Starting a business is exciting. Registering for taxes is usually somewhat less exciting. And GST has a habit of creating questions surprisingly early in the life of a business.
Do I need to register now? Can I wait until my sales reach $75,000? Is the $75,000 based on sales or profit? What if I am only running a small business from home? What if I drive for Uber on weekends? Fortunately, the basic GST registration rule is quite easy to understand. For most Australian businesses, the magic number is: $75,000.
But, as is often the case with tax, there are a few important details hiding behind that number. So get your diary ready, and let us work through them.
The Basic GST Registration Rule
For most businesses and other enterprises in Australia, GST registration becomes compulsory when GST turnover reaches $75,000 or more.
For a non-profit organisation, the threshold is $150,000 or more. There are also some businesses that must register regardless of their turnover. We will come to those shortly. For now, remember Most businesses → $75,000, Non-profit organisations → $150,000. And there is one more important word in that rule. Turnover. Not profit. That distinction matters.
The $75,000 GST Threshold is Not Based on Profit
This is probably the most common misunderstanding about GST registration. Imagine Sarah runs a small bookkeeping business. During the year, she earns:
Business income: $90,000, Business expenses: $55,000. That leaves her with: Profit: $35,000 Sarah might look at the $35,000 and think: “Excellent. I am well below the $75,000 GST threshold.”
Unfortunately, Sarah is looking at the wrong number. The GST registration threshold is based on GST turnover, not business profit. The ATO describes GST turnover broadly as total business income, rather than profit, with certain amounts excluded.
So your expenses do not simply reduce your turnover for the purpose of deciding whether you need to register. A business can make a profit of only $20,000 and still be required to register for GST.
That is why turnover and profit should never be confused. They may live in the same set of accounts. But they have very different jobs.
What Exactly is GST Turnover?
Now we need to be a little more precise. GST turnover is not necessarily the same as the sales figure you see in your profit and loss account. Broadly, you start with income from your business or enterprise. Certain amounts are then excluded.
For example, GST included in your sales is excluded. Input-taxed sales are generally excluded. Certain sales that are not connected with the enterprise you run are also excluded. Sales that are not connected with Australia can also be excluded.
So think of GST turnover as a special GST calculation. Do not automatically take the annual sales figure from your accounting software and assume that is the answer. For a straightforward small business, the figures may be quite similar. For other businesses, they may not be.
GST Turnover is a Rolling Calculation
Here is another little trap. The $75,000 threshold is not simply a financial-year test. You do not necessarily wait until 30 June and ask, “Well, how did we do this year?”
The GST rules look at your turnover on a rolling basis. There are two concepts you need to know: Current GST turnover and Projected GST turnover. The names sound more intimidating than the calculations.
Current GST Turnover
Your current GST turnover broadly looks backwards. It is your GST turnover for the current month + the previous 11 months.
Suppose it is August. You would broadly consider the 12-month period ending in August. Next month, the calculation moves forward. That means your GST turnover should be monitored throughout the year. It does not politely wait for your accountant to prepare the annual accounts.
Projected GST Turnover
Projected GST turnover looks in the other direction. It broadly considers the current month + the next 11 months. This is particularly important for a new or rapidly growing business.
Imagine Daniel starts an IT consulting business. During his first month, he earns only $5,000. He might think GST registration is a problem for another day. Then Daniel signs a contract worth: $8,000 per month for the next 12 months. Suddenly, his expected turnover looks very different. The fact that his business has only earned $5,000 so far does not mean he can ignore GST registration.
The ATO specifically requires a new business to consider whether it expects to reach the GST registration threshold in its first year. GST can therefore become relevant before $75,000 has actually passed through your bank account.
A Simple Example
Let us take a small graphic design business. During the current month and previous 11 months, the business has GST turnover of $68,000. At first glance, it appears to be below the threshold. But business is growing quickly. The owner reasonably expects GST turnover for the current month and next 11 months to be $95,000. The projected turnover now matters.
You cannot simply say “I haven’t reached $75,000 yet.”
GST registration considers where the business is going as well as where it has been. That is particularly important for businesses experiencing rapid growth.
What Happens When You Reach the Threshold?
Once you become required to register for GST, you generally need to register within 21 days. This is not something to leave until the end of the financial year. Suppose your business has been steadily growing. January looks good. February looks better. March is excellent. By April, your GST turnover calculations show that you have reached the registration threshold. That is the time to deal with GST registration. Not next January when someone happens to notice it while preparing your accounts. A growing business should therefore keep an eye on its turnover every month.
What if My Turnover is Below $75,000?
For most ordinary businesses, GST registration is optional while GST turnover remains below the compulsory threshold and no special registration rule applies. Suppose you run a small photography business. Your GST turnover is $45,000. You may choose not to register for GST. In that case, you generally do not add GST to your taxable sales. But you also generally cannot claim GST credits on your business purchases as a GST-registered business would. Alternatively, you may choose to register voluntarily. And sometimes that makes sense.
Can I Register for GST Voluntarily?Yes.
You do not have to wait until your GST turnover reaches $75,000. A smaller business can generally register voluntarily. But do not register simply because you can. Registration brings both benefits and responsibilities. Once registered, you generally need to account for GST on your taxable sales.
You may be entitled to GST credits on eligible business purchases. You will need to maintain appropriate records. And you will generally need to lodge activity statements.
If you voluntarily register, the ATO says you generally need to remain registered for at least 12 months. So voluntary GST registration should be a business decision. Not something you tick because the box looked lonely.
Why Would a Small Business Register Voluntarily?
There are several possible reasons. Imagine you have just started a consulting company. Your turnover is only $40,000. But you have spent a considerable amount setting up the business, Computers, Office equipment, Software, Professional fees, Furniture. Many of those purchases may contain GST.
Being registered may allow you to claim GST credits on eligible purchases, subject to the normal rules. There can also be situations where most of your customers are GST-registered businesses. Charging GST may be less commercially significant to those customers because they may themselves be entitled to claim GST credits.
But compare that with a business selling mainly to individual consumers. Suppose you currently sell a service for $100. After registering for GST, you might charge $110 including GST. Will your customers happily pay the extra $10? Perhaps, Perhaps not.
Alternatively, you might keep your final price at $100. But now part of that $100 represents GST. Your margin has changed. This is why voluntary GST registration deserves a little thought.
Sole Traders Need to Think About GST Too
GST registration is not just for companies. A sole trader can be required to register. So can a partnership. So can a company. So can a trust carrying on an enterprise.
Your business structure does not make the $75,000 threshold disappear. Imagine you are a freelance designer working alone from your spare bedroom. No employees, No fancy office, No company. Just you, your laptop and an impressive collection of coffee mugs.
If your GST turnover meets the registration requirements, being “just a sole trader” does not excuse you from GST registration. The size of the office is irrelevant. The turnover is what matters.
ABN and GST Registration Are Not the Same Thing
This causes a surprising amount of confusion. An Australian Business Number (ABN) and GST registration are separate things. You can have an ABN without being registered for GST. For example, a sole trader may obtain an ABN when starting a business.
The business might have GST turnover of only $30,000. If there is no special reason requiring registration, the owner may remain unregistered for GST. So, Having an ABN does not automatically mean you are registered for GST. And when checking another business, do not assume an ABN proves GST registration either.
Some Businesses Must Register Regardless of Turnover
Now we come to an important exception. For most businesses, we keep talking about $75,000. But not everyone gets to use that threshold. If you provide taxi, limousine or ride-sourcing services, you generally need to register for GST regardless of your GST turnover. That includes ride-sourcing drivers.
Imagine you drive passengers through a ride-sourcing platform only on weekends. Your annual turnover is $15,000. You might naturally think “That is nowhere near $75,000.”
For ride-sourcing, that does not save you. The special registration rule applies regardless of how much you earn. So if you start providing ride-sourcing services, GST needs your attention from the beginning.
What About Food Delivery?
This is where you should be careful about applying rules too broadly. Driving passengers and delivering food are not the same activity for GST purposes. The special compulsory registration rule relates to taxi travel, including ride-sourcing.
Do not assume that every person earning money through an app automatically falls under the ride-sourcing GST rule. Ask what service is actually being supplied. Are you transporting passengers? Delivering food? Providing professional services? Selling goods?
The app on your phone does not determine the GST treatment. The nature of the activity does.
Businesses Claiming Fuel Tax Credits
There is another situation where registration becomes important. If you want to claim fuel tax credits for your business or enterprise, the ATO requires GST registration. So remember the $75,000 threshold is the main registration rule. It is not the only registration rule.
What About Non-Profit Organisations?
Non-profit organisations have a higher GST registration threshold. The threshold is generally $150,000 rather than $75,000. Again, we are talking about GST turnover. Not profit. The same basic principle applies. Once the relevant registration requirements are met, GST registration becomes compulsory.
Do GST-Free Sales Count Towards the Threshold?
This is an important distinction. A sale having no GST does not automatically mean it is excluded from GST turnover. GST-free sales can generally be included when calculating GST turnover. Input-taxed sales are generally excluded. That means this shortcut is dangerous “I didn’t charge GST, so the sale doesn’t count” Not necessarily. You need to understand why GST was not charged. This is exactly why understanding the difference between taxable, GST-free and input-taxed supplies is so useful.
What About Selling a Business Asset?
Suppose your ordinary business turnover is $60,000. Then you sell an expensive piece of business machinery. Suddenly a large amount of money appears in the bank. Have you automatically crossed the GST registration threshold? Not necessarily.
When working out projected GST turnover, amounts received from selling capital assets are generally excluded. There are also exclusions for certain sales made solely because you are ceasing an enterprise or substantially and permanently reducing its size or scale.
This is one reason you should not determine GST registration simply by looking at total deposits into the bank. A $100,000 receipt could be ordinary trading income. Or it could be something completely different. The story behind the number matters.
What if I Should Have Registered but Didn’t?
This is where delaying the GST question can become expensive. Suppose your business should have registered six months ago. But you continued issuing invoices without accounting for GST. The fact that you forgot to register does not necessarily make the GST obligation disappear.
The ATO may require GST registration to be backdated, and GST may be payable on taxable sales from the relevant date. Penalties and interest may also apply. And there is another problem. Imagine you charged a customer $1,000. You treated the entire $1,000 as your income.
Later, you discover that the transaction should have been subject to GST because you were required to be registered. You may now have to deal with GST from money you have already received. Recovering an additional amount from the customer months later may not be easy. It is much nicer to get the registration date right in the first place.
What Changes After GST Registration?
Registering for GST is not just obtaining another registration number. Your bookkeeping changes. You now need to identify your sales correctly. Some may be taxable. Some may be GST-free. Some may be input-taxed.
For taxable sales, you generally need to account for GST. You also need to identify GST on eligible business purchases. That GST may become a GST credit. Then comes the Business Activity Statement — BAS. Through the BAS, you report the relevant GST amounts to the ATO. So GST registration marks the beginning of an ongoing accounting process. It is not the end of one.
A Quick GST Registration Checklist
For an ordinary Australian business, start here:
Step 1 – Work out whether you are carrying on an enterprise.
Step 2 – Calculate your current GST turnover. (Remember: Current month + previous 11 months)
Step 3 – Calculate your projected GST turnover. (Remember: Current month + next 11 months)
Step 4 – Compare the relevant GST turnover with the registration threshold. For most businesses: $75,000, For non-profit organisations: $150,000
Step 5 – Check whether a special compulsory registration rule applies. For example: Taxi or ride-sourcing services or claiming fuel tax credits.
Step 6 – If you become required to register, do not put it on the “we’ll look at that later” pile. You generally have 21 days to register.
The $75,000 Number is a Warning Bell, Not a Finish Line
There is one practical lesson I would give every new business owner. Do not start thinking about GST when turnover reaches exactly $75,000. Start earlier. If your turnover has reached $50,000 and is climbing quickly, start watching it. If it reaches $60,000, watch it more closely.
If new contracts are likely to push the business beyond the threshold, calculate your projected GST turnover. The worst time to discover that you should have registered for GST is several months after the registration date has passed.
The best time is while you still have time to prepare your pricing, invoicing and bookkeeping properly.
The Simple Answer
So, who needs to register for GST in Australia? For most businesses, the answer starts with $75,000 of GST turnover. For non-profit organisations, it is generally $150,000.
Taxi, limousine and ride-sourcing businesses have special rules and generally need to register regardless of turnover. Businesses wanting to claim fuel tax credits also need to register.
And remember, The threshold is based on GST turnover. Not profit. Look at both current and projected GST turnover. And once registration becomes compulsory, deal with it promptly. Crossing the GST threshold is not necessarily bad news. Quite the opposite. It usually means your business is growing. Just make sure your GST registration grows with it.
