When do I need to charge my customers GST?
The acronym ‘GST’ gets thrown around a lot, and is generally tied up with another acronym – the ‘BAS’. From a tax and compliance angle, GST is one of the big things you’ve got to get right – if you stuff it up, the ATO can turn around and ask you to pay more tax – in the form of additional GST payments. So what exactly is GST? and when do you need to start charging customers GST?
What is GST?
GST stands for Goods and Services Tax. It is a tax of 10% which is applied to most Goods and Services in Australia. The 10% GST is included in the sale price you charge to customers, which means that businesses need to factor this additional tax into their pricing. For example, if you want to sell a product for $50, adding 10% GST to the price means a selling price of $55.
Alternatively, if you want your final sales price to be $50, then GST of 10% (i.e. $4.55) needs to be included. This is a big-deal for businesses when it comes to pricing their products or services, as not getting this right can really impact your calculations and profit margins.
Who needs to register for GST?
Aussie Businesses must register for GST if your turnover is $75,000 or more ($150,000 for non-profit organisations). Turnover is based on your total sales (not profit), and you reach the threshold if your current turnover (current month and prior 11 months) reaches $75,000 or if your projected turnover (current month and the next 11 months) is expected to reach $75,000. If your turnover is less than $75,000 GST registration is optional.
I’m now registered for GST. When do I include GST on my invoices?
The goods and services you sell in Australia are generally taxable (which means you must include GST), unless they are “GST-free” or “input-taxed” sales. So, working backwards, the easiest way to determine whether you need to include GST on your invoices, is to always included GST on your invoices, unless they are sales which are “GST-free” or “input-taxed” (see below).
(1) GST-free sales
If the sales you make are GST free, you do not need to charge GST on your invoices. GST free sales come about in the following instances
- Main GST-free products and services
Sales in the areas of health and education largely GST-free. As too are many food products. A full listing of the relevant categories is available here.
Goods exported overseas within 60 days from the earlier of; when you receive payment or an invoice is issued, are generally GST free. Similarly, when a service is provided to someone overseas and the service is used overseas, it is generally GST free. More information is available here.
(2) Input-taxed sales
Similarly, if the sales you make are input-taxed you do not need to charge GST. Most input-taxed sales relate to selling financial supplies (such as lending money) or if you rent out residential properties in your business. Further detail on input-taxed sales is available here.
It is important to spend time understanding when you need to register for GST and when you need to charge customers GST. Remember, getting GST right is important both for compliance, and also for strategy – in terms of planning and decisions around pricing.
Disclosure: This article is not intended to replace in any way professional accounting advice.