Great question! It’s one of those things we’ve heard forever, but never really thought about isn’t it?
GST actually stands for Goods and Services Tax. It’s a consumption tax charged on most goods and services sold in Australia. If you’ve ever seen it at the bottom of a receipt, alongside a dollar amount, you’ve already encountered it in the wild.
Hang on though – what’s a consumption tax? Yet another great question!
A “consumption” tax is levied on things people buy and use, rather than on what they earn. Basically, it’s levied on things that are “consumed”, although this can be more metaphorical than literal sometimes (you don’t “consume” a haircut, for example, but it counts.)
Unlike income tax, which is based on your earnings, GST is charged on most goods and services when they’re sold to customers. It’s a flat tax, meaning the rate stays the same, rather than increasing progressively (see: income tax rates, which is a progressive system).
In Australia, the GST rate is generally 10% (with a few key exceptions).
So who actually pays GST?
Technically, GST is a tax on your customers, not you. As a sole trader, if you’re registered for GST, you add 10% on top of your usual fees and collect it on behalf of the ATO. You’re not keeping it – you’re just the go-between.
When it comes to filing your BAS return, you pay the ATO the difference between the GST you’ve collected and the GST you’ve paid on business expenses.
If you’ve paid more than you’ve collected in your GST period, you may be eligible for a GST refund from the ATO.
Who charges GST?
If you estimate you’ll earn over $75,000 in self-employed income over the next 12-month period, you do! In this case, you’re required to register for and charge GST.
Registering is optional if you’re under the threshold, and whether it’s worth it will depend on your individual circumstances.
It’s also worth noting that GST registration isn’t automatic. If you haven’t specifically registered, you’re not registered – you can’t charge GST, and you can’t apply for GST refunds until you are.
