Nudge Moments: When does my startup need to register for GST?

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Every second month Emma from Nudge Accounting answers a finance question (via Vlog or Blog) asked by a member of Microsoft Bizspark or the startup community. This month she answers the question of when does a start-up need to register for GST.

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Question: I’ve been talking to other start-up founders from the co-working space I work from and they are preparing BAS’ every quarter. Is this something I should be doing? Will I get fined from the Tax Office if I haven’t been?

Emma’s Response

Business Activity Statements (or BAS for short) must be prepared if your start-up is registered for GST. You need to register for GST if your start-up meets either of the following:

  • Your total sales for the current month and previous 11 months was $75,000 or more ($150,000 if your start-up is a not-for-profit) or
  • Your total sales for the current month and the next 11 months is expected to be $75,000 or more ($150,000 if your start-up is a not-for-profit)

If you do not reach the above thresholds, then you can still voluntarily register for GST.

I just realised I should have registered for GST, but I haven’t. What happens now? Can I get fined?

If you’re not registered for GST, but you should have been then you may have to pay the tax office penalties and interest. Not just that, but the Tax Office may make you pay 10% GST to them on the sales you made since the day you were required to be registered.Explaining this further, if you made $11,000 of sales from the date you became registered for GST to now then the ATO can make you pay them $1,000 (i.e. the 10% GST component of $11,000).

What does it mean to be registered for GST?

Being registered for GST means that you need to charge GST on Australian-based sales you make (although there are a few exceptions). GST is charged at a rate of 10%. So, if you normally charged a customer $10, you would now charge $11 (i.e. $10 + $1 GST). Sometimes client’s choose to “absorb” the GST themselves so that the cost to their client is no different. What I mean by this is that they might still continue to charge $10, but include the 10% GST as part of this price.

However, registering for GST also means that you can claim-back the GST you paid on purchases. For instance, if you purchase a Microsoft Office 365 subscription for $13.50/month, you can claim back the GST of on that purchase. Keep in mind though that if a lot of your purchases are from overseas businesses (such as Facebook), then there is no GST on that purchase so you cannot claim any GST back.

Why would you choose to register for GST if you don’t have to?

Sometimes start-ups choose to voluntarily register for GST. Generally the reason they do this is that their clients are Australian-based businesses that are registered for GST. As their client’s get to claim back the GST on these purchases, then their clients don’t “feel” the extra GST on top. So, basically the clients won’t be too fussed about GST being added to your invoice because they get the GST back anyway. And, when it comes to your expenses, by registering for GST it means you get to claim-back the GST on purchases you make.

How often do I need to complete a BAS?

You can either complete a BAS quarterly, monthly or annually. Most of our start-up clients are on a quarterly-cycle, meaning we complete their BAS’ every quarter. To be on an annual cycle, you must have sales of $75,000 or less (i.e. you voluntarily chose to register for GST). Monthly BAS’ only need to be prepared for big businesses with turnover of $20 million or more, however some small businesses choose to be on a monthly cycle. Generally they choose this option if they mostly receive a GST refund (as it means they receive the cash sooner).

Does anything else go on a BAS?

Yes, on a BAS there are other items which can be included.  The two which are most relevant to start-ups are:

  • Tax on staff wages: If you are at that stage in your start-up where you have staff, this is where you include the Tax which you take out of their wages before you pay them
  • Business Tax Instalments: If you had to pay tax on your previous year’s business tax return, generally you will be required to pay tax each quarter based on the tax you paid on that return. This means that by the time you prepare your current year’s tax return, then you would already have paid a series of tax instalments which can offset your tax bill.

Emma Petroulas is Client Happiness Director at Nudge Accounting . She also lectures in Small Business Accounting at the University of Technology, Sydney.

To have Emma answer your finance question next month, post a comment here or tweet using #Nudgemoments.