GST for Australian tradies

The whole thing in four moves#

GST has a reputation it does not deserve. Stripped of the language, a trade business does four things with it, in this order, forever.

1. 1

   Register when you have to

   Once your GST turnover reaches $75,000 you must register, and within 21 days of reaching it. Below that it is optional.

2. 2

   Charge it on your work

   Add 10% to what you invoice, show it on the document, and head the document "tax invoice" only if you are actually registered.

3. 3

   Claim it back on what you buy

   Materials, tools, insurance, the business share of the ute and the phone. You need the supplier tax invoice to do it.

4. 4

   Report the difference each quarter

   Collected minus claimed, on a BAS. If collected is larger you pay the difference. If claimed is larger you are refunded it.

The one idea worth carrying out of that list: the GST you collect was never your money. It sits in your account looking exactly like revenue, which is why a quarter that felt profitable can still produce a bill you cannot pay.

The numbers that actually bind#

Four figures do most of the work. Each links to the ATO page that publishes it, because thresholds move and a number repeated on a blog is not a source.

• ATO: registering for GST covers the threshold and the 21 days.
• ATO: when you can claim a GST credit covers the $82.50 tax invoice rule.
• ATO: GST records covers the five year retention period.

What you can and cannot claim#

The line is not "was it a business expense". It is narrower than that, and the two conditions people forget are that the supplier has to be registered and the use has to be business use.

What a tax invoice has to say#

A tax invoice is a specific document, not a nicer-looking invoice. For a sale under $1,000 the ATO requires it to show that it is intended as a tax invoice, who issued it, their ABN, the date, what was sold, and the GST amount or a statement that the total includes GST.

• The words Tax invoice, which you may only use if you are registered.
• Your business name and your ABN.
• The date it was issued.
• What you did, itemised enough to identify it.
• The GST amount, or the line "Total price includes GST".

Heading a document "tax invoice" while unregistered is the mistake with teeth, because it tells the customer they can claim something that does not exist. ATO: tax invoices.

What to keep, and for how long#

Five years, from the later of when you prepared or obtained the record and when the transaction it relates to was completed. Digital copies count, so a photograph of a docket taken at the counter is a record.

ATO: GST records for business

Where it usually goes wrong#

Almost none of the trouble is arithmetic. It is four habits.

• Spending the GST. It arrives in the same account as the rest of the money and looks identical to it. Quarter end is where that becomes obvious.
• Taking 10% off to remove GST. The correct move is dividing by 11, because the 10% was added to the smaller number. Taking 10% off a $1,100 total gives $990, and the right answer is $1,000.
• Losing the supplier docket. That is not a small loss. It is the whole GST on that purchase, gone.
• Not lodging because you cannot pay. The two are penalised separately, so lodging on time with nothing paid is a much better position than silence. ATO: BAS due dates.

Where Chippie fits#

Every one of those habits is a record-keeping problem wearing a deadline's clothes. The GST figures exist the moment you issue an invoice or buy materials; the pain is reconstructing them three months later from memory and a glovebox.

So the work is moving the record to the moment it happens rather than the deadline.

• GST calculated and shown on every line-item quote and invoice as you write it, with your ABN on the document, and individual lines markable as GST-free.
• A running quarterly GST position with a BAS-readiness score, so the quarter is something you can see before it ends.
• Invoices landing in Xero with the correct tax treatment, through the live integration.