5 key points to consider when you register for GST

Is your business sales growth nearly at the point where you need to register for GST? You know that registering is straight forward enough but you’re worried about what the transition to being GST registered will mean for your business.

There are five key questions to consider to ensure a smooth transition.

1. When are you required to register for GST?

You must register for GST when the annual income in your business reaches $75,000. On a monthly basis that works out to $6250 per month.

You may need to register before you reach $75,000 if you’re consistently reaching $6250 per month. It is up to you to decide if your monthly income is consistent.

It’s important that you assess each month if you have reached the GST registration threshold, or are likely to reach it, as you need to register within 21 days of your turnover reaching the threshold.

You register through the ATO or can have your accountant register for you.

Make sure your books are up to date before you register as you will need current information.

What happens if you get to end of the tax year and realise that you’re over the threshold? In theory, the ATO can come and take the GST from you that you were meant to submit. The likelihood of them doing this is low however it's not worth taking the risk.

2. Will I lose clients when I register?

It is worth considering, in the months leading up to your GST registration, the impact on your clients when you register for GST.

If your clients are GST registered businesses, then the impact is likely to be low as they will probably be able to claim your services in their GST returns.

If your clients are not GST registered, then simply adding GST to your prices is going to mean a price increase for them.

Depending on the price sensitivity of the industry you’re in, and the last time you raised your prices, you may not lose clients. However, you need to start looking at the possible impact on your clients well before you register so you can consider all of your options.

3. Will I lose cash when I register?

Your cashflow may be impacted when you register for GST.

If you have a signed contract with a client before you register for GST you might not be able to simply add GST to your prices. You may need to absorb the GST as a cost to your business.

This becomes especially important when you’re not providing services to businesses as personal customers can’t claim your services as an expense and they won’t be registered for GST.

If you’re in a price sensitive market you may not want to put your prices up all at once. Again, you may need to absorb some of the GST.

This is another reason why it's so important to consider the impact of GST registration on your business well before you’re required to register. By considering the implications well in advance you’ll have more scope to review your contractual arrangements, make small price increases etc.

4. What do I charge GST on?

Once you’re GST registered the goods and services you sell in Australia are taxable,  unless they’re GST-free or input taxed.

Some of the common items which are GST- free are most basic food, some medical services and services where the recipient is outside of Australia. There are exceptions so be sure to carefully review what you need to charge GST on.

5. Which expenses can you claim GST on?

When you’re registered for GST, you can claim a credit for any GST that is included in the price of any goods and services you buy for your business.

Overseas companies are meant to register for GST in Australia if they are selling to Australians and their Australian turnover is greater than $75,000 per annum. However, not all of them do so.

You need to check the source documents that you receive from overseas companies, e.g. invoices, to ensure you aren’t missing out on the opportunity to claim GST credits. If the source documents don’t refer to GST then check the supplier’s website to see if there is an ABN number or GST registration number mentioned. You may need to contact the supplier directly to ensure you have the correct information and documents.

Your accountant wouldn't necessarily do this work for you so don't assume they will as you could miss out on GST credits.

Its sensible to review all of your expenses to check which have GST included, and which don't. This can change over time as businesses become GST registered.

Be aware that it’s not always straightforward to figure out which overseas based suppliers are GST registered.

A common example is Stripe. They’re considered to be a merchant facility, rather than a banking facility, which means they charge GST on their fees.

Another example is Facebook ads. Have you purchased them through the Australian subsidiary or the Irish subsidiary? Check your source documents so you know which entity you’ve purchased from and whether GST has been included.

Transitioning to being GST registered can be smooth. I recommend that you start to consider how GST will impact your business 12 months before you need to register to allow yourself plenty of time to get organised.

Ready to get your ducks in a row for your upcoming GST registration? Book a 20-minute call with me to discuss how I can provide the support you need.