As a self-employed tradie, chances are you’re at least vaguely familiar with GST. If you don’t charge it yourself, you may have noticed it on your receipts from, say, a certain large green hardware store.
But what’s it all about?
Consider this article your GST cheat sheet – we’re going to cut through the jargon, and explain everything you need to know to get the most out of GST rules.
It might look like a lot, but it’s all valuable info. If you’ve already heard some of this before, you can use this table of contents to skip to the good bits.
- Intro to GST – what’s it all about?
- Registering for GST
- Calculating, charging, and collecting GST
- Claiming business expenses vs. claiming back GST
- How Hnry makes it simple
Intro to GST – what’s it all about?
The Goods and Services Tax, or GST, is a flat-rate consumption tax of 10%, levied on most goods and services sold in Australia.
Now let’s break that down:
| Flat rate | Unlike Straya’s progressive income tax rates, GST is charged at a flat rate, meaning it doesn’t change no matter how much you earn, what you buy, or how much it costs. |
|---|---|
| 10% | The GST rate in Australia is fixed at 10%. |
| Consumption tax | A consumption tax is a tax added to goods and services we ‘consume’ – as in use or use up, not necessarily eat and drink. |
| Levied on most goods and services | There are some goods and services that are GST exempt. It’s a limited list though, and prooooobably doesn’t apply to you. |
GST isn’t profit kept by a company, or an additional income tax. Instead, it’s collected by businesses on behalf of the ATO. If you’re GST registered, you’re required to charge and collect GST from your clients.
The good news is that, if you are GST registered, you can then claim back any difference between the GST you charge and the GST you pay other companies as a GST credit. More on that in a bit, but first –
Registering for GST
If you’re registered for GST, you’re required to charge and collect GST. If you’re not registered for GST, you cannot charge or collect GST.
It sounds pretty obvious, but you’d be surprised how many people mess that one up!
But how do you know if you need to register for GST? Well –
Above the GST threshold:
If you’re projected to make $75,000 or more in the next 12-month period, you’re required to register for GST now.
What this means is that you need to be on top of your projected earnings for the next year – and as soon as you tip over that $75k threshold, you’ll need to register for and start charging GST.
Sorry mate, the ATO has no wiggle room here.
Below the GST threshold:
If you’re earning below this threshold, you can decide whether or not to register for GST. There are pros and cons for doing so, though.
The main pro is that you can claim back the GST paid on your business expenses (subject to restrictions/exemptions). And if you pay more in GST when buying supplies for your business than you charge your clients, you are eligible for a GST refund of the extra credits.
If you buy a lot of supplies for your business in bulk, then being able to claim the GST back can help you better manage your cash flow. Similarly, it might make it easier to deal with your suppliers.
The main con is that it can be extra paperwork for little reward — depending on your business, getting a substantial GST return is unlikely, and potentially not worth it.
Whether or not you register for GST is up to you, but make it a calculated business decision.
GST Periods
When you register for GST, you decide how often you would like to lodge your BAS. This timeframe then becomes your GST period.
There are three options you can choose from:
- Monthly
- Easier to keep track of, but involves more paperwork
- Quarterly (every three months)
- Most common timeframe
- Annually (if your turnover is less than $75,000 a year and you’re voluntarily registered for GST)
- Harder to keep track of (if you don’t use Hnry), but less paperwork overall
You’ll also decide whether you’ll pay on a “cash” basis or an “accrual” (non-cash) basis (FYI at Hnry, we work on a cash basis).
Sometimes, you may find that within a GST period, you’ve paid more in GST than you have collected. In these instances, you would receive a GST refund from the ATO.
Calculating, charging, and collecting GST
Calculating GST
To calculate add GST to your services, divide the original price by 10. That’s the amount of GST you’ll need to charge. Check out our handy GST calculator here
For example, for a $500 plumbing job, you’d need to charge $50 in GST (500/10 = 50).
Remember, GST is a tax for your clients to pay, not you!
Charging GST
Because you’re GST registered, you’ll need to provide your clients with “tax invoices”, which are a little different from regular invoices. The only exception is if the invoice is for less than $82.50 (including GST), in which case these rules don’t apply.
A tax invoice needs to include:
- The words “tax invoice” somewhere on your invoice (preferably up top)
- Your identity (business name or trading name, contact details)
- Your Australian Business Number (ABN)
- The date you issued the invoice
- A list of items/services sole, including quantity and price
- The GST amount payable – either listed for each item separately, or if the GST amount is exactly one-eleventh of the total price, through a sentence like “Total price includes GST”
- If your invoice is for $1,000 or more (including GST), you also need to include your customer’s business name or ABN.
📖 Interested in invoicing through Hnry? We have a guide for that!
Collecting GST
Any GST paid to you by your clients belongs to the ATO (unfortunately), not you! This means you’ll need to set aside this amount to pay on to the ATO.
But if you’re also paying GST as part of your business expenses, you can subtract this amount from the GST you collect for the ATO. That’s yours to keep.
You’ll need to be careful to set the right amount of GST aside, though. Failure to do so may result in fines and penalties – nasty!
The good news is that you don’t need to do these calculations yourself – join Hnry, and we’ll automatically do it all for you. Plus we give you tax relief as you go!
Claiming tax deductions vs. claiming GST
After all this, you may be wondering, why bother with this GST business if you can already claim tax deductions for your business expenses?
Well, there’s a difference in how tax deductions and GST returns work.
Firstly, tax deductions don’t mean you get refunded the cost of your business expenses. Instead, the cost of your business expenses gets deducted from your taxable income.
(If this doesn’t make sense, we go into more detail about this in our intro to tax deductions article.)
GST returns, however, are an actual refund. The ATO refunds you GST if you’ve paid more in GST for your business than you’ve collected.
If you plug your numbers in and do the maths, you may see a slight difference in the amount of tax saved.
Hnry really does it all for you
And we mean all.
For just 1% +GST of your self-employed income (capped at $1,500 a year), we will:
- Automatically calculate and deduct your income tax
- Lodge your tax return for you
- Automatically set aside GST payable
- Lodge your BAS for you
- Calculate and pay your Medicare levy
- Set aside super contributions (optional)
- Sort out your student loan repayments
- Manage and claim your business expenses
- Politely chase up your late-paying clients
- … and so much more!
Our job is to make sure your financial and business admin is so simple, so easy, that you never think about it again. Instead you can focus on the important things – like your actual work.
Join Hnry today!
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