What Can You Claim GST Credits On
When your brand starts to generate a decent amount of income, the tax man will of course come knocking. The good news? GST credits can help to combat this.
Goods and Services Tax in Australia is a value added tax of 10% on most goods and services sales, with some exemptions and concessions. GST is levied on most transactions in the production process, but is in many cases refunded to all parties in the chain of production other than the final consumer.
When your business generates a gross annual income of $75,000 you will be required to register and collect the Goods and Services Tax (GST) and complete a monthly, quarterly or yearly Business Activity Statement (BAS) and lodge it to the Australian Taxation Office (ATO). A part of your obligations as a business is to charge an additional 10% on your invoice to your customers on the goods and services you sell, which you then collect on behalf of the ATO.
GST credits are defined as the GST, or Goods And Services Tax, that you have incurred as a business expense in order to create your goods or services. Also referred to as Input Tax Credits, the Australian Taxation Office will allow you to claim back the GST credits you have incurred as part of your expenses to provide your goods or service. When you collect your GST credits, it’s recommended to put them aside into a separate bank account so that when the time comes, you have the funds ready to send to the ATO.
How To Calculate GST Credits
In order to calculate your input tax credits, or GST credits, you’ll first need to add up the GST you have paid (or are liable to pay) on your business expenses, which you will offset against the GST you have collected.
An example of this practice is that you may have invoiced your customer $110.00, which includes $100.00 of your invoice, plus the additional 10% GST. You should then set aside that $10.00 into a nominated bank account to keep the payments segregated.
In order to provide those goods or services, you may have incurred expenses which equates to $3.00 of GST. You are able to claim back that very same $3.00 of GST paid as Input Tax Credits of $33.00, so that you will only need to send $7.00 to the ATO as a part of your brand’s GST obligations. The aim of the game is to still meet your obligations, but to legally reduce the amount as much as possible.
The many realms of tax can be complicated, and navigating GST credits is no exception. If you’re new to this arena, a few tips on how to best manage the practice include the following.
If your suppliers aren't registered for GST, you can't claim GST credits. Even if they give you a tax invoice with an ABN and GST amount on it, this still applies.
If you aren’t sure if your suppliers are registered for GST or not, a simple and straightforward way to check is by using the ABN Lookup online tool.
Amongst other things, basic foods, some medical goods or services and other items are GST-free. Be sure to check the comprehensive list online published by the ATO.
Check your tax invoices and only claim the amount of GST shown.
If you use an item for both personal and business use, you can only claim the business portion.
There is no GST on wages you pay to staff.
There are also some property transactions where you can't claim GST credits, such as that you can't claim GST credits when buying a property using the margin scheme or build-to-rent developments.
Like all things tax related, be sure to keep a copy of all of your receipts as you’ll need to substantiate the expense. For expenses over $82.50 (including GST), you should have a tax invoice from the supplier.
Sourcing Help With Claiming GST Credits
Whether you’re starting a business, purchasing an existing one, or even re-evaluating where your current enterprise stands - all require some form of financial know-how if you hope to successfully navigate your legal requirements as well as hitting your business goals.
However, if understanding the legalities that surround your business or finances isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many businesses (big and small) enlist the services of an accountant in order to free up their time while knowing that their financial obligations are already taken care of by the professionals.
Ultimately, the team at Muro believe that every business owner is an entrepreneur. However, accounting does not discriminate - finances break down barriers and are not territorial. If you would like to take a deeper look into your finances, please get in touch with us at Muro today to ensure that you’re on the right path for success.