When GST Registration is Optional: to Register or Not to Register

Many business owners automatically register for GST, unaware that in some circumstances it may be optional.

Registering and charging GST is only compulsory when your business hits a turnover threshold of $75,000. (For non-profit organisations, the threshold is $150,000 in revenue.)

What are the pros and cons of voluntarily registering?

In a recent post we covered the legislative requirements around when a business must register for GST as well as how to go about the process. In this article, we drill down into the arguments for and against registration if a business does not automatically meet the registration requirements.

Is it better to be registered for GST? Ultimately, whether registering for GST is advantageous or disadvantageous depends on various factors, including the nature and scale of the business. Here are some general advantages and disadvantages to consider.

Advantages of registering for GST

Registering for Goods and Services Tax has several advantages to help businesses improve their cash flow, enhance their reputation, and access new opportunities.

Let’s look at some of the main pros of GST registration.

Input tax credits. If your business is GST registered, you can claim GST credits you pay on business expenses, such as supplies and equipment, through input tax credits.
Credibility. GST registration can enhance a business’s credibility and legitimacy giving a competitive edge and even help you win business. GST registration may be a prerequisite for engaging with specific suppliers or to tender for government conracts.
Market competitiveness. Some customers and businesses prefer dealing with GST-registered entities due to the transparency it brings to tax compliance.

What are the disadvantages of GST registration?

As we’ve just read, registering for GST can have its benefits, but it can also come with several potential drawbacks. Here are some of the main disadvantages of GST registration.

Administrative burden. GST registration means additional administration work, and reporting to the Australian Taxation Office (ATO), typically on a quarterly basis through Business Activity Statements. A registered business has two distinct roles, the running of the business, and acting as a tax collector for the ATO.
Customer perception: Generally speaking, businesses registered for GST pay an extra 10% to the ATO for goods or services sold. To account for this they usually charge the amount to customers and include it in their sales prices. Some customers may view businesses that charge GST as more expensive, which can impact sales and reputation. This may put you at a competitive disadvantage.
Cash flow: The requirement to collect and remit GST can impact your cash flow (especially if you are a small business), as you must withold the GST component and remit to the ATO at your next BAS payment. This can result in negative cash flow if the business does not have sufficient funds to cover the GST payments.
Complexity: The GST system can be complex, and your business needs to understand the rules and regulations to ensure compliance. This can be particularly challenging for small businesses with limited resources. There are potential penalties if errors or non-compliance are discovered.

What type of business would benefit from not registering for GST?

A business with high service-based sales and minimal expenses and capital purchases may benefit from not being registered for GST, if that option is available to them.

An important note for freelancers

You only pay GST if you are earning $75,000 or more from a business (or businesses). For example, if you are earning $35,000 from your side business/es, but you have another employer paying you $50k p.a. you would NOT need to register for GST.

If you earn part or all of your income through the “sharing economy,” it may be subject to GST. The ATO defines these activities here. You can learn more about how GST applies to the share economy from the ATO here.

Monitor your turnover

Ultimately, the decision to register for GST (when it is a voluntary one) should be based on a careful consideration of the specific circumstances and requirements of each business. If a business does choose to register, generally it must stay registered for at least 12 months.

If you’re not registered for GST you should monitor your turnover. Check each month to see if you’ve reached the threshold, or are likely to exceed it as you need to register within 21 days of your GST turnover exceeding the threshold.

Remember – if you are not registered for GST when you should be, it’s very likely the ATO will catch up with you and you will be required to pay GST on sales made since the date your were required to register. This applies even if you didn’t include GST in the price of those sales. You may also have to pay a fine and interest on the excess amount, so it’s wise to check on your income regularly throughout the tax year.

If you want to register for GST but your business started some time ago, you are allowed to backdate your registration for a period up to 4 years (for tax periods commencing after 1 July 2012). This will enable you to claim GST credits on your start-up expenses and potentially get a significant amount of money back into your business. Keep in mind that backdating GST means you’ll also have to pay GST on applicable goods or services that you sold.

If you’re confused by the concept of GST, you’re not alone. Many businesses owners aren’t sure if they need to register for GST, how to calculate it or how to charge customers appropriately. As with all tax issues, Balanced Beans Bookkeepers Newcastle recommend you speak with us about whether or not you should register for GST in your individual situation, and how to ensure you are GST compliant.