How to calculate and manage your GST payments?

Introduction:

Many business owners face the challenge of understanding how to calculate GST payments. If you've recently started a new business, this may be a new area for you. But even if your business has been around for years, staying on top of these payments is important since they can substantially impact your bottom line.

In this blog, we'll simplify the concept of GST, breaking it down into easy-to-understand steps. We'll guide you through the calculation process and offer tips on managing your payments efficiently.

By the end, you'll have a clearer grasp of GST, ensuring your business remains compliant and financially sound."

What is GST?

The Goods and Services Tax (GST) is the Australian government's consumption tax on selling most goods and services. It's an indirect tax, meaning businesses collect it from consumers in the price of goods and then report and remit it to the government. The primary purpose of GST is to consolidate multiple taxes into one unified system, making it easier for businesses to manage and for the government to regulate.

How much is GST?

The standard GST rate in Australia is set at 10%. This means that for most goods and services sold or consumed in Australia, an additional 10% is added to the price as GST.

What are GST-free sales?

Certain goods and services are exempt from GST, termed GST-free sales. These include the following:

• Basic foods like fresh fruits, vegetables, meat, and bread.
• Some medical and healthcare services.
• Some educational courses and services.
• Some childcare services, religious services, and charitable activities.
• Sales through duty-free shops.
• Exported goods.
• Donated goods sold by non-profit organisations.
• And more

It's important to note that while these items are GST-free, businesses can still claim credits for the GST they pay on the inputs for these goods and services. Please refer to the ATO official website for more info about GST-free sales.

How GST Works?

To understand the mechanism of GST, imagine a supply chain involving a manufacturer and a retailer:

Manufacturer's sale to retailer:

• The manufacturer produces and sells a product to a retailer for A$100.
• Given the 10% GST rate, the manufacturer adds A$10 (10% of A$100) as GST to the selling price.
• The retailer pays the manufacturer A$110 (A$100 for the product + A$10 as GST).
• The manufacturer then remits the A$10 collected as GST to the government.

Retailer's sale to consumer:

• The retailer determines the price and sells the product to a consumer for A$150.
• The retailer adds A$15 (10% of A$150) as GST to the selling price.
• The consumer pays the retailer A$165 (A$150 for the product + A$15 as GST).
• Now, the retailer must remit the A$15 collected as GST to the government. However, the retailer has already paid A$10 as GST to the manufacturer during the initial purchase.

GST credits and avoiding double taxation:

• To avoid double taxation, the retailer can claim a GST credit for the A$10 they paid to the manufacturer.
• This means that out of the A$15 GST collected from the consumer, the retailer only needs to remit A$5 (A$15 - A$10 GST credit) to the government.
• The total GST the government receives from this product's sale is A$15 (A$10 from the manufacturer + A$5 from the retailer).

This system of GST credits ensures that GST is only paid on the value added at each stage of the supply chain. The credits from previous transactions (like the A$10 the retailer paid to the manufacturer) are accounted for, ensuring that the same GST isn't charged multiple times.

How can small businesses calculate GST manually?

Understanding how to calculate GST is crucial for compliance and transparent pricing for small businesses. It ensures that businesses accurately charge their customers and correctly report their taxes. Here's a step-by-step guide to help small businesses navigate GST calculations:

Adding GST to a price

Calculating GST from a total price

Finding the GST-exclusive price

Effective GST management strategies for small businesses to improve cash flow

Managing GST efficiently is pivotal for small businesses, especially when aiming to enhance cash flow. A well-structured GST strategy not only ensures compliance but also optimises financial operations. By understanding the nuances of GST and implementing best practices, businesses can avoid potential pitfalls. Here are some key strategies to consider:

Understand GST basics:

GST affects cash flow. By understanding how GST works, businesses can better plan their finances. Knowing when and how much GST to charge and when to claim credits is essential.

Data analysis:

Regularly analysing GST data helps businesses track their cash inflows and outflows. Using modern data analytics tools, businesses can get insights into their financial health and make informed decisions, ensuring a positive cash flow.

Efficient invoicing:

Timely invoicing can significantly impact cash flow. Businesses can maintain a healthy cash balance by reducing the time between making a payment and receiving a credit. It's essential to have an efficient invoicing system in place.

Negotiate payment terms:

Businesses can negotiate payment terms with their suppliers for significant transactions involving large GST amounts. Businesses can better manage their cash flow by aligning these payments closer to when the BAS is lodged.

Use the import GST deferral scheme:

For businesses that import goods, the Import GST Deferral Scheme allows them to defer GST payments. They can delay payment until their BAS is lodged, aiding in cash flow management.

Proper documentation:

Maintaining accurate records is crucial. Ensuring all paperwork is in order when buying or selling a business can prevent unexpected GST charges. Proper documentation can also speed up the process of claiming GST credits.

Lodge BAS timely:

Timely and accurately filing business activity statements (BAS) is important for sustaining a healthy cash flow. While timely submissions ensure prompt access to GST credits, accuracy prevents potential delays caused by GST errors in the activity statement. Timeliness and precision in BAS reporting are indispensable for businesses aiming for consistent cash flow and regulatory compliance.

Stay updated:

The GST landscape can change, occasionally updating rates and regulations. Staying informed ensures businesses remain compliant and can adapt to changes, preventing unexpected costs and aiding cash flow management.

Claim input tax credits:

Businesses can reduce their GST liabilities by claiming credits for the GST paid on business-related purchases. Businesses can significantly improve their cash flow by understanding and correctly claiming input tax credits.

Seek expert advice:

The GST system can be complex. Businesses can receive tailored advice by engaging with GST professionals or consultants, ensuring they navigate GST efficiently. Expert guidance can help in optimising cash flow and avoiding common pitfalls.

At CleanSlate, we offer comprehensive GST guidance. Our team ensures hassle-free GST registrations, timely management of returns, and support for any GST-related queries. We also assist in maximising GST-related claims and handle all associated paperwork, making GST management efficient and stress-free

Ending note

Regardless of the size of your business, managing your GST is an essential part of success. Knowing how to calculate and manage your GST payments can give you a prime position to turbocharge your profits. We hope this blog post has provided you with ample resources and insights into the various tools and strategies for effectively managing your GST payments.

At CleanSlate, we pride ourselves on offering specialised solutions tailored for small businesses, ensuring they remain compliant and informed in the ever-evolving financial landscape. If you’re ready to take charge of your business’s profitability, then contact us today. With CleanSlate on your side, you can rest assured that your GST procedures will be taken care of quickly and efficiently.