This article first appeared on October 20th, 2010.
I’m starting up as a consultant and doubt that my turnover will initially be more than $75,000.
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However, should I register for GST, regardless? If so, what kind of things would I be able to claim back?
An obligation to register for GST arises when:
- Your “current GST turnover” is $75,000 or more (and the ATO is not satisfied that “projected GST turnover” is less than $75,000); or]
- Your “projected GST turnover” is more than $75,000.
Current GST turnover is measured over the 12 month period ending at the end of the current month. Projected GST turnover is measured over the 12 month period commencing at the end of the current month.
If you do not exceed the above thresholds, you can voluntarily register for GST provided that the consultancy is a bona fide commercial operation, (eg. not a hobby or private pursuit).
If you become registered for GST, you must charge 10% GST on your fees. Additionally, you can claim a refund of any GST included in expenses you incur for a “creditable purpose”.
Creditable purpose means that you acquire the thing in carrying on your enterprise and:
- It does not relate to the provision of “input taxed supplies” (this would not apply to you); or
- It is not of a private or domestic nature.
This is on the proviso that your enterprise is carried on within Australia.
The following are some examples of expenses you may incur that will likely include GST that can be claimed:
- Vehicle and travel expenses.
- Telephone, fax and internet expenses.
- Purchases of equipment and consumables.
- Rent of office space.
- Insurance (not always 100%).
- Payments to service providers (eg. accountants, lawyers, bookkeepers, etc).
- Payments to contractors.
Expenses which will have no or reduced GST include bank charges, rates and taxes, insurance, car registration, ASIC fees, etc.
When deciding to voluntarily register, some issues to consider include the following:
- The impact of adding 10% GST to your fees. This is particularly relevant if you provide services to persons who cannot claim a refund of the GST.
- The amount of GST you can claim on expenses incurred.
- The administrative work created and your ability and systems required to properly record these things. This also includes the cost of assistance from your accountant and/or bookkeeper. It also includes the valuable time you spend on this rather than on your business itself.
This was written in conjunction with Ashley Carmichael, manager at CDB.