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GST, short for Goods and Services Tax, is something that customers pay as part of a purchase and businesses charge as part of a sale. Even though GST has been around for over two decades now, we understand for some it can still be a little confusing, especially if you’re just starting out on your small business journey.
To help you better understand what it’s all about (and what your obligations are as a small business), we’ve written up this article covering all the details you need to know. Hopefully, it eliminates your GST woes and helps you feel more confident when it comes to tackling this essential business element.
What is GST and how is GST calculated?
So, what is GST exactly? GST is a tax paid on most goods and services sold or consumed within Australia. (For a list of GST-free sales where GST doesn’t apply, you can visit the ATO website).
The current GST rate is 10%, meaning if you charge $100 for a good or service, your customer will be charged $110. The additional $10 is the GST, which will need to be paid to the Australian Taxation Office (ATO). This $110 sale price would be considered GST inclusive, as the tax has already been calculated and included in the sale price.
Calculating GST
There are a few ways to go about calculating GST for products and services.
Adding GST
If you want to add GST to the existing price, simply multiply the amount by 0.1 (or 10%), which will give you the amount to add on. Alternatively, if you want the total price, multiply the original price by 1.1 (110%).
Subtracting GST
You may need to subtract GST to figure out how much GST is included, or the pre-GST price. To determine how much GST is included in a total price, divide the price by 11. If you want the total price before GST was added, divide by 1.1.
When it comes to calculating GST for your business, the Australian Securities and Investment Commission (ASIC) has a handy GST calculator that you can use to work out the amount of GST you will or should charge customers for a certain sale price.
Registering for GST
If your business has a turnover of $75,000 or more for any 12-month period, not just the financial year, you have a legal obligation to register for GST. It’s important to keep an eye on this threshold because once you surpass it, you have 21 days to register your business for GST.
Registering for GST is a fairly straightforward process that can be conducted online through the Australian Business Register (ABR) or via the Business Portal on the ATO website.
Accounting for GST
As a registered business, you can include GST in the price of sales to your customers and claim credits for the GST included in the price of your business purchases. So while GST is paid at each step in the supply chain, businesses don’t actually bear the economic cost of the tax; instead, the cost of GST is borne by the final consumer who can’t claim GST credits. (If your business’ turnover is more than $75,000, you can register for GST if you’re spending a lot on supplies, to claim the GST credits back.)
Here’s an example of what collecting and paying GST on the sale of goods looks like:
A fabric manufacturer sells fabric to a dressmaker for $110 (including $10 GST). The dressmaker uses the fabric to make a dress, which they sell to a boutique for $220 (including $20 GST). The boutique then sells the dress to a customer for $330 (including $30 GST).
| Materials Fabric manufacturer sells fabric for $110, including $10 GST | Net GST to pay GST on sale: $10 Assume no GST credit: $0 Net GST to pay: $10 Fabric manufacturer pays $10 to the ATO |
| Production Dressmaker sells dress for $220, including $20 GST | Net GST to pay GST on sale: $20 less GST credit: $10 Net GST to pay: $10 Dressmaker pays $10 to the ATO |
| Distribution Boutique sells dress for $330, including $30 GST | Net GST to pay GST on sale: $30 less GST credit: $20 Net GST to pay: $10 Boutique pays $10 to the ATO |
| Retail Consumer pays $330 (including $30 GST) to the boutique | GST to pay $30 total GST is paid to the ATO |
When you make a taxable sale of more than $82.50 (including GST), your GST-registered customers must be given a tax invoice to claim a GST credit. If they request one and you don’t provide it at the time, you have 28 days from their request to supply it.
If you’re a business using Tyro, you can easily access tax invoices (that clearly outline the GST amount) through the Tyro Portal. To generate a tax invoice in the Tyro Portal, head to Cost > Invoices, select the month you’re after, and click ‘Download PDF’.
Reporting GST
To report GST, you’ll need to submit your business activity statements (BAS) periodically as per the ATO website. These documents should include all the GST charged on your sales and the credits on your business purchases.
Wrap-up
GST is an inevitable part of running a business with a 12-month calendar turnover exceeding $75,000. It’s important that you understand your obligations (and how to meet them) so you don’t land yourself in any hot water.
Want to learn more about how the Tyro Portal can help you come tax time? Get in touch!
Disclaimer
Tyro provides this article for general information and educational purposes and does not take into account the financial situation or needs of any reader. The information provided must not be relied upon as financial product advice. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
Tyro may from time to time provide links to other websites for information purposes. The inclusion of links does not imply endorsement or support by Tyro of any of the linked information, services, products, or providers. Tyro does not accept any responsibility for any errors, omissions or reliability of such content and any use thereof is solely at the user’s risk. Please undertake your own assessment before relying on it.
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