registered for GST, you must complete quarterly report statements known as BAS (Business Activity Statement).
Instead of answering the question as a straight answer, we are going to give you the pros and cons of registering for GST under the $75,000 threshold.
Pros of registering for GST under the $75,000 threshold:
Gives the impression you are a big fish: Big businesses are all registered for GST because of their huge turnovers. If your business is not registered for GST, you are admitting that your business generates less than $75,000 a year. Registering for GST could give the impression you are bigger than you are therefore adding to your credibility.
Monitor and track growth: Registering for GST brings along with it quarterly BAS reports as we mentioned earlier. The benefit of these reports is you can see how your business is tracking and your growth and profit margins. This is a good tool to keep track of your business activity and set KPI’s to meet each month.
Good habit for the future: BAS reports can be daunting for a lot of small businesses. Getting onto them early when your business is just starting out is a good opportunity to feel your way through while you have less instances to report on instead of battling them down the track.
Claim tax: If you are registered for GST, you can claim back 100% of the GST you have spent on expenses in your business.
Temporary cash-flow: You can gain some temporary cashflow on your sales with the extra GST component on your prices. You only have to pay this back every 3 months, so you will have a little extra to play with during that time.
Cons of registering for GST under the $75,000 threshold:
You have to submit BAS reports: It’s no secret that a lot of small businesses dread BAS reports. It is a lot of paperwork especially if you are not generating the $75,000 threshold. Some small businesses see this as a poor use of time.
Claim tax: Not being registered for GST means you can only claim your marginal tax rate back. If your marginal tax rate is low this isn’t so much of an issue. But the higher it is, the less you claim back.
Higher prices: If you are registered for GST then your prices will reflect this. Your competitors who are not registered could be seen as cheaper because their prices do not contain GST.
Cash flow: You are required to pay back the GST component on your sales at the end of each reporting period. If you haven’t kept this aside or generated the required amount to pay you could be caught out.
As you can see, it isn’t as black and white as you might think. You need to assess your own personal situation and decide with the guidance of your accountant which way is best for you and your business.
Your account can manage your quarterly statements and reporting on your behalf which does save a lot of time and paperwork from your end.
All information given in this article should be used as a guide. We recommend you speak with an accountant about your personal business circumstances to ensure you are receiving the right advice for your situation.
Are you unsure if you are doing the right thing for your business? Please phone Nicole on 1300 001 971 or email for tailored advice to your business needs.