Goods and services tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed. Generally speaking, businesses that registered for GST need to include GST in the price of sales to their customers, as well as to claim credits for the GST included in the price of their business purchases. However, businesses do not actually bear the economic cost of the tax, although goods and services tax does get paid at each step in the supply chain. The trick is that the full cost of GST is borne by the final consumer, who cannot claim GST credits.
Which Businesses fall under GST?
Since the phrase “Small Business” is often open to interpretation, let’s delve into the technicalities and see which businesses need to register for goods and services tax.
If you happen to run a firm with GST turnover above the so-called GST turnover threshold — $75,000 or more — you must register for GST, while the GST threshold for non-profit organisations is $150,000 or more. If you, on the other hand, carry on a business that has a GST turnover of less than $75,000 (or a non-profit organization with less than $150,000), you then have a choice whether or not to register for GST. If you do choose to register, you must then stay registered for at least 1 year.
What happens when I register?
Once you register for GST, you automatically include GST in the price of most goods and services you sell or provide. There’s a little thing called the ‘activity statement’ and you need to complete one each month or quarter, or you can do an annual GST return. This reporting period is called a tax period and you can choose which one your business will use.
If you are, however, not registered or required to be registered for GST, you do not include GST in the price of your sales and you cannot claim credits for any GST included in the price of your purchases. This goes even if the credits are for your business. On the other hand, if you are able to claim the business expense as an income tax deduction, you will be able to claim the entire expense, including GST, on your income tax return.
What does this all mean for small businesses?
Almost all goods and services purchased online from overseas will have the GST attached starting from July 1, 2017. Federal Treasurer, Joe Hockey, has agreed with his state and territory counterparts and the tax currently only applies to overseas online purchases worth $1,000 or more.
“This will deliver competitive neutrality for Australian businesses,” says Mr. Hockey. “It will ensure there is a fair and equal treatment of all goods and services. If there’s leakage out of the GST, it is our responsibility — with the unanimous agreement of the states and territories — to plug the hole. Unquestionably, the low-value threshold has had a negative impact on Australian jobs and Australian businesses. What it effectively means is that we’re going to have taxation officials travel around the world and visiting these companies and asking them to register for GST purposes.”
Others believe that this Hockey’s GST move will only encourage Australian consumers to move from bigger websites to smaller websites, trying to avoid the aforementioned 10% tariff. Small businesses might just end up getting the upper hand here.