When a person starts a small business from scratch, they face a number of inevitable decisions.
One of these decisions involves deciding whether or not to register for GST voluntarily if the owner believes the business is unlikely to make more than $75,000 in its first year of operation.
There are a number of factors that new business owners should consider when making this decision, with cash flow being the most important. Voluntarily registering for GST is a good idea for start-up owners who may spend a large amount of money in order to start up their business, as they may receive a GST refund for any items purchased. This may involve spending a considerable amount of money on tools or equipment that need to be in operation before the business opens.
If a business owner chooses not to register voluntarily for GST, the tax deduction for the amounts the business spends will be increased by the GST, and included in the overall cost.
The problem with not being registered for GST means business owners must be able to finance the GST component of their set-up costs. Additionally, until they lodge their income tax return, owners will not receive the cash flow benefit the tax deduction provides.
Owners who do not register voluntarily for GST are still required to lodge an instalment activity statement (IAS) each quarter to meet their taxation obligations. The ATO sends the IAS to owners, along with a PAYG instalment quarterly amount and information regarding the PAYG instalment rate.
Business owners who register for GST are required to complete business activity statements (BAS) on a quarterly or monthly basis. If the income a business receives in the first few months or quarters is less than what the owner has paid to set up the business, the owner will receive a refund of the GST included in the purchased items.
Business owners who register for GST voluntarily and do not notify the ATO that they intend to pay GST by instalments, can opt to report GST on an annual basis.
A final consideration for voluntarily registering for GST (when owners believe the first year’s income will be less than $75,000) is the probability of the business’s income increasing to the point where the business has to register for GST in its second year of operation.
For more information of registering for GST, please contact us at Leenane Templeton on 02 4926 2300