If you’re confused by the concept of GST, you’re not alone. Many freelancers and sole traders in Australia aren’t sure if they need to register for GST, or how to calculate it and charge clients appropriately.
Let’s break down exactly what GST is and what it means for your freelance business. In this article, we’ll cover:
- The basics of GST
- Who needs to register for GST
- When and how to register for GST
- How to calculate GST
- How to put GST on your invoices
Before we start, a disclaimer: The information here is meant only as general guidance, and does not take your specific circumstances into account. We recommend you speak with a certified accountant or other qualified financial expert before taking any actions based on what you read here.
What is GST?
GST stands for goods and services tax, and in that way, it’s pretty straight forward: It’s a tax on goods and services sold in Australia, first introduced in July of 2000. In the vast majority of cases, GST is a 10% tax.
Ultimately, consumers are the ones who end up paying GST, but it’s up to businesses providing goods and services to tax those consumers appropriately, then pass those earnings on to the ATO.
For more information, check out these videos on the basics of GST from the ATO:
Do I need to register for GST?
If you are a sole trader or freelancer doing business in Australia, there’s a chance you may need to register for GST. It depends on two factors:
Meeting the $75,000 threshold
If at any point your gross income from your business is $75,000 or more in a single tax year, you need to register for GST and begin charging a GST fee to Australian clients.
Gross income is simply the money you make before taxes and deductions.
An important note for freelancers who have more than one job: You only pay GST if you are earning $75,000 or more from a single business.
For example, if you are only earning $35,000 from your side business, but you have another employer who is paying you $50,000 per year, you would NOT need to apply for GST.
GST for rideshare & taxi drivers
Drivers for companies like Uber, Ola, as well as taxicab and limousine drivers, must also register for GST even if they are below the $75,000 threshold. In addition to this, drivers must have their own ABN and submitting a quarterly Business Activity Statement (BAS). You can read more about this on the ATO’s website.
Voluntary GST registration
You can choose to register for GST even if you earn less than $75,000 per year or don’t provide rideshare services.
Why would you want to apply for voluntary registration? There are a few reasons.
- Business perception. Potential clients may value your business and services more, simply because you are charging GST. In other words, it makes your business look like it’s already performing well, even if you’re still in growth mode.
- Avoid surprising clients later. When you begin paying GST, you’ll need to start charging clients to cover the cost of the tax. Doing so now, even if you’re below the threshold, means you won’t have to surprise clients with a sudden fee hike later on.
- Claim more GST credits. If you make purchases for your business, and you’re charged GST on those purchases, then it might make sense to voluntarily register for GST so you can claim credit back later. More on that later in this article.
When to register for GST
You need to register for GST as you are approaching the $75,000 threshold. If you’re using Rounded already, this part is really easy—you can see your total annual income right on your dashboard at any time.
Once you hit the threshold, you have 21 days to notify the ATO and register for GST.
A word of warning: If you are not registered for GST when you should be, it’s very likely the ATO will catch up with you and make you pay GST on the excess income you earned. You may also have to pay a fine and interest on the excess amount, so it’s wise to check on your annual income regularly throughout the tax year.
How to register for GST step by step
If you think you need to register for GST, here’s a guide to walk you through the process.
Before undertaking this process, it’s important you consult with an accountant to discuss your individual circumstances.
Step 1. Acquire an ABN
Before you can register for GST, you need to have an ABN. Applying for an ABN is free and can be done via the ATO’s business register portal, which will direct you to your MyGov account, or you can call them on 13 28 66.
Step 2. Log in to your business portal
Once you have your ABN, you’ll be able to set up and log into your business portal. It’s worth spending time getting to know your business portal, as you’ll use it for most of your interactions with the Australian government on behalf of your business.
Step 3. Navigate to your Registrations screen
Once you’re logged into Business Portal, you’ll see a small pop-up window. From the left-hand menu, select “Business registration details.” From there, you’ll see a screen with your basic information. Scroll to the bottom where it says “Select one of the following options to view these details.” Then select “Registrations” from the box and hit “Next”.
Step 4. Choose your account and tax type
On the next screen, you should see your accounts listed, including one that will say something like “Activity statement.” Select this, then hit the “Tax type summary” button.
Step 5. Select add GST and enter your details
Next, you’ll see a list of tax types to add. You’ll want to select “Goods and Services Tax,” then hit next. On the next screen, you’ll be asked to enter your details.
Step 6. Choose cash or accruals
When filling out these details, you’ll have the option to choose between cash and accruals. Don’t let the terminology intimidate you—for freelancers and sole traders, “Cash” is almost always the best and simplest option. This means you record your income, expenses and any GST on the day you get paid or purchase the item. Very simple.
Accruals mean you record your income and expenses on the date the invoice was issued. This can be confusing and is nearly always unnecessary for sole traders.
When all of your information is filled in, hit “Next” again.
Step 7. Submit your application and verify
On the next screen, you’ll be prompted to submit your information and authorise the submission. Once that’s done, you are finished with the application process. Phew!
How to calculate GST
Now that you’re registered, you’ll need to make sure you are calculating GST for every transaction you make and adding it to your invoices.
If you are using Rounded as your accounting software, this process is simple as can be. You can toggle GST on and off on your invoices, and the software will take care of the calculations.
For everyone else, here are the basic calculations you’ll need:
Formula for adding GST
When it comes to adding GST, the formula is pretty simple:
Original Cost x 0.1 = GST
For example, if you are charging a client $250 for a service, the GST calculation would look like this:
$250 x 0.1 = $25
$250 + $25 = $275
In this case, you’d charge the client $275 (the total price plus GST).
Formula to determine how much GST you were charged
In some cases, you may need to figure out how much GST was included in the price of something you purchased. (This is a skill you’ll need for claiming GST credits.)
In this case, it’s not quite as straightforward. You cannot simply subtract 10%, because you’ll end up with a different figure. Instead, use this formula:
Amount Charged ÷ 11 = GST charged
For example, let’s say you made a purchase that came to a total cost of $487. To determine how much of that was GST, you’d use this formula:
$487 ÷ 11 = $44.27 GST
Australia GST calculator
Looking for a quick way to calculate your GST? This calculator makes it very simple.
When should you charge GST?
Generally, a GST-registered freelancer or contractor should include GST on all transactions from the services they provide. However, if you are dealing with clients outside of Australia, there is no need to charge them GST. Learn more about GST and overseas clients here.
Adding GST to your invoices
Whenever you charge GST to a client, you’ll need to record it on your invoices. For Rounded users, these adjustments are made automatically, but for anyone else, here’s what you need to do.
- Include the GST as its own line item on the invoice
- If you are charging GST, you must label the invoice as a “Tax Invoice”
- If you are not charging GST, you only need to label it “Invoice”
These are small but important changes, so if you are generating invoices manually each time, be sure to double-check your work.
How GST impacts your business activity statement (BAS)
If you’re a business registered for GST, you’re required to submit business activity statements (BAS) to the ATO throughout the tax year. You’ll use this statement to report your GST, PAYG instalments, PAYG withholding tax, and any other taxes to the ATO.
Typically, you’ll submit your BAS on a quarterly basis. (Some businesses may submit more frequently, but for freelancers, quarterly is typically the best option).
The good news is, once you’re registered for an ABN and GST, the government tax office will automatically send you your BAS when it’s time to lodge it.
However, it will be up to you to accurately report the GST (and other information) to the ATO.
Fortunately for Rounded users, we make this easy by automatically tallying up your GST each quarter. For non-Rounded users, you’ll need to keep track of this information on a spreadsheet or somewhere secure, so you have the figure ready when it’s time to lodge.
Claiming GST credits
For the most part, we’ve been talking about how to register your own business for GST. But what happens when you are charged GST on something you purchase for your business? That’s where GST credits come in.
You can claim credits for any GST included in the price of things that you buy for your business. For example, if you purchase a camera for $900 including GST, you can receive a credit for $81.81 to offset any GST you owe the ATO from your income. Here's a list of items that are not eligible for GST credits.
Making GST stress-free for freelancers
GST is a complicated topic, but for freelancers and sole traders offering services in Australia, understanding the goods and services tax is vital.
If you have more questions about GST and your freelance business, Rounded is here to help. For Rounded users, just send us a chat on your desktop or the app.
If you’re curious about how Rounded can take the stress out of GST, start your free 14-day trial and see how we make life easier for busy freelancers.