Just because you have an ABN and are running a business does not give you the right to charge GST
There is a very widely held misconception out there that because you have an ABN this means you charge GST on invoices. I mean – you are running a business right? People are charging you for GST so why shouldn’t you do the same ?
WRONG WRONG WRONG
Having an ABN is one of the first steps you are required to undertake when setting up your business – this is one of your unique identifiers to the ATO. This ABN should be placed on all invoices you send out (whether charging GST or not).
In order to charge GST you must register for GST.
So who needs to register for GST & what does that mean?
- You MUST register for GST if your turnover is more than $75,000 per year (so any given 365 day period). This is mandatory. You can’t choose not to register – you will be caught in the system. You are not automatically registered though and you must register online or via a Registered BAS Agent or Registered Tax Agent.
- If your turnover is less than $75,000 you can choose to voluntarily register or wait until your income hits that threshold when it becomes mandatory.
- If your income is below $75,000 and you elect to register – this is your choice.
- Anyone registered for GST must issue tax invoices to all customers (the ATO has rules on what constitutes tax invoices)
- Anyone registered for GST will need to complete and lodge a Business Activity Statement
- Anyone not registered for GST can not charge GST on any invoices issued to customers/clients
- Anyone not registered for GST does not need to complete a Business Activity Statement
- Anyone not registered for GST can not claim back the GST they pay on any invoices (but can claim the total business expense instead)
So how can you tell if you are registered for GST?
- If you are registered the ATO would have previously sent you your pretty pink Business Activity Statement each month or quarter in the post
- If you registered for GST, the ATO would have sent you a notification stating the registration date and the method of GST reporting (cash or accrual)
- The third option (although not 100% reliable) is looking up your ABN on the Australian Business Register. This will state your GST status and the effective date. Also a great tool to look up suppliers ABN and suppliers GST status.
If you are unsure of how to setup correct tax invoices, if you are unsure of if you should be charging GST, if you are unsure if your suppliers should be charging GST – then please ask us. This is what our Financial Coaching sessions cover. You can book directly into our diary here.
We are here to help and provide one on one financial training or this can also be done via Skype.