Do I Need GST? The Advantages & Disadvantages Revealed

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So do I need GST? This is a common question any new or existing small business owner in Australia might be wondering.

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Time for a quick definition – GST is the goods and services tax levied on most goods and services sold in a country. In Australia, the GST is set at 10% on most of the goods, items, or services that are sold or consumed. As such with the current GST percentage in Australia, businesses have to take 1/11th of the price of goods and services imported by their consumers. Furthermore, a GST registered business must collect this extra money from the consumers and remit it to the Australian Taxation Office when it is due.

How Does It Work in Australia?

To put it in simple terms the registration for GST in Australia is mandatory for:

  • All businesses with a turnover of $75,000 and above.
  • Non-profit organisations with a turnover of at least $150,000.
  • Limousine travel or taxi businesses (ride-sourcing) regardless of the turnover.
  • Businesses or enterprises seeking fuel tax credit claims regardless of the turnover.

However, there are special rules that apply to non-residents. Otherwise, GST registration for any other business that’s not mentioned above is optional.

So, if you decide to register, you must remain registered for no less than 12 months. Then, if you wish to deregister for it , you can initiate the process after this period.

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What Is GST Turnover?

How much is GST? How do caculate the amount of goods & services tax payable to ATO? The amount of money payable to the ATO is calculated by dividing the amount charged by 11.

  • GST charges = amount charged/ 11

For instance, if the total cost of a product is $550, the goods & services tax that will be paid to ATO will be calculated as follows:

  • $550/11 = $50

Therefore, this means that the business will pay $50 to the ATO as the GST tax.

Why Register For GST?

If your business already has a turnover of $75,000 in a financial year to date then you need . Second to that if your business has a turnover of less than $75,000, but it is expected to reach this figure by the end of the financial year, you need to register for goods & services tax.

Aside from this, you need to register for GST within 21 days after realizing that your business will exceed the GST turnover threshold. Therefore, you need to check your business turnover every month to ensure that it doesn’t exceed the set limit requiring registration.

GST Registration Process

If you meet the above registration threshold definition, you should register manually or online. The manual registration is done by contacting a BAS agent, a registered tax agent, or the Australian Tax Office.

For online registrations, you will need to have an Australian Business Number (ABN). You get an ABN when your first register the business name or shortly afterwards. However, you can also register an ABN at the same time to tick both boxes off – only do this again if you are confident that you will exceed $75,000 AUD revenue in the full financial year.

The Advantages And Disadvantages of GST


Now I am going to take you through both the advantages and disadvantages of registering for GST. First up its Advantages:

Advantage 1 – It helps small and medium businesses.

SMBs nowadays have a simple taxation approach, which means that they can file returns more easily and quickly. Additionally, a sole trader benefits from GST more than a large enterprise, especially in terms of taxation values.

Similarly, businesses can pay the goods & services tax quarterly, so they can hold onto the payment until its due date. As a result, they can use the collected taxes to improve their business’s cash flow as long as they can ensure that they have the payment ready by the deadline.

Advantage 2 – Businesses can claim GST credits for their operations.

While registering for the GST means businesses will need to add 10% to their base prices, this also allows them to claim goods & services tax credits for any services or products they avail for their business. This can help offset some of the more considerable expenses they have to undertake for their operations.

Advantage 3 – It enables the taxation of tourist industries

The tourism industry can now be taxed under GST. This is because the goods & services tax enables ATO to extract some revenue from the tourists, thus spreading tax incidence to lower overall tax rates which is a benefit.

Advantage 4 – It enables businesses to project a more positive image to consumers.

When a small business charges goods & services tax for their products and services this can positively impact public perception of their brand since it implies that they enjoy a turnover of more than $75,000 per year.

Of course, while there’s nothing wrong with having a turnover of less than $75,000 annually, it can make larger organisations hesitate if a small business wants to work with them. In this case, larger enterprises may end up questioning how capable a business is if they don’t have a turnover of at least $75,000.

Advantage 5 – It increases the visibility of a business’s overall performance.

One of the requirements of the GST is that businesses always need to keep their accounts up to date since they need to submit regular annual statements of their activities. While this can be tedious, this can also be beneficial for businesses who want to keep track of their company’s overall progress.

This information can be handy for analysing the business’s performance and preventing or mitigating any potential issues.

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The Disadvantages of GST

Of course, like with any other policy, there are disadvantages to the GST as well. Some of them include the following:

Disadvantage 1 – It Is is regressive.

GST hits the low-income earners the hardest because they pay a higher amount than high-income earners. Therefore, this is considered a regressive taxation method. Likewise, the government would also need to provide enough compensation if they were to lift the goods & services tax. In this case, the overall benefits of the GST will be nullified due to the amount of compensation needed.

Disadvantage 2 – The compensation for GST can be distorted.

GST compensation can increase disincentives for some groups like part-time working mothers, a group of workers entitled to family tax benefits. Therefore, the financial reward of working harder is canceled out since they will lose the tax benefits under the GST compensation scheme.

Disadvantage 3 – The changing consumption patterns affect GST’s base.

Consumer spending is no longer growing faster than the overall economy due to the global financial crisis. Additionally, the demand for goods exempted from GST increases faster than the goods subjected to further taxation. Therefore, this means that GST has slowly become irrelevant.

Disadvantage 4 – The digital economy is threatening GST collections.

As online shopping keeps growing, goods & services tax collections are affected. In this case, imported goods valued below $1000 are not subject to GST taxation. As a result, this threatens the domestic businesses as its harder to compete with these online businesses who can dodge GST on low value items.

Disadvantage 5 – It’s more administrative heavy

While submitting their Business Activity Statements (BAS statements) annually can give business owners deeper insights into how their company is performing, this can also entail additional administrative costs. After all, businesses will need to ensure their invoices are tax-compliant to qualify for goods & services tax.

In addition, small business owners who don’t have the time to do the accounting themselves will need to hire separate bookkeepers or accountants to ensure they’re complying with the requirements. This can be tough on companies that don’t really have the resources to do so.

Disadvantage 6 – It can affect a business’s cash flow.

Aside from the costs of onboarding another employee, businesses can lose their competitive edge if they charge more for their goods and services as a way to pay the 10% GST. Businesses selling more costly items are the ones most affected by this if they register for goods & services tax from the start.

FAQs

Can I do business without GST?

Yes. You can do your business without GST if your business is not required to register for it and earns less than the $75,000 threshold.

Is GST Mandatory For All Businesses?

No. Registration for GST is optional unless the business meets the following criteria:

  • Has a turnover of $75,000 and above.
  • Is a non-profit organization with a turnover of at least $150,000.
  • Is a limousine travel or taxi business regardless of the turnover.
  • Is seeking fuel tax credit claims regardless of the turnover.

Is GST Important for small businesses?

Yes, it is essential for small businesses because the burden of heavy tax payments is eliminated. This is because small businesses are exempted from paying for GST if the turnover is below $75,000.

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