10 common GST mistakes small business owners should avoid

If it’s looking like your business will earn over $75,000 per annum, you must register for GST - but it can be difficult for a new business to predict when that will happen. ​

As a small business owner, freelancer, or contractor, registering for GST too early means you might lose the competitive edge on pricing, as you are charging an additional 10% on top of your sale price for goods and services.  On the other hand, If you register for GST too late, you may miss out on claiming GST on any start-up costs (such as the GST component on asset purchases). It’s also likely you face penalties and fines imposed by ATO.​

If you’re earning under $75,000 per annum, GST registration is voluntary, so in what circumstances should you voluntarily register for GST?​

Completing your last GST activity statement​

If you have deregistered your business, don’t forget to complete a business activity statement for the tax period your registration cancellation 'date of effect’ falls in. You’ll also need to make sure you lodge any outstanding business activity statements.​

Read more: The basics small business owners should know about GST​

For better cash flow, we recommend you put money aside for GST. A good suggestion is to keep 10% of your taxable goods and services in a separate bank account. If you’re GST registered, you’ll need to pay the GST collected from your customers minus GST paid to the suppliers in the same GST return period.​

If you purchase a business asset costing more than $1,000, you need to report these in G10 under capital purchases in the BAS, and not G11 (Non-capital purchases). If you’re unsure, check with your accountant.​

GST isn’t on all expenses, and you may have an invoice which is mixed with GST and GST-free items. GST is not included in land tax, council rates, water rates and ASIC filing fees. Most insurance policies include a stamp duty component which is exempt from GST, while the rest of the policy includes GST. Furthermore, bank fees, Stripe fees and Paypal fees are exempt from GST. The main thing here is to carefully check your invoice before claiming GST.​

When you enter a hire purchase agreement for any assets or equipment, you can claim all the GST upfront in the GST period, as you are taking ownership of the assets or equipment.​

If you only have the right to use assets or equipment for a limited period of time, you can claim GST on each payment. Sometimes, however, GST can be applied to a part of the regular payment. Leasing and hire purchase agreements must therefore be carefully considered for GST purposes.​

If you purchase a secondhand item from a GST-registered business, you may claim full input tax credits on your next BAS. ​

However, if you purchase these items from a private seller or non-registered business, there are special rules that apply:​

If you buy goods or services that are for both business and private use, you can only claim a GST credit for the part of the purchase that relates to the business use.​

If you find out later that the split was different to what you first anticipated, you may need to adjust the amount of GST credits you have claimed.​

Small businesses should also be determining the business usage percentage of items like motor vehicles, telephone, internet, rent, power and gas. This is needed to claim the business portion of the GST.​

Small businesses with an annual turnover up to 2 million also have the option to work out their business usage at the end of the financial year, rather than on each BAS. You need to make an annual, private apportionment election for this. Your accountant will be able to help you with this.​

Read more: Home office expenses: a tax deduction guide for business owners​

If you purchase a car to be used solely for your business and you have a tax invoice and are registered for GST, you’re generally able to claim an input tax credit.​

If you purchase a car that is used for both business and private use, then you are entitled to claim a partial input tax credit for the business portion of the car.​

If you purchase a car that is above the car limit, then you can only claim one-eleventh of that limit. For 2022–23, the maximum GST credit you can claim is $5,885 (that is, 1/11 × $64,741). This limit also applies to cars which are fuel efficient.​

Kathy purchases a new car for $107,145 (including $9,000 GST and $8,145 luxury car tax) on 20 August 2022. Kathy plans to use the car 100% in carrying on her business. As the car limit for the 2022–23 financial year is $64,741, the maximum GST credit Kathy can claim is $5,885 (1/11 × $64,741).​

A luxury car is a car that has a GST-inclusive value which is higher than the luxury car tax threshold. After the purchase of a luxury car, you can’t claim a credit for any luxury car tax you pay.​

Read more: What motor vehicle expenses can I claim for my business?​

In Australia, GST filing and payment frequency is monthly, quarterly or annually.​

GST filing frequency has an impact on your cash flow. To be more precise, if your business purchases items with GST  on a regular basis, it’s wise to register for the monthly GST filing period. This means you can receive GST refunds as early as possible from ATO. If your business makes sales with GST on a regular basis, you should consider registering for a longer GST period. Through MyGovID, you can change your BAS cycle via online services for businesses.​

ATO requires all businesses to keep accurate and complete records for 5 years. You must have a tax invoice to claim a GST credit for purchases that cost more than A$82.50 (including GST). After you request a tax invoice, your supplier has 28 days to provide you one. Wait until you receive this before you claim a GST credit, even if you’re in a later reporting period.​

To make your record-keeping process more efficient, you can utilise softwares (e.g., HubDoc). These apps allow you to take photos of your receipt using your smartphone and then upload them to your cloud-based softwares (e.g., Xero).​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.​