Entities carrying on enterprise are required to register to collect GST, if their turnover exceeds or is expected to exceed $75,000 p.a. ($150,000 p.a. for not-for-profits).
Turnover estimates are based on the following three aspects:
- past 12 month history
- current trading
- projected next 12 months
It is, however, possible to register for GST if even if your projected turnover is less than the minimum threshold.
The following article outlines some reasons why you may or may not want to do this.
For simplicity, I will assume that the business is a sole trader entity (individual) and will ignore projects of a capital nature.
The outcome of a cost benefit analysis may be different for a service based business, an exporting (Internet) business, or a business selling GST Free products or services such as coffee beans or acupuncture vs a product and consumer based business. As such, I will do a separate analysis on the 3 scenarios.
DISCLAIMER: A plethora of other scenarios exist such as building & construction projects, but too many to cover here so please seek professional advice before relying on the information contained in this article to make a decision on whether or not to register for GST.
This is a Service Based Business. The primary reason for voluntarily registering for GST is appearances. Invoice numbers in the 100s and invoices without GST is a dead give away that the business is small and starting out.
This may not be such an issue if you are dealing predominately with people who know your circumstances and are supporting your endeavours.
However, if you are intent on growing your business or deal in a professional environment and are seeking to attract new “arms length” clients, the cost of coding transactions with GST, and completing & lodging an Annual Business Activity Statement (aka compliance costs) may pay for itself in a couple of invoices.
The bookkeeping and accounting cost can also be defrayed by the GST input tax credits you will receive if registered. Assuming your client is also registered for GST, GST is added to your quoted rate on your invoice at no cost to your client. Your client can claim back the full GST amount on your invoice in their next BAS and offset that against their other BAS payables.
Because you are now registered, you also get to claim the full (*instead of your marginal rate %) GST Input credits on your business expenses that incurred GST, e.g. a laptop or office stationary.
*If registered, the GST exclusive income and expense amounts are recorded in your income tax return.
Product or consumer based business, where market sets the price and you are unable to pass on the GST.
Unlike business registered in the GST system, the consumer cannot claim back the GST.
In this case, registering for GST may be to your detriment as you would potentially loose up to ^10% of you revenue and incur the additional compliance cost.
The best strategy in this case may be to not register until required. Business Expenses will be reported on a GST inclusive basis in the entities tax return.
^The business needs to remit 10% of the sales that are subject to GST, less the business portion of GST paid on expenses.
This is a similar situation to the Scenario 1 with the exception that no GST needs to be added to the sale invoice. If input tax credits in the BAS exceed other liabilities, the ATO will refund the credits.
As you can see there is no one size fits all solution to this question.
Different businesses may benefit from different actions, but a professional accountant can point you in the right direction and make all the necessary registrations for you based on a couple of key questions about your business.