Registering for GST

My partner is a sole trader and did not register for GST as she believed her annual turnover would be less than $75,000.

From our projections it looks like the turnover would be now be closer to $80,000
She will obviously need to register for GST now.

My question is: Is the GST payable on the turnover made after the $75,000 (ie $5000 in this example) or is it on the whole $80,000?

She has not charged GST for her services yet so would be in a worse position if she had to pay GST on the entire turnover now.

Thanks

 

I would seek personal financial advice.
If I was earning $80k/pa it would be unlikely I would do it in my own name, I would start an operating company or trust.

Blacky

 

You do not pay GST you collect it, and pass it on, if your not registered you cannot collect it, speak to your accountant.

Those buying goods and services pay GST.

 

Once registered GST must be charged and remitted to the ATO.

 

My understanding is that you need to register within 21 days at the latest once you go over the threshold of $75k. Transactions from that point need to include GST. Not advice.

Speak to your tax advisor asap.

 

Broadly, the GST turnover of an entity meets the registration turnover threshold if either:

(a) The current GST turnover of the entity is at least $75,000 ($150,000 for non-profit entities), unless its ‘projected GST turnover’ (refer below) is less than $75,000 ($150,000 for nonprofit entities);

Or

(b) The entity’s projected GST turnover is at least $75,000 ($150,000 for non-profit entities).

The ‘projected GST turnover’ of an entity is basically the GST-exclusive value of all supplies it has made (or is likely to make) during the current month and the next 11 months, other than:

• Input taxed supplies (e.g., residential rent);
• Supplies that are made for no ‘consideration’ (excluding supplies made to associates for no consideration which are deemed to be taxable supplies under S.72-5 – discussed later);
• Supplies that are not made in connection with the entity’s enterprise; and/or
• Supplies that are not ‘connected with Australia’ ;
• Supplies that are connected with Australia only because they are rights or options to acquire
some other thing that is connected with Australia; and/or
• Supplies of rights or options to use commercial accommodation in Australia, where the supply is not made in Australia and is made through an enterprise the supplier does not carry on in Australia.

Refer to S.188-15 and S.188-20 and also to GSTR 2001/7.

An entity that is required to register for GST must do so within 21 days of becoming required to do so (generally, within 21 days of reaching the registration turnover threshold). This means that an unregistered entity (including, for example, an entity that commenced to carry on an enterprise during an income year) may need to closely monitor their GST turnover to work out whether the registration turnover threshold has been reached, or is likely to be reached in the near future, in order to meet the 21 day requirement. Refer S.25-1.

 

Only 80k, most people I know earn 120-150k and do so in their own names/sole trader.
Why would you suggest company/trust at 80k, I assume we are talking gross figures?
Genuinely interest in your answer here as this is something I always discuss with people and am always curious to get their reasons for/against.
For me asset protection and income distribution is a big plus but I guess simplicity is the big plus in sole trader.

 

True, but that’s because they have no option.

I would use a structure for a multiple of reasons
Asset protection
Seperation of finances
Simplicity
Flexibility (income distribution, delay etc)
Tax options.
Future expansion/sale

The list goes on

Blacky

 

Definitely use a structure as discussed above.

But before that, it sounds like you don't have a basic understanding of GST collection. Its not 10% of 75k nor of the 5k extra she made.

Each reporting period (generally quarterly) you outline the incomes made and the expenses made. Specifically, the ones that were GST applicable.

Simple GST examples has some examples of this.

 

Point is that if she's not registered, she can't charge/collect GST.

If she had invoiced progressively, before *then* realising she is likely to go over $75K, the earlier invoices are still not subject to GST. Only invoices *after* she registers or was supposed to register will be subject to GST.

Edit - so if she now invoices - she can't explicitly charge & show GST on the invoice, but the receipt is effectively 1/11th GST that she needs to send to the ATO.

 

At what gross income pre deductions would you look at a seperate ownership structure?

 

When you can reasonably forecast that your income in the next 12 months will exceed 75k you need to register and start paying gst from that point on.

Tom receives 4K a month and this is a consistent income payment.

In august he gets a double order for 8k and Tom is told that the double order is a one off.

Tom is not required to register.

In September Tom is told that his income will now be 8k a month moving forward.

Tom is required to register for gst in September and pay gst on his 8k order.

 

I’m not sure it would be a $$ amount.
But rather as soon as I saw myself ‘in business’

Blacky

 

If trading you should definitely look at using a company to limit liability - for nearly all cases. Exceptions may be if unlikely to ever have disputes such as being a piano teacher.

 

What if the piano lid falls on my fingers and i lose them ?

 

OK, a guitar teacher perhaps!

Or maybe a language teacher is a better example. I like to teach my friends to say rude things in different languages and tell them it means something else. So far no one has even tried to sue me.

 

Sole traders CANNOT access workers comp. Company Directors and employees can
Sole Traders are personally liable for all acts and issues and losses. Company Directors are generally protected except if they trade while insolvent.
Sole Traders can end up with unexpected income and windfall profits and have few if any strategies to fix it
Sole traders are subject to tax rates of well over 50% (assuming MLS, HELP, Div 293).
Companies can access a 27.5% tax rate

and so on.........

Being a sole trader is a cheaper way to get to court. Judgements are against the person. eg failure to lodge penalty = criminal conviction.

 

company as trustee for a trust. why ? small Business Income Tax Offset. Companies dont get them Trusts do

Also each beneficiary of a trust is entitled to the SBITO up to $1k. Could be some significant tax planning opportunities there.

Once things get large enough can then use the trust to company rollover provisions to move the business to a company without any CGT.

Does anyone realise the discount rate is 8% this year and goes all the way up to 16% in 2027. thats pretty significant. With the $1k cap but with husband and wife thats potentially $2k per annum.

 

Not for themselves however If they employ staff must effect WCI for those employees.

 

Any sole trader that employs staff is making a fundamental mistake. Only have seen a handful who are forced to do this. Barristers/QCs, specialist medics etc and even then they use service entities.