Voluntarily Register for GST ?

When starting a small business there are a number of things to consider, one of which is registering for GST.  This can be done at the same time you apply for an ABN.

Under the current legislation:-

·          you are required to register for GST if your turnover (gross sales) is $75,000 or more.  If you provide any type of taxi travel as part of your business you are also required to register for GST, regardless of your turnover.

·         If your gross turnover is less than $75,000 you can choose to voluntarily register for GST.

What does GST registration mean?

·         you will need to charge an additional 10% on all sales income.

·         you can claim GST paid on all purchases

·         the net of what you charge and what you pay will then be remitted to or refunded by the tax office.

So should you voluntarily register for GST? 

Positives

1.    Projected Turnover to reach threshold over shorter term

If you project your income will increase to the $75,000 threshold over the shorter term (say 12-24 months) then it may be better to voluntarily register for GST at the commencement of business. Having to increase your prices by 10% once you do hit the threshold can cause negative issues with customers particularly if you want to also increase your prices by any sort of CPI. 

2.    Refund of GST credits

Many businesses experience major cash outflows in the start up stage and therefore it might be handy to have some GST refunded as this will have obvious cashflow positive implications. 

3.    Perceived Business Status

Not being registered for GST indicates to other businesses and customers that you are “small” with a turnover of less than $75,000.  This can be an issue as they may form the opinion you are “too small” to provide them with the service they want.

Negatives

4.    Administration

One of the biggest downsides of registering for GST is the extra administration for completion of your Business Activity Statement (BAS).  This can be minimised if you elect to report GST on an annual basis.

5.    Cash Outflow

We all want our business to make a profit so if you are achieving this and your sales are far greater than your expenses you will need to remit GST to the tax office periodically (monthly/quarterly/annually).  This can be a real problem with cashflow if you haven’t saved the GST you have been collecting.

I recommend seeking advice from your accountant before applying for an ABN to discuss your situation including short to medium term projections.  Every situation is different and what may work for your friend won’t necessarily work best for you.

If you do voluntarily register, make sure you are strict with saving the GST you charge.  Setup a separate bank account.  You need treat this extra money received as non-income. 

Please note that this is not advice and is for the purpose of general discussion only.  If you would like specific advice please contact Sarah Willoughby at sarah@willoughbys.com.au .