Goods and services tax, or more simply GST, was introduced by the Australian Government on 1st July 2000. It is a 10% tax on most goods and services provided in Australia. It was introduced with the idea that the end consumer would ultimately be paying the tax.
So how much does this GST cost my business?
The concept is that a business isn’t affected by the cost of GST. A business who is registered for GST collects GST on their sales and this amount is payable to the Australian Taxation Office (ATO). Any GST which has been paid on any purchases / expenses reduces the GST payable to the ATO. If a business’ sales GST exceed its purchases GST, then you pay the difference to the ATO, if your sales GST is less than your purchases GST, then you receive a refund from the ATO.
Easy right?? Well what about the cost of calculating the GST amount payable or receivable? In most instances a business will need to employ an Accountant or Bookkeeper to deal with this. It can become complicated when there are those transactions that don’t have GST at all. Add to that the monthly or quarterly Business Activity Statements (BAS) to be submitted.
Another cost is the expense of needing an accounting program that will deal with the calculation of GST.
Although not a necessity, a business with a high amount of transactions benefits greatly from having one.
What if a business isn’t registered for GST? The business in unable to collect GST on their sales and therefore unable to claim back the GST on purchases from the ATO. They therefore become the end consumer and must ensure that they have allowed for that GST in their margins.
If a business’ turnover (sales) reaches $75,000 within a 12 month period, they must register for GST. They also must be registered for at a minimum of 12 months.
So what about those business’ that weren’t required to be registered for GST, then their sales reach $75,000 in a 12 month period? They can fall into the trap that they are unable to increase their service or product price by 10% but are required to by law. Suddenly their profit margins are reduced by the amount of GST payable to the ATO. Yes, they can now claim a deduction for the GST on their purchases, but that should definitely be well under the GST applicable on their sales. The market determines rates in a large number of industries and when your market consists of individual consumers, not GST registered business’, it can be very hard to increase your price 10%. Now the business needs to absorb the GST cost into their profit margins along with the administration costs associated with it.
To say a business isn’t affected by GST as they are just collecting it on behalf of the ATO couldn’t be further from the truth.