Are you Starting a New Business? Let us explain your basic of GST

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With a handful of exceptions, GST is charged on every single purchase we make.

Of course, you’ve only got experience with the customer side of the GST equation. Now that you’re opening up your own small business, however, it’s important that you understand how the business side of GST works.

It’s crucial that you understand your obligations and duties vis-a-vis GST before you open your small business. Not only because it’s a legal obligation, but because failing to meet your obligations could land your business in hot water with the ATO!

So, where can you start?

Collecting GST

All businesses collect GST – even the ones that aren’t GST registered.

Luckily for you, unless you do your bookkeeping and accounting by hand, you won’t need to worry about filling out spreadsheets.

Any bookkeeping or accounting software worth its salt will fill this in automatically and calculate the amount of GST you’ve accrued for you.

Accounting for GST collected

If you look at your accounting software, you might notice something strange. Specifically, that GST accrued is listed as a liability rather than an expense!

That’s because when you get down to it, any GST you collect is a debt (or “liability” in accountant-speak).

While you may have collected it, it’s not your money, it’s the ATO’s money – you’re just holding it for them until tax time comes around.

And when it does come around, you’re obligated to pay that money to the ATO. Functionally, it’s identical to a debt – hence, it’s treated as one.

Are you a GST-registered business?

While every business collects GST, not all businesses are GST-registered.

When we say GST-registered, we specifically mean businesses that:

  • Have an annual turnover of $75,000 or more
  • Turnover of $150,000+ annually (if you’re a non-profit)
  • Offer taxi or ride-sharing services

Basically, if your business is registered for GST, your invoices will include a tax component.

Essentially, all your receipts and invoices will double as tax invoices and need to have “tax invoice” printed on it somewhere.

While registering for GST may put a little bit more work on your plate, it also comes with its own advantages – namely, it gives you the opportunity to claim an input tax credit (more on that below). 

Paying GST: the other half of the equation

Your business doesn’t just collect GST – it pays it too.

Any business purchases you make – tools, office equipment, raw materials – come with GST.

What you mightn’t know is that your business may actually be entitled to a GST refund!

Are you eligible for a GST refund?

Have you bought anything with the intent of using it at your business?

If so, you’re eligible for an input tax credits.

If you’re a GST-registered business, you can get any GST you paid throughout the year refunded, end of a story – provided you adhere to a couple of common-sense rules, of course:

  • The purchase is intended solely for use in your business
  • The purchase price listed GST (that means it came from a fellow GST-registered business)
  • You have a tax invoice proving you made the purchase

If you meet these conditions, you can claim a GST credit equal to the amount of GST you paid.

Accounting for GST paid

In accountant-speak, GST paid is treated as a receivable.

Think about it.

While money might have gone out of your wallet, you’ve entitled to a refund of that money thanks to input tax credits. While you mightn’t have the money now, it will be paid back in the future.

Functionally, it’s more or less identical to a customer paying on credit.

When you make any business-related purchases – tools, office equipment, raw materials – you list the GST component of the purchase separately from the expense. Specifically, you record it as a debt owed to you.

GST for business: the role a BAS plays

What do you do with all the GST you’ve collected on behalf of the ATO? How do you let the ATO know that they owe you a GST refund?

Why, you tell them, of course. And to do that, you need to fill out a BAS.

Business Activity Statements (BAS) are forms submitted to the ATO by GST-registered businesses.

This is a form you’ll have to become very familiar with as a business’s owner, as it outlines all of your tax obligations such as income tax and luxury goods tax, as well as your entitlements and deductions.

And with regards to GST, that means all the GST you collected throughout the year and any GST you paid.

Using the information on your BAS, the ATO collects GST your customers have paid, as well as refunding any money that you’re entitled to.

As you can imagine, accurate BAS accounting is crucial. This isn’t something you’ll want to mess up – if you’re feeling anxious, we recommend calling a small business accountant to help you out!

The role your small business accountant plays in all of this

Thinking of starting up your own business? Taking your existing business to the next level? 

One of the first things you’ll have to do is wrap your head around GST, and what that means for you.

Opulent Accountants specialize in helping small businesses with all their accounting needs.

On top of helping you figure out how GST affects you, we can also look after your BAS for you, ensuring that your obligations are accurately recorded and that you receive what you’re owed.

Start your business on the right foot – call us today on 03 8838 8726 or click here to set up an appointment with our experienced team of accountants.

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Nishant Kosambi
Nishant Kosambi
2 February 2023
Excellent work by Dayan, Chamie, Lihini and the entire team. They have always been very professional and helpful. They have taken care of my business and personal tax obligations for many years. They have also sought financial solutions for me. I am very happy with how thorough Dayan is with his work. Clear communication and regular follow-ups all the way. 5 stars for this gem of a person and his team.
Ajith Ratnarajah
Ajith Ratnarajah
6 November 2022
These guys are very professional. You get the best of both worlds of a personalised service from a company rather than from an individual accountant. Their processes are well established. I would strongly recommend Opulent for any small, big companies and high net worth individuals.
Da Bella
Da Bella
12 August 2022
I consider myself extremely luck to be introduced to Dayan and his team. I found the solution to my loan requirement in one meeting itself...Super efficient, friendly and humble....Opulent finance rocks!!
srikanth chintalapudi
srikanth chintalapudi
11 July 2022
Dayan and his team did it again!!! They're proactive and provided timely advice in the recent sale of my investment property. They're advice saved me a lot of $$. Dayan and his team have been assisting me for the last 10+ years and they're always a lifesaver. Highly recommend!
Chamith Subasinghe
Chamith Subasinghe
15 February 2022
The team at Opulent have been extremely helpful and resourceful in securing a home loan for me. The responses have always been quick and progress made quickly through the loan application process. The advice provided by Opulent is high quality and very useful, special call out to Ishara and Dayan who have been very knowledgeable, experienced and professional. I have recommended Opulent to my friends and they have had positive experiences as well. I would highly recommend giving Opulent a go!
Daniel C
Daniel C
26 December 2021
Highly recommend Opulent Accountants! I've been lucky enough to deal with Hasi, Dayan and Charlene and all three of them have been a great help. Thanks guys.
5 November 2021
Great Accountants and Mortgage Brokers. Prompt, Professional, Well-informed and Responsive.
Kesh Aryaratne
Kesh Aryaratne
11 October 2021
The team at Opulent are professional, accessible, friendly and most importantly prompt in getting matters sorted. I have had the pleasure in dealing with both Dayan and Hasi who have guided me throughout and have been extremely helpful in getting my complex tax matters sorted on time and in a professional manner. Great work guys.
Mukesh S
Mukesh S
29 September 2021
I was apprehensive to take the plunge into refinancing my loans. However Dayan and his team were very patient and made it a point to respond to all my queries and doubts . They must be leading busy lives themselves, however they were flexible and accommodative of my requests for meetings at close of business hours. Further I noticed that they are particular in their and the customer's paperwork. Along with Dayan, I'd like to call out the efforts put in by Ishara for ensuring a smooth transition. She has ben patient with my many queries and diligent in her handling of the paperwork. Thank you Dayan and team.