ABNs and GST

Posted on March 19, 2018 by ATB Chartered Accountants

The tax and financial requirements for running a business can get overwhelming. What is an ABN? Do I need one? What is GST? When do I need to register? How does this all affect my business?

Our Director, Michael Mekhitarian answers some of the  questions around ABNs and GST.

What is an ABN?

The ABN is an Australian Business Number issued by the Australian Tax Office.

It is a unique 11-digit number that makes it easier for businesses and government to interact.

Do I need an ABN?

Michael says “if you’re conducting a business in Australia you need to have an ABN.”

An ABN will confirm your business identity to others when ordering and invoicing, it will allow you to operate in the GST system, avoid PAYG tax on payments you receive and connect online with government agencies.

How do I register for an ABN?

You can register for an ABN online through the Australian Business Register or through a registered tax or BAS agent.

Does an ABN cost anything?

There is no cost for an ABN. However if you use the services of a professional to register the ABN for you, they may charge a fee for their services.

What do I do with my ABN?

If you invoice other businesses for services more than $75, your ABN should be included on your invoices.

If you don’t include it, the other business must withhold 47% from any payment they make to you and send the amount to the ATO.

What is GST?

Goods and services tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.

“Not all goods and services provided in Australia have GST, for example fresh food is GST free and some medical services are GST free” says Michael.

“Depending on what you do and what type of business you own, you need to have a good look at whether you need to charge GST. “

When do you need to register for GST?

When you start your business, if you think you’ll reach the GST threshold of $75K then you should register your business for GST when you apply for your ABN. You only register once for GST, even if you operate more than one business.

Michael says “If your turnover is $75,000 (or you think you’re going to have turnover of $75,000) as a business or $150,000 as a not for profit you are then obliged to register for GST.”

“That means at that point of time, your invoices need to have 10% added to the cost.“

How do I register for GST?

You can register for GST when you apply for your ABN with the ATO.

If you don’t register for GST initially and you find you are close to reaching the GST turnover threshold, Michael says “that’s something you go through the Australian Tax Office and switch your ABN to being registered for GST”.

Can I change to register for GST?

If you didn’t register for GST initially, check your accounts each month to see if you’re close to the threshold. You can update your ABN to indicate your GST status with the ATO.

If you are close or go over the threshold, you’re required to register for GST within 21 days.

What do I have to do if I have to register for GST?

1. Register for GST
2. Determine if your sales are GST, GST-free or input-taxed
3. Issue Tax invoices
4. Obtain Tax invoices
5. Claim GST credits
6. Account for GST
7. Lodge Activity Statements

What happens if I don’t register for GST?

You may be required to pay GST on any sales/invoices you’ve made since the day you reached the threshold, even if you didn’t charge GST on those sales/invoices.

You may also have to pay penalties and interest.

Tax Invoices

Once you’re registered for GST, you need to provide a “Tax Invoice” to your customers.

Michael says “A tax invoice must include the words ‘Tax Invoice’, it has to include your ABN and the name of your business and it must have the price including GST on it. And if the invoice is for over $1000, you must also include the purchasers details and line items showing the GST.”

“The good news is that these sort of things can be set up in Xero, and once you do that then it just happens automatically.”

We’re here to help you through the process

ATB Chartered Accountants are experienced tax professionals, we can assist you in registering your ABN and help determine if you need to register for GST.

Contact us today for a discussion on how to set your business up for the future.