One of the key decisions to be made when starting a new business is whether you should, or should not, register for GST. In this article I’ll be discussing some the issues you’ll need to consider very carefully.
What will your turnover be?
Presently, it’s mandatory to register for GST if you expect your annual turnover to be $75,000 or more. If your turnover is less than $75,000 then registering for GST is optional.Side note: It’s important to understand that by ‘turnover’ we mean the total of your sales or revenue generated in a 12 month period. Turnover - not to be confused with profit - is the headline figure. Profit is the residual earnings of a business after all expenses have been deducted and is not relevant in determining your requirement for mandatory GST registration.
How much administration and record-keeping are you prepared for?
If your turnover is anticipated to be less than $75,000 but you’re still contemplating whether ”To GST or not to GST”, perhaps consider the administrative implications of the decision.
Whilst it is always important to maintain immaculate and timely financial records, being GST registered does demand a greater commitment to administration and bookkeeping duties. You will need to get up to speed with some basic GST knowledge and be prepared to report to the ATO, typically on a quarterly basis. I would strongly recommend that you invest in cloud accounting software such as Xero. Xero accounting software is literally life-changing. You’ll thank me later, I promise.
Cash flow - and abstaining from spending what is NOT yours!
Now let’s get really clear about something - the GST you charge on your products and services is not your money. It does not, and should not, fund your business operations. Please read that again and let it sink in.
GST never has been, and it never will be, your money.
Think of yourself as a mere tax collector for the government. You are just the middle person in the GST equation. If you feel your business cannot survive without spending the GST (which is not yours), then I suggest you rethink your business strategy as it would seem your business model and practices are flawed.
The Pricing Peril
Let’s assume you decide not to register for GST. Now let’s fast forward 12-18 months and your turnover is fast approaching the $75,000 threshold and it’s time to become GST registered.
Will you increase your prices by 10%? Or will you absorb the GST, thereby reducing your bottom line (ouch)? Are your customers mostly other GST registered businesses who can deduct the GST at their end and therefore won’t be perturbed? Or are your customers end consumers for whom the 10% represents a real price increase (and no value increase!) - will they be disgruntled having become accustomed to your original pricing?
If GST registration is likely to become mandatory for your business in the not-too-distance future, spare yourself the grief and consider registering for GST from the outset.
If your turnover is less than $75,000 non-GST registration immediately signals to your customers and competitors that your turnover is below this level. Depending on the type of business you operate and the customers you wish to attract, it may be wise to voluntarily register for GST - because as they say, perception is reality!
As with all things tax related, we ask that you seek professional advice about your individual circumstances. If you’d like our help on this topic, or on any other matter, feel free to reach out to us at Platinum Accounting & Taxation on (03) 9746 6479 or join our tribe on Facebook.