Goods and Services Tax (GST) is an additional tax that is charged on most goods and services in Australia.
When you buy and sell goods, you may need to charge or pay GST if you - or the person you are purchasing from - are registered for GST.
At Hnry, our team of accountants and tax experts often get asked many questions about GST, so we’ve put together this comprehensive guide - written specifically for contractors and freelancers.
You’ll find an index of the guide below:
- How do I know if I need to be registered for GST?
- How does GST work?
- How are GST returns calculated?
- Do I need to be registered as a company to be GST-registered?
- How do I register for GST?
- What is the difference between ‘Payments’ and ‘Invoice’ as a GST basis?
- How often do I need to file GST returns?
- Do I charge GST when I sell goods or services to clients who operate outside of New Zealand?
- Do I pay GST when I buy goods and services from people who operate outside of New Zealand?
- How do I show GST on my invoices?
- Quick GST Facts
How do I know if I need to be registered for GST?
You are required to register for GST if you are an individual or a company that is earning over $75,000 in a single financial year.
For individuals, the $75,000 threshold is only applicable to the total of their self-employed, contracting and freelancing income - therefore any PAYG/Salary income is not counted towards this total.
For example:If you have a PAYG/Salary job of $50,000 per year, and you also earn $30,000 from freelance income, you are not required to register for GST
If you earn less than $75,000 in self-employed income, registering for GST is totally optional. If you do register for GST voluntarily, be aware that this will have impacts on the amount that you charge for your services, and you will also be required to file GST returns on a regular basis.
How does GST work?
GST can be charged on top of the sales and income that you make, and you may also make purchases and incur business expenses that will have GST within the price. Here’s how GST works.
For Sales and Income
If you are registered for GST, you will be required to charge an additional 10% on top of the costs of your services.
For example:If you sold an item for $100, you would need to charge an additional $10 on top for GST, taking the total price to $110.
For Purchases and Expenses
If you purchase something from a person or company that is GST registered, you will pay an additional 10% on top of their prices.
For example:If you bought an item costing $110 from someone who was GST-registered, $10 of the price you paid would be GST
N.B. You are still required to pay the GST portion of any goods and services you purchase, even if you are not GST-registered yourself.
It is essential that you keep accurate records of all the GST you have collected and paid throughout a GST period. This is usually done through keeping records of all invoices, receipts and transactions where GST was either collected or paid. You will need all of this supporting information when filing GST returns.
How are GST returns calculated?
When you are GST-registered, you are required to file GST Returns on a regular basis. This requires you to declare to ATO both the total GST you have collected on your sales/income, as well as the total GST you have paid when making business purchases. The balance of the two is then payable to ATO.
For example:If over a period of 2 months, you collected $1,000 of GST on all your sales, and you made purchases of which the GST portion was $250, you would pay ATO the balance of the two - $750
In certain circumstances, you may find that within a GST period, you have paid more in GST than you have collected in GST on your sales. In these instances you would receive a GST refund from ATO.
N.B. Any GST you collect on your sales and income should be held separately pending being paid to ATO. When it comes time to file GST returns, if you do not have the GST funds available to pay straight away to ATO, you will be hit with penalties and fines.
Do I need to be registered as a company to be GST-registered?
No. You can register for GST as an individual contractor, freelancer or sole trader - there is no need to register a company with the government. As an individual you can raise the same business expenses as a registered company would.
In order to register for GST, you just need an Australia BUsiness Number (ABN).
N.B. You also do not need to have an ACN to be registered for GST. Having an ACN is completely optional in Australia, and for contractors and freelancers it is often unnecessary.
How do I register for GST?
If you need to register for GST, you can register via the business portal.
From here you can select the option to register for Goods & Services Tax (GST), and you will then be required to submit information about your business, your predicted earnings, how often you expect to file GST.
How often do I need to file GST returns?
When you register for GST, you can decide how often you would like to file GST returns, by choosing from 3 different frequencies: monthly, quarterly or annual.
Any time your GST return is due you will be required to fill out a GST return, declaring your income and expenditure to the ATO. You will also be required to make any payments of GST through to the ATO as soon as your return has been lodged.
Do I charge GST when I sell goods or services to clients who operate outside of Australia?
Any client that operates outside of Australia, who has no local Australian presence, is often deemed to be ‘GST-free’, and therefore you are not required to charge GST on the goods and services you sell to them.
For example:If you’re a freelancer working for a company in the UK that has no trading presence in Australia, when you invoice them, you will not charge or collect GST on that invoice
N.B. You will still be required to supply a total of your ‘GST-free’ sales and income as part of your regular GST returns.
Do I pay GST when I buy goods and services from people who operate outside of Australia?
Sometimes, yes. When making purchases or incurring business expenses from suppliers based overseas, you should always look carefully at the proof of purchase they provide you, to see if you have been charged Australian GST.
This is particularly relevant when incurring subscription expenses from online software providers such as Google and Facebook.
How do I show GST on my invoices?
If you’re someone who invoices their clients in order to collect payment, and you register for GST, your invoices are then deemed to be ‘Tax Invoices’ and therefore are required by the ATO to feature certain things:
- The words ‘Tax Invoice’ in a clear and prominent place
- Your name (or Trading Name)
- Your GST Number
- The date of the invoice
- A description of the goods or services you are selling
N.B. When invoicing, the above elements are mandatory and must be on every invoice you send. If you need further information about how to create professional invoices, check out our Guide to Invoicing Like a Pro
Quick GST Facts
- You don’t need to register for GST to be a contractor, freelancer or sole trader - if your income is below $75,000 per year, registering for GST is optional
- You can be registered for GST as an individual sole trader, contractor or freelancer - you don’t need to register a company; you just need an ABN.
- You cannot charge GST on your goods and services unless you have registered for GST with the ATO, and have received written confirmation from them to that effect. Charging GST without being GST registered is illegal.
- If you register for GST part way through a financial year, this will have no impact on any income you have earned already in that year
- You only begin charging your clients GST once you are confirmed as registered for GST
- If you are not registered for GST, you can still claim the ‘inclusive of GST’ amount of all your business expenses when you lodge your Income Tax return at the end of the financial year
- GST is completely separate from Income Tax - they are entirely different taxes and need to be paid and filed individually
If you’re tired of having to think about GST payments and filings, take a look at Hnry - the all-in-one service that takes care of all your tax, GST, Medicare, and other financial admin automatically, so you never need to think about it.
Check out the links below to find out more about why thousands of self-employed individuals are upgrading to Hnry.