Small business finance: 5 tips for managing cash flow effectively
GST, short for Goods and Services Tax, is something that customers pay as part of a purchase and businesses charge as part of a sale. Even though GST has been around for over two decades now, we understand for some it can still be a little confusing, especially if you’re a new business or just starting out on your small business journey.
To help you better understand what it’s all about (and what your obligations are as a small business owner), we’ve written up this article covering all the details you need to know. Hopefully, it eliminates your GST woes and helps you feel more confident when it comes to your business expenses and tackling this essential business element.
What is GST?
So, what is GST exactly? GST is a tax paid on most goods and services sold or consumed within Australia. (For a list of GST-free sales where GST doesn’t apply, you can visit the ATO website).
How is GST calculated in Australia?
The current GST rate is 10%, meaning if you charge $100 for a good or service, your customer will be charged $110. The additional $10 is the GST, which will need to be paid to the Australian Taxation Office (ATO). This $110 sale price would be considered GST inclusive, as the tax has already been calculated and included in the sale price.
It’s important for businesses to accurately calculate GST to meet their obligations and avoid any potential penalties. By maintaining proper records and staying updated with GST regulations, this can assist businesses in a smooth GST calculation and reporting process.
Simplifying the calculation of Goods and Services Tax (GST)
There are a few ways to go about calculating GST for products and services.
Adding GST
If you want to add GST to the existing price, simply multiply the amount by 0.1 (or 10%), which will give you the amount to add on. Alternatively, if you want the total price, multiply the original price by 1.1 (110%).
Subtracting GST
You may need to subtract GST to figure out how much GST is included, or the pre-GST price. To determine how much GST is included in a total price, divide the price by 11. If you want the total price before GST was added, divide by 1.1.
When it comes to calculating GST for your business, the Australian Securities and Investment Commission (ASIC) has a handy GST calculator that you can use to work out the amount of GST you will or should charge customers for a certain sale price.
Who should register for GST?
According to the ATO, if your business achieves a turnover of $75,000 or higher within any consecutive 12-month period, regardless of the financial year, it is legally mandatory for you to register for GST. It is important to remain vigilant about this threshold since once exceeded, you have a strict deadline of 21 days to complete the registration process.
Registering for GST is a relatively uncomplicated procedure. You can register online for GST through the Australian Business Register (ABR) or via the Business Portal on the Australian Taxation Office (ATO) website. By following the outlined steps on either platform, you can efficiently fulfil your GST registration requirements and ensure compliance with the relevant regulations.
Accounting for GST
As a registered business, you can add Goods and Services Tax (GST) to your sales price and claim credits for GST included in purchases. This way, businesses don’t bear the GST burden, instead, it’s passed to the end consumer. If your annual turnover is looking to exceed $75,000, contact your accountant to assist you in registering for GST and manage your tax obligations.
Effective cash flow management is vital for handling GST. Segregate collected GST from regular revenue to easily remit it to the Australian Taxation Office (ATO) and maintain smooth business operations. This strategy allows you to meet GST obligations without hindering daily activities, and manage cashflow effectively.
How do you pay GST to the ATO?
Here’s an example of what collecting and paying GST on the sale of goods looks like:
A fabric manufacturer sells fabric to a dressmaker for $110 (including $10 GST). The dressmaker uses the fabric to make a dress, which they sell to a boutique for $220 (including $20 GST). The boutique then sells the dress to a customer for $330 (including $30 GST).
| Materials Fabric manufacturer sells fabric for $110, including $10 GST | Net GST to pay GST on sale: $10 Assume no GST credit: $0 Net GST to pay: $10 Fabric manufacturer pays $10 to the ATO |
| Production Dressmaker sells dress for $220, including $20 GST | Net GST to pay GST on sale: $20 less GST credit: $10 Net GST to pay: $10 Dressmaker pays $10 to the ATO |
| Distribution Boutique sells dress for $330, including $30 GST | Net GST to pay GST on sale: $30 less GST credit: $20 Net GST to pay: $10 Boutique pays $10 to the ATO |
| Retail Consumer pays $330 (including $30 GST) to the boutique | GST to pay $30 total GST is paid to the ATO |
When you make a taxable sale of more than $82.50 (including GST), your GST-registered customers must be given a tax invoice to claim a GST credit. If they request one and you don’t provide it at the time, you have 28 days from their request to supply it.
If you’re a business using Tyro, you can easily access tax invoices (that clearly outline the GST amount) through the Tyro Portal. To generate a tax invoice in the Tyro Portal, head to Cost > Invoices, select the month you’re after, and click ‘Download PDF’.
GST reporting: Submitting your Business Activity Statement (BAS)
To report GST, you’ll need to submit your Business Activity Statements (BAS) periodically as per the ATO website. These documents should include all the GST charged on your sales and the input tax credits used on your business purchases.
If you’re a Tyro customer, you can ensure the efficient reporting of GST through your BAS by opening up a Tyro Bank Account.
Once you’ve opened a Tyro Bank Account, you could set aside 10% of your daily takings for your BAS payment by setting your Flexible Settlement Percentage2 to 90%. That way you can both secure sufficient funds for the GST portion of your quarterly BAS and earn interest on the remaining funds in your Tyro Bank Account. This approach ties your regular business operations directly to the GST reporting process described the ATO.
More information on the Tyro Bank Account here
Wrap-up: navigating GST compliance
GST is an inevitable part of running a business with a 12-month calendar turnover exceeding $75,000. It’s important that you understand your obligations (and how to meet them) so you don’t land yourself in any hot water.
Want to learn more about how the Tyro Portal can help you come tax time? Get in touch!
Disclaimer
Tyro provides this article for general information and educational purposes and does not take into account the financial situation or needs of any reader. The information provided must not be relied upon as financial product advice. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
Tyro may from time to time provide links to other websites for information purposes. The inclusion of links does not imply endorsement or support by Tyro of any of the linked information, services, products, or providers. Tyro does not accept any responsibility for any errors, omissions or reliability of such content and any use thereof is solely at the user’s risk. Please undertake your own assessment before relying on it.
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