The small business landscape is difficult enough to navigate at the best of times without worrying about tax. However, as accountants we see business owners get stumped quite often on some tricky tax policies which can cost a lot of money if overlooked. One being the Goods and Services Tax (GST).
It can be a confusing grey area for small businesses to really understand, especially if they haven’t dealt with BAS in the past. When you start to think and consider GST, a good starting point is always with common mistakes and mishaps to avoid.
Here’s a helpful list of 5 common mistakes when it comes to GST:
Whether you’re a completely new business or a growing one, knowing if and when you should register for GST can be confusing.
For a small business, you need to be registered for GST if you have, or are expecting, a gross annual income above $75,000.
You can also register too early and too late. If you buy a lot of products for your business and dont register for GST early, you could be giving up thousands of dollars of GST on your purchases unnecessarily. Visit the ATO for more info.
2. Are You Invoicing GST?
Sometimes we see clients register for GST (yay) but once they register forget to add the 10% GST to their tax invoices (not so yay).
If you are a business in Australia that has an annual income exceeding the threshold of $75,000 then yes you are required to include GST to product or service costs.
Online invoice software platforms such as Xero, Quickbooks and Invoice2Go (and countless more) are easy and efficient methods of sending and tracking tax invoices with GST included to clients and customers.
If you have an online store where most of your payments are made, make sure you have GST added to the purchases at the ‘checkout’ stage.
3. Important Deadlines
Ahhh, deadlines, deadlines, deadlines!
Annoying, yes, but important to know and keep up with.
Missing important lodgement dates and deadlines can lead to penalties and fees sometimes so it’s best you stay up to date or use a registered business accountant. You need to lodge your GST turnover (total income with GST eligibility) with your Business Activity Statement (BAS) either monthly, quarterly or annually.
Visit the ATO for more information.
4. GST with Overseas Transactions
As a small business owner or team, you may find yourselves purchasing stock, equipment or products from overseas suppliers and businesses.
In terms of GST…here’s the catch. Overseas transactions may not have GST included, instead GST, customs and import duty is charged separately when the goods enter Australia. Either way, GST free and GST on imports must be entered on your BAS. Its important to note GST on imports (ie. the GST charge when goods enters Australia) is 100% GST, not an expense with 10% GST!
It’s also important to understand that many other small businesses may not be GST registered so if you’re buying from them, there’s no GST to be claimed.
5. Work Equipment or Personal Use
Claiming GST on assets or equipment for business purposes is often fairly straight forward.
You’ll be able to claim the full GST deduction (or a GST credit) on assets where it is used for only business purposes. It’s when you mix the asset with business and personal usage that GST tends to get a little trickier.
Obviously as a business claiming a GST credit, the purchase needs to be for business use. If you use the asset/ purchased item for private or personal reasons such as motor vehicles you will only be able to claim the business portion of GST.
As an accounting firm with decades of experience in small business, BAS and bookkeeping we always recommend double checking your GST deductions and costs. If you’re unsure seek out a reliable and trustworthy tax professional to review and consult with you.
For any more information regarding GST or small business tax visit the ATO’s website or call the team at ABA Tax on 1300 797 175 or email us at firstname.lastname@example.org.