By Craig Toyne
For tradies operating their own business in Australia, understanding Goods and Services Tax (GST) is essential for running a smooth, compliant operation. GST can be a bit tricky to navigate at first, but once you understand the basics, it’s much easier to handle. This post covers everything tradies need to know about GST, including when to register, how to charge it, and what to claim back.
What is GST?
GST stands for Goods and Services Tax, which is a tax of 10% added to most goods and services sold in Australia. As a tradie, you’ll need to manage GST if your business is registered for it, which typically involves adding 10% to the prices of your services and passing that tax onto the Australian Taxation Office (ATO).
GST is applicable to a wide range of services that tradespeople provide. Whether you’re a plumber, electrician, builder, or any other type of tradie, the chances are that you’ll need to charge GST for your work once you’re registered.
When Do You Need to Register for GST?
As a small business owner, you must register for GST with the ATO if your annual turnover exceeds $75,000. This threshold is crucial because if your income is below this amount, registering for GST is optional. However, even if your income is below $75,000, you might choose to register for GST voluntarily. This can allow you to claim GST credits on your business expenses, which can offset the GST you’ve collected from clients.
Key Triggers for GST Registration:
- Annual turnover of $75,000 or more: If your business earns more than $75,000 in a financial year, you must register for GST.
- Voluntary Registration: If your turnover is less than $75,000, you can still choose to register for GST if it benefits your business.
Benefits of Registering for GST
While GST registration is mandatory if your turnover exceeds the threshold, it also offers some notable benefits for tradies, including:
1. Claiming GST Credits
When you’re registered for GST, you can claim back the GST you’ve paid on business-related expenses, such as tools, equipment, and materials. For example, if you buy a power tool for $500 + GST ($550 total), you can claim back the $50 GST paid, reducing the actual cost of the item.
2. Professional Appearance
Being registered for GST can give your business a more professional image. Customers may perceive GST registration as an indication that your business is larger or more established, which could help attract more clients.
3. Avoiding Penalties
If your turnover exceeds $75,000 and you’re not registered for GST, you could be subject to fines and penalties from the ATO. It’s best to get registered as soon as your turnover hits the threshold to avoid any issues down the line.
4. Better Cash Flow Management
By claiming GST credits on your business expenses, you can improve your cash flow. Essentially, the GST you pay on your business-related purchases is refunded to you, which helps keep your finances in check.
How to Register for GST
Registering for GST with the ATO is relatively simple. You can complete your GST registration online through your myGov account or use a tax professional to assist with the process.
Charging GST on Your Services
Once you’re registered for GST, you need to charge the tax on your services. This means that the price of your services will increase by 10% for your customers. For example, if you charge $200 for a job, the price will rise to $220 when you add GST.
It’s essential to ensure that you’re clearly stating on your invoices that GST is included. Typically, businesses will list the GST as a separate line item on the invoice. For example:
- Service Fee: $200
- GST (10%): $20
- Total: $220
Make sure you’re transparent with your clients about the GST component, and keep clear records of the GST collected on each job.
What You Can Claim Back
When you’re registered for GST, you’re eligible to claim back the GST you’ve paid on business-related expenses, such as:
- Tools and equipment: Items you buy specifically for your trade (e.g., drills, saws, safety gear).
- Materials: Things you purchase for a job, like timber, pipes, or tiles.
- Vehicle expenses: If you’re using a vehicle for work purposes, you can claim the GST on fuel and other related expenses.
- Training and education: The GST portion on courses or seminars that help you improve your skills or qualifications can be claimed back.
- Rent and utilities: If you rent an office or storage space for your tools, you can claim back the GST on rent and utilities.
Reporting GST to the ATO: Business Activity Statements (BAS)
As part of your GST registration, you’ll need to lodge a Business Activity Statement (BAS) with the ATO, typically every quarter or year, depending on your turnover and preference. The BAS reports:
- The GST you’ve collected from your customers (output tax)
- The GST you’ve paid on your business expenses (input tax)
- The difference between these amounts is what you either owe to the ATO or can claim back as a refund.
If you’ve collected more GST than you’ve paid on expenses, you’ll need to pay the difference to the ATO. If you’ve paid more GST on your expenses than you’ve collected, you’ll receive a refund.
What Happens if You Don’t Register for GST?
If your business is required to register for GST (due to meeting the $75,000 turnover threshold) and you don’t, you could face penalties from the ATO. These penalties can include:
- Fines for failing to register when required
- Penalties on unreported GST from your business activity
- Interest on any outstanding GST payments
Failing to register when required can lead to significant legal and financial consequences, so it’s essential to stay compliant.
Final Thoughts
Registering for GST is an important step to managing your business’s tax obligations. If your business turnover exceeds $75,000, registering for GST is mandatory, and it can also offer valuable benefits like the ability to claim GST credits on your purchases.
Here at Toyne Accountants, we specialise in accounting and bookkeeping for tradies. A small investment in good accounting advice can lead to financial peace of mind. Book a meeting with us today.
