In this guide, we will help sole traders understand their obligations and guide them on whether they need to register for GST or not.
A sole trader is a type of business structure in which a single individual owns and operates the business. This is a common structure choice for tradies, hairdressers, photographers and other small businesses in Melbourne.
Let’s take a look at the Goods and Services Tax (GST), and how it affects sole traders.
What is GST & Types?
GST is applied to most goods and services in Australia. GST is a broad-based tax of 10% on services, goods, and other items sold or consumed. Most basic foods, some education courses, some medical, health, and care products and services are GST-free – referred to as “exempt from GST.”
How does GST work for a sole trader?
Sole traders in Australia are required to register for GST and charge GST on goods or services if their annual turnover exceeds $75,000. You can also choose to register, optionally if your turnover is below the threshold.
When a sole trader charges GST on the goods or services they sell, they collect the GST portion on behalf of the government and must remit it to the Australian Taxation Office (ATO).
GST is calculated as a percentage of the sale price of goods or services. For most goods and services, the GST rate is 10%. You must add the GST amount to your invoice and then pay it over to the government at the time of lodging your BAS.
How is GST calculated?
A quick way to calculate the final amount to charge, including GST, is to simply multiply the original amount (exclusive of GST) by 1.1.
For example, if you run a trades business in Point Cook and are going to charge a client $10,000 you can simply multiply that amount by 1.1 and the final invoice amount, including GST will be $11,000. $10,000 for you and $1,000 for the government.
Do you have to pay GST if you earn under $75000?
If a sole trader’s annual turnover is below the $75,000 threshold, then they are not required to register for GST. You are not required to charge GST on the goods or services sold. However, you can still choose to register for GST if you wish.
There are some exceptions to this rule. For example, if a sole trader is registered for the wine equalization tax or the luxury car tax, they must register for GST regardless of their annual turnover. The same applies for Uber and other taxi services.
Do I need to include GST on my invoice as a sole trader?
If the invoice is for more than $1,000, you should state the total amount exclusive of GST for each line item and include the GST amount beside each one, with a total GST amount.
If a sole trader is registered for GST and if the invoice amount is less than $1,000, and all items on it are subject to 10% GST, you can include the tax as an inclusive amount and use words such as ‘Total price includes GST’.
Is it better to register for GST or not?
There are some benefits to GST registration, even if your annual turnover is below the $75,000 threshold. For example, if the sole trader purchases goods or services that are subject to GST, they can claim back the GST they have paid.
Once you register for GST you have to ensure that you remain compliant with the ATO.
What happens if you are not GST registered?
It is important for sole traders to understand their GST obligations and meet their reporting requirements to the ATO. Should you fail to register for GST or correctly report and pay GST, you will be liable for fines and penalties.
If a sole trader is not registered for GST and they exceed the annual turnover threshold, they must register and charge GST on the goods or services they sell.
In summary, sole traders in Australia are not required to register for GST unless their annual turnover is more than $75,000, with a few exceptions. It is important for sole traders to accurately track their turnover and meet their GST obligations to avoid fines and penalties.
For more on sole traders and tax, read our complete guide to tax for sole traders.
Avoid GST errors
One of the simplest ways to avoid GST errors and keep your small business finances in shape is by working with an experienced small business accountant.
Teamwork Accounting offers a free 30-minute consultation for new businesses and can guide you through the process. Take a look at our accounting services in Point Cook, Werribee, Hoppers Crossing and get in touch.