Brad Callaughan

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BAS, GST

Brad Callaughan

Monday, 18 June 2012 14:36

GST for Australian Small Business, Claiming Back The GST Without A BAS Business Activity Statement Number: Start-up Mentor Brad Callaughan

Can I claim the GST back without registering for a BAS?

If my small business is not big enough yet to be registered for GST, how do I claim back the GST I am charged on items I buy? Or can I not claim it back anyway and it makes no difference?

 

I currently make about $60,000 a year and my accountant says it’s not worth the BAS hassle of registering for GST, so all my invoices are without GST to my clients and providers (and not tax invoices).

 

All businesses that are under the threshold have the choice to register for GST if they wish.

 

The threshold for registration for GST is $75,000. Once your turnover reaches this threshold you must register.

 

Until then, you are not required to register.

 

If you are not registered for GST your invoice must not say Tax Invoice and just say Invoice. You do not charge an extra 10% on top of your services, that you collect and pay onto the government and you cannot claim the GST paid on items you buy.

 

Instead of claiming the 10% on purchases against the amount you have collected to the ATO, you claim that extra 10% as a tax deduction as you are not required to reduce the expense by that amount for tax purposes if you are not registered for GST.

 

Most people do not want to fill out the Business Activity Statements every quarter so they elect not to register until they have to.

 

Below we take a look at the difference of registering versus not registering.

 

If registered and we assume your turnover is currently $60,000 you would have had to collect an extra $6,000 on top of your turnover by charging an extra 10% for your services.

 

Your turnover would now be $66,000. The $6,000 is owed to the ATO.

 

Say your expenses are $40,000 (assuming all expenses have GST on them), then you would have paid $3,636 in GST, therefore you would owe the ATO $2,364.

 

Your taxable profit would be $23,636 and you will pay tax at say 30% (for ease of comparison), which equals $7,090.80.

 

Now, in comparison, if you don't register for GST your tax bill would be $6,000. You would save $1,090.80 in tax. However you would miss out on $3,636 in extra income from the extra GST charged.

 

So if you don't register for GST you are effectively missing out on $2,545.20 in extra income.

Brad Callaughan, of Callaughan Partners, has more than nine years’ professional accountancy experience. He has worked in senior management roles within taxation and business services dealing with a number of clients from a range of business sectors.

 

Ask Brad or any other StartupSmart Mentor a question here.


Comments (1)

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How can $2,545.20 (=$3,636.00 - $1,090.80) possibly be an EXTRA INCOME?
Your TURNOVER is $60,000, whether REGISTERED or NOT REGISTERED for GST. By charging an extra 10% for your goods/services, it would NEVER be $66,000 for the simple reason that the $6,000 is owed to the ATO:
- Your Profit & Loss does NOT include GST on Sales and Expenses, and your Balance Sheet shows all amounts without GST and the GST will appear as a LIABILITY.

The $3,636 GST is paid to your suppliers out of your own pocket again whether REGISTERED or NOT REGISTERED for GST. If registered for GST, it will bring down your $6,000 liability to the ATO to $2,364 (=$6,000 - $3,636). I don’t get the logic behind owing $2,364 to the ATO as a “bonus”.

Now, in comparison, if you don't register for GST your tax bill would be $6,000 and save $1,090.80 (= $7,090.80 - $6,000) in tax. Furthermore, you will not owe the ATO $2,364; because in real life, you will have to pay the ATO quarterly $591 (=$2,364/4), add to this the financial (and opportunity) COST (excl GST) of completing and lodging the BAS, and possibly interest on unpaid amount.

It’s a mistake to think of GST as an extra income and it is most disappointing that Small Business Victoria Update refers to this sort of mentoring which is definitely not helping new businesses, specially Sole Traders. A business owner should be able to make a decision without feeling confused thus intimidated by professional “advice”.

Note: $75,000 is an average of $1,440 per week, and the threshold is for a 12 months period regardless of financial years.
cyobdani , July 08, 2012
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