Most businesses are familiar with how GST works. But here’s a few reminders to make sure you’re
being compliant and maximising your GST claims.
GST is paid at each step in the supply chain and business charge GST in the price of goods, services
or anything else they supply. If an entity is registered for GST, it can claim input tax credits from
the ATO for any GST included in the price paid for goods, services or anything else bought for the
business.
However, for GST registered enterprises, the liability to pay GST rests on the supplier of
goods and services, not on the consumer. In other words, even if the business does not include the
GST in the price of goods and services supplied, it is still liable to pay it to the ATO.
Coffee or cars anyone?
As we move into a new financial year, you may be thinking of rewarding the office with an
impressive new coffee machine for the staff room, or perhaps you are thinking a bit bigger, say a
new vehicle. Either way you may want to keep some of these GST issues in mind:
- Second-hand goods*
Buying second-hand can often be cheaper. However, if you purchase from a non-registered seller
(e.g. a friend, or privately via Gumtree, eBay etc) unless the seller is a re-seller of second-hand goods
registered for GST, in most cases you will not be able to claim GST on the purchase. (And if you are
registered for GST, don’t forget to charge GST when you sell your business assets regardless of
whether the purchaser is registered for GST or not).
(*excludes goods containing valuable metals) - Deposits
The purchase of a significant asset often requires a deposit to be paid. If you report GST on a cash
basis, you will not be entitled to claim a GST input tax credit on the deposit at the time of paying
(you may be entitled to claim it if you have paid an amount in addition to the deposit, or if you
report GST using the non-cash accounting method and hold a tax invoice).
If you haven’t claimed GST at the time of paying the deposit, make sure to claim GST on the full purchase price, including the deposit, when the deposit is later applied towards the cost of the asset (which may occur in a later BAS reporting period). - Purchasing a car for more than the car limit
Your GST input tax credit will be limited if you purchase a car with a cost that exceeds the tax car
cost limit for depreciation. The car cost depreciation limit is the maximum you can claim as
depreciation deductions for income tax purposes ($68,108 in 2023-24).
Where the cost of your car exceeds this value, your GST claim is limited to 1/11th. of the car limit i.e. $6,191 (1/11th x $68,108).
Importantly, there are some exceptions to this rule where your GST entitlement will not be limited,
including on the purchase of a commercial vehicle (those not designed to carry passengers) or motor homes and campervans.
Be aware, however, that on the disposal of the car there is no corresponding reduction or
adjustment to the GST on the sale proceeds i.e. you must pay the ATO 1/11th of the full sale proceeds.
This is the case, even if your GST and depreciation claims were limited on the purchase under these
rules. - Cancelling your GST registration
A cost that is often overlooked when considering winding up a business is the potential need to
repay GST previously claimed in respect of assets you still hold. In most cases (there are a few exceptions), you must cancel your GST registration within 21 days of selling or closing your business.
You can also choose to cancel your GST registration if your GST turnover is below the turnover
threshold ($75,000). If, when you cancel your GST registration, you still hold business assets on
which you previously claimed GST, you may need to repay some of those credits, depending on how
long you have owned the asset and its original cost.
The adjustment will generally be 1/11th of the GST inclusive value of the asset at the time of cancelling your registration (where this value is lower than its original cost).
Small but not insignificant
It’s not just on these larger transactions where we can uncover GST issues. Although the dollars
involved are usually more significant when buying and selling business assets, it is extremely easy to
over or under claim GST on our day-to-day transactions and over time, these too can add up to a
sizeable GST adjustment. For example:
– Bank fees – ordinary monthly bank account charges won’t include GST, but merchant fees
do so check your accounting system is set up to capture the GST on those merchant fees.
– Insurance policies – insurance policies often include a small stamp duty component which
does not attract GST. If your accounting software is set up to claim a full 10% GST (or 1/11th
of the premium cost) you may be overclaiming GST.
– Recharge or top-up cards – e.g. for tolls, telephone (and vouchers given as Christmas or other
gifts) – GST should only be accounted for when the recharge is used or redeemed for
purchases used in your business, not when the cards or vouchers are purchased.
– Private apportionment – eligible small businesses can make an annual apportionment of GST
where purchases are partly for business and partly for private purposes rather than each
time you pay an expense. You can make this adjustment in the activity statement that covers
the period your income tax return is due, making sure not to reduce your GST claim twice
(once when you paid the expense, and once as part of the annual adjustment).
– Software subscriptions – you may not be claiming GST on software subscriptions on the
basis that the supplier is an overseas supplier. However, from 1 July 2017 the rules changed
in this area so you may be paying GST when you do not have to, or not claiming GST when
you could be – you will need to check your tax invoices and let your bookkeeper or
accountant know if the software subscriptions you are paying include GST (or provide the
software supplier your ABN so you are not charged in the first instance).
Remember the best way to maximise your GST claims is by checking your tax invoices for GST paid
(you have four years to claim the GST), and then keeping those and other GST records for 5 years.
If you have any questions around GST, reach out to us.
DISCLAIMER: This information is general in nature. It has been prepared without taking into account your objectives, personal or business circumstances, financial situation or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser, its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.