GST registration is one of those things that can sneak up on you. When you first start a business, GST may be the last thing on your mind. You are busy finding customers. Sending invoices. Paying bills. Trying to keep the business moving. Then your turnover starts growing.
And suddenly, you hear those words “You need to register for GST.” But do you? Or can you choose to register? The answer depends on your business and its GST turnover.
What is compulsory GST registration?
Compulsory registration means you must register for GST. For most Australian businesses, this happens when your GST turnover reaches $75,000 or more. It can also apply if you expect your new business to reach $75,000 in its first year.
There are some special rules too. For example, taxi and ride-sourcing operators generally need to register regardless of their turnover. The threshold for eligible not-for-profit organisations is $150,000.
What does GST turnover mean?
This is where things can get a little confusing. GST turnover is not the same as your profit. It is based on your business turnover, with certain amounts excluded under the GST rules. So don’t look at your bank balance and assume that is your GST turnover. If your business is growing quickly, keep an eye on the number. You don’t want to discover later that you should have registered months ago.
What is voluntary GST registration?
Voluntary registration is much simpler. If your business is below the $75,000 threshold, you generally don’t have to register. But you can choose to register. For some businesses, this can be useful. For others, it may simply create extra work. Once you voluntarily register, you generally need to remain registered for at least 12 months. So it is worth thinking about before you register.
Why would a business register voluntarily?
One of the main reasons is GST credits. Suppose you run a small business and buy equipment for $11,000, including $1,000 GST. If you are registered for GST and the purchase qualifies, you may be able to claim the $1,000 as a GST credit.That can make a real difference when your business has significant expenses.
Voluntary registration can also make sense if you expect your business to grow beyond $75,000 soon. You may prefer to get your GST systems in place early.
But there is a catch, GST registration is not just about claiming GST credits. Once you are registered, you generally need to charge GST on your taxable sales. You also need to report your GST through your Business Activity Statements, or BAS.
You will need to keep proper records and tax invoices. And you will need to pay the net GST amount to the ATO after taking eligible GST credits into account. So before you register voluntarily, ask yourself “Is the benefit worth the extra administration?” For some businesses, the answer will be yes. For others, it may be no.
A simple example
Imagine you run a small graphic design business. Your annual turnover is $50,000. You are below the $75,000 threshold. So you don’t have to register for GST. You could continue operating without GST registration. But suppose you are planning to buy expensive equipment and software for the business. A large amount of GST may be included in those purchases. You might decide that voluntary GST registration is worthwhile so you can claim eligible GST credits.
But remember, you will also need to charge GST on your taxable sales and meet your GST reporting obligations. It is a decision worth looking at carefully.
Voluntary vs compulsory GST registration
The difference is actually quite straightforward.
Compulsory registration:
You meet the GST registration requirements. You must register.
Voluntary registration:
You are below the threshold and are not otherwise required to register. You choose to register.
The obligations after registration are broadly the same. The difference is why you registered in the first place.
What if you cross the $75,000 threshold?
This is where you should act quickly. If you become required to register, you generally have 21 days to register for GST. Don’t simply wait until your accountant prepares your next BAS.
By then, you may already have GST obligations. And if you have been issuing invoices without GST when you should have been charging it, things can become messy. A little attention at the right time can save you a lot of trouble later.
So, should you register voluntarily?
There is no single answer for every business. Look at your turnover. Look at your business expenses. Look at how much GST you are paying on purchases. Think about your customers too.
If most of your customers are GST-registered businesses, the effect of adding GST to your prices may be different from a business selling mainly to consumers. Most importantly, don’t register just because someone tells you that “you can claim GST back.” You can claim eligible GST credits, but registration also brings reporting and record-keeping responsibilities.
The bottom line
Compulsory GST registration is something you cannot simply opt out of when you meet the requirements. Voluntary GST registration is a choice. And that choice should make sense for your business. If you are getting close to $75,000 in turnover, don’t wait until you cross the line to start thinking about GST.
Get your numbers together. Check your projected turnover. And if you are unsure, speak to your accountant before making the decision. GST is much easier to manage when you deal with it early. Because the last thing you want is to find out about your GST obligations after the ATO does.
