Do you need to register for GST?
There are two scenarios where you must register for GST. The first and most likely is if you earn more than $75,000 gross income (your total income before expenses & deductions).
The second is if you provide taxi services. In the past this would have been fairly uncommon however with the increasing popularity of ride-sharing services such as Uber this is changing quickly. As of August 2015, anyone who drives for Uber must have an ABN, must be registered for GST and must submit a quarterly BAS (Business Activity Statement) regardless of the $75,000 threshold. Read more about this on the ATO’s website.
Voluntary GST registration
You can also register for GST even if you earn less than $75,000 per year or don’t provide taxi services. Why would you do this? Mainly to claim GST credits on business purchases. More on that below.
What if you exceed the $75,000 threshold?
You should keep records of your income and check each month on your total income for the financial year. Consider using accounting software to make this easy. Rounded accounting will automatically let you know when you’re about to exceed.
If you do exceed the threshold you have 21 days to notify the ATO and register for GST. If you do not register, you can be sure 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.
Registering for GST
Cash or Accruals?
When registering you’ll have the option between “Cash” and “Accruals” accounting methods. This may sound confusing but it’s quite simple. In nearly all circumstances choosing “Cash” is the best and simplest option for Freelancers, Contractors, and Sole Traders.
The cash method is highly recommended, it 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 nearly always unnecessary for Sole Traders.
Claiming GST credits
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. See here for what you can not claim GST credits for.
GST and invoices
Once you’re registered for GST you will need to charge your client GST in the services that you provide.
A common mistake is the confusion between an “Invoice” and a “Tax invoice”. If you are not registered for GST, then you can not issue a tax invoice because there is no GST component, your invoice must simply say “Invoice”. On the other hand, if you are registered then the invoice must clearly say “Tax Invoice”.
Generally, a GST registered Freelancer or Contractor should include GST in all the services they provide. An exception is when dealing with clients located outside of Australia, you will not charge them GST.
Videos from the ATO
The ATO (Australian Taxation Office) has produced some videos to help you further understand GST.