Should you register for GST?

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 in this article is general in nature is not designed to be personal financial advice. You must talk to an accountant or the ATO for tax advice related to your own personal circumstances.

What is GST?

GST stands for goods and services tax: 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 Australian Tax Office (ATO).

We’ll go through all of the important things you need to know about GST in this article, but you can always learn more information by visiting the ATO’s official page on GST.

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 (the money you make before taxes and deductions) 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. For non-profit organisations, the threshold is $150,000 in revenue.

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 earning $35,000 from your side business, but you have another employer paying you $50,000 per year, you would NOT need to register for GST.

GST for the sharing economy

If you earn part or all of your income through the “sharing economy,” it may be subject to GST as well. The ATO puts a number of income sources in this category, including:

Ride share drivers (using services like Uber, DiDi, etc.)

Renting out a room, house, or unit (on platforms like AirBNB , HomeAway, etc.)

Offering creative services or odd jobs (on Airtasker, OneFlare, Mad Paws, etc.)

Drivers for companies like Uber, Ola, as well as taxicab and limousine drivers, must also register for GST even if they are below that figure. In addition to this, drivers must have their own ABN and submit a quarterly Business Activity Statement (BAS). 

You can learn more about GST and the share economy 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. When you make purchases for your business and you’re charged GST, you can often claim GST credits to reimburse yourself. We’ll explain how to do this later in the article, but if that sounds appealing to you, voluntary GST registration may be a wise move.

When to register for GST

Typically, 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.

If you launch a new business and reasonably expect to reach the threshold in your first year, you should also apply for GST. Anyone planning to claim fuel tax credits for their business also needs to apply.

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.

Download the Ultimate guide to freelance taxes here

How to register for GST step by step

Here’s a step-by-step guide to register for GST.

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 MyGov account. It’s worth spending time getting to know your MyGov 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 MyGov, 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”.

Registering for GST

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. 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. You can toggle GST on and off on your invoices, and the software will take care of the calculations. Rounded users can also choose whether to display pricing inclusive or exclusive of GST.

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 $500 for a service, the GST calculation would look like this:

$500 x 0.1 = $50

$500 + $50 = $550

In this case, you’d send an invoice for $550, charging the client for the full price of the service 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 for the services they provide. It’s good practice to charge GST on the same invoice you send for any product or service you provide. (More on how to do that below.)

However, if you are dealing with clients outside of Australia, you may not need to charge them GST - if in doubt check with your accountant or the ATO. Learn more about GST and overseas clients here.

Most people who have been doing business in Australia for a while will be well aware of GST, but it may still be a good idea to remind your clients about GST when you send over a quote. That way, there are no surprises when they receive your first invoice.

Adding GST to your invoices

Whenever you charge GST to a client, you’ll need to record it on your invoices.

Include the GST separately on the invoice, and add it to the subtotal

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”

For Rounded users, it’s easy to include GST on your invoices—we even do the calculations for you. You can toggle GST charges off and on, if you’re dealing with clients overseas as well as those here in Australia. Learn more about how Rounded can make invoicing fast and easy.

Cover Photo by Melissa Walker Horn on Unsplash

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