Can I claim the GST back without registering for a BAS?

If my small business is not big enough yet to be registered for GST, how do I claim back the GST I am charged on items I buy? Or can I not claim it back anyway and it makes no difference?

 

I currently make about $60,000 a year and my accountant says it’s not worth the BAS hassle of registering for GST, so all my invoices are without GST to my clients and providers (and not tax invoices).

 

All businesses that are under the threshold have the choice to register for GST if they wish.

 

The threshold for registration for GST is $75,000. Once your turnover reaches this threshold you must register.

 

Until then, you are not required to register.

 

If you are not registered for GST your invoice must not say Tax Invoice and just say Invoice. You do not charge an extra 10% on top of your services, that you collect and pay onto the government and you cannot claim the GST paid on items you buy.

 

Instead of claiming the 10% on purchases against the amount you have collected to the ATO, you claim that extra 10% as a tax deduction as you are not required to reduce the expense by that amount for tax purposes if you are not registered for GST.

 

Most people do not want to fill out the Business Activity Statements every quarter so they elect not to register until they have to.

 

Below we take a look at the difference of registering versus not registering.

 

If registered and we assume your turnover is currently $60,000 you would have had to collect an extra $6,000 on top of your turnover by charging an extra 10% for your services.

 

Your turnover would now be $66,000. The $6,000 is owed to the ATO.

 

Say your expenses are $40,000 (assuming all expenses have GST on them), then you would have paid $3,636 in GST, therefore you would owe the ATO $2,364.

 

Your taxable profit would be $23,636 and you will pay tax at say 30% (for ease of comparison), which equals $7,090.80.

 

Now, in comparison, if you don’t register for GST your tax bill would be $6,000. You would save $1,090.80 in tax. However you would miss out on $3,636 in extra income from the extra GST charged.

 

So if you don’t register for GST you are effectively missing out on $2,545.20 in extra income.

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Philip
Philip
10 days ago

Your example makes it appear attractive to register for GST, as you pay more tax, but this is more than offset by an increase in overall income, However, this is assuming ceteris paribus, and as such is too simple. It does not account for impact that price increase will have on demand. That is, one is unlikely to be able to pass on a 10% increase in price without it affecting sales, especially if selling retail… lets say they are selling widgets for $10 each, and they sell 6000 of them = $60k turnover. But if they start selling them for $11 each (same margin, but now including GST), they might only sell 5000 widgets. So, instead they keep the price at $10 to maintain their market share, and have to then pay the GST component out of profit.

In the real world, when not registered, the person has a gross margin advantage over competitors that are registered… this advantage disappears once registered, which will inevitably hit profitability.

Last edited 10 days ago by Philip