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Stop getting confused – GST and Income tax are two separate things

TaxI hate being taxed twice – I am going to write to the Government and give them a piece of my mind about GST and income tax.

Yes – this was a comment from a recent (*new) client of mine who was still coming to grips with being a new business owner, being registered for GST and then paying tax via his “full time” job at the same time.


Now whilst I kind of really wanted to read his letter (which I am sure he would have sent), what I didn’t realise was that he was serious.  I mean we all know they are different things right?

Well clearly not as literally within two weeks I saw another business owner (not a client) post in a Facebook group saying how unfair it is that small business owners get taxed twice and how the heck are they supposed to survive those startup years.

Let’s just cut to the chase – GST you charge on your sales is not your money, it never has been your money and never will be your money.

You see – here is the deal.  If you are registered for GST, then yes, you charge GST on taxable sales.  You collect that GST for the government – it is the governments money.  You are simply the middleman (or middlewoman) in the GST equation.  You charge it, you collect it and then each quarter (or month if you are lucky enough!) – you then give it to the government – as remember it was never yours to start with.

That GST should never be confused with your profit, or your revenue, or your money and god forbid you should never spend the GST you have collected purely because it is sitting in your bank account.

GST does not form part of your “business growth model” nor should it form part of your cash to fund operations.

If your business can’t survive without spending the GST which is not yours, then I suggest you need to rethink your business strategy – as there is something not quite right with your business model.

Now onto the ever so talked about and often despised income tax for individuals.  This is tax that you pay each year based on the marginal tax rates (which can change especially with the latest budget announcements).  Some people pay a small amount, some pay a large amount.  It all depends on the level of taxable income – which varies for everyone.

Why do we pay any kind of tax – well income tax is used to fund the investments the government puts back into things like schools, hospitals & healthcare, transport, assisting the age, defence and repaying debt – just to name a few things.

So the taxes we pay, in my opinion, help our country to run the way we would like it to run – I mean who doesn’t want great health care and schooling and transport (although in peak hour the definition of “great” can be questioned if stuck on the Bolte or Ring Road).

So GST and Income tax are not the same thing.  You are not being taxed on money twice.

GST is charged on top of your pricing and is not taken out of your profits (as it never formed part of your profits to start with), and income tax is based on your annual taxable income and comes out of your salary or wage if you are an employee or out of profits that you earn if you are a sole trader.

The best way to deal with any tax is to plan, plan, plan for it.  From the start.  So that includes GST and Income tax. Nobody likes surprises.