If you run a small business or operate as a sole trader, such as a barrister, it's important to understand what you need to do to comply with GST (Goods and Services Tax). GST is a tax of 10% on goods and services sold or used in Australia. It is usually included in the price of the goods or services and often appears as a separate line item on a receipt or invoice.
If you aren't currently registered for GST and your turnover exceeds $75,000 you will need to do the following:
register for GST
determine whether or not your invoices are taxable
issue tax invoices for taxable sales/services and include the price of the GST in those invoices
obtain tax invoices for your business purchases
account for GST on a cash or non-cash basis and set aside the GST you collect so that you can pay it when it is due
lodge activity statements or annual returns so that your sales/invoices and purchases are reported
Pay GST owing to the Australian Taxation Office or receive a GST refund
GST tax credits for business expenses
A GST credit, otherwise called input tax credits because they are a credit for tax paid on your business inputs, is a credit you claim for any GST included in the price you pay for business expenses. You claim GST credits (input tax credits) when you lodge your quarterly or monthly business activity statement (for more on business activity statements, see our article here.)
When can I claim a GST credit?
In order to claim GST in the form of a credit the following conditions must apply:
You use the business purchase solely or partly for your business, and the purchase does not relate to making input-taxed supplies. An input-taxed supply or sale is when goods or services are sold without GST in their price even though GST was included in the price of the inputs used to make or supply them.
The purchase price must include GST
You must provide payment for the item you purchased
You keep a tax invoice from the supplier
When you claim GST as a credit you need to make sure that your suppliers are registered for GST and that you only claim GST credits for the GST included in the price of the purchase. If you are unsure of their status, you can check the GST registration of an entity by searching their ABN on the ABN lookup website, which you can find here. You will not be able to claim GST credits where you have purchased business-related expenses from a supplier that isn’t registered for GST.
You cannot claim GST credits outside of a four-year time limit.
When do I need a tax invoice?
You will need to receive a tax invoice to claim GST credits for any business purchases that exceed $82.50.
You should wait until you receive the tax invoice before you claim the GST credit, even if this means you do so in a later reporting period. Your supplier has 28 days to provide you with the tax invoice.
TAX INVOICE IS INCOMPLETE
It is important that the tax invoice is valid, meaning the information provided is correct and complete. If the missing information is able to be obtained from other documents the supplier has given to you, it may be able to be treated as complete.
WHEN YOU DON'T RECEIVE A TAX INVOICE
If you do not receive a valid tax invoice within the 28-day period, or you are unable to supply missing information from other documents, you are able to request the ATO's permission to treat the invoice as valid by either emailing them at GSTmail@ato.gov.au, or writing to them at:
Australian Taxation Office PO Box 3524 ALBURY NSW 2640
To claim a GST credit for purchases that cost A$82.50 or less (including GST), you should have one of the following:
a tax invoice
a cash register docket
If you can't obtain one of the above, you need to keep a record of the purchase with the following details:
the name and ABN of the supplier
the date of purchase
a description of the items purchased
the amount paid.
When should I not be charged GST?
While it is important to understand whether or not you need to charge for GST, you should also be aware of whether or not your supplier should be charging you for GST.
Under the most recent law, GST applies to the following:
imported services and digital products
low value imported goods (from 1 July 2018)
You should only be charged GST on these sales if you aren't registered for GST. You must provide your supplier with your ABN and state that you are registered for GST. As a result, the supplier is not required to provide tax invoices for these sales.
You will need to obtain a refund from the supplier in the event that they wrongly charge you GST.
How to work out a GST credit
Tax invoices don't always specify the amount of GST included; they will often state simply that the price includes GST. In this event, you can easily work out the GST amount yourself by dividing the total price on the invoice by 11. The answer to this sum will be the amount of GST credit you can claim, assuming you used the item wholly for business purposes.
To illustrate, if the tax invoice was for $239, the GST would amount to $21.72.
For a purchase that you use both for business and private purposes, you will only be able to claim a GST credit for the amount you use for business purposes. For example, you can claim a credit of 50% of the GST you paid for a business expense if you used 50% of the purchase for business purposes.
It is important that you're across your total GST credits, because you can offset them against the amount of GST that you are required to pay to the ATO, and in the event that your GST credits exceed the amount you are liable to pay you may be entitled to a refund.
If you own a small business or are a sole trader and you're having trouble with claiming GST credits or need assistance with registering for GST or setting up your invoicing system so that you can issue tax invoices that include the GST price or require more information on GST credits and income tax deductions, reach out to us.
If you are running your own business or acting as a sole trader it is important that you understand how GST credits work.
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Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.