What to do when the GST is too big for you?

September 3, 2007 11:26 PM

Registering for the GST in Australia for a small consulting job; do we have to? What if we don't?

I've managed to get my wife a bit of work doing data entry and management...as a private contractor. We're all new to this. She's got herself an ABN number. The people paying her want her to submit invoices for her payments, and (as you would expect) include the GST amount on there.

However, looking at the Australian Tax Office website, it says that only businesses earning more than $75,000 a year need to register for the GST. This contract isn't worth nearly that much, so it would seem we don't need to register for the GST. Furthermore, as she won't be purchasing anything from suppliers and won't need to claim GST credits, it also seems registration for the GST isn't necessary.

But if we don't register... what happens to the 10% GST we put on our invoices? Do we still collect that and pay it to the tax office? Do we not include it on our invoices as we're not registered? Surely submitting an invoice without the GST component will confuse the hell out of the accountants on the other end.

The ATO website makes none of this clear; they tell you when you should register for the GST, and how to submit activity statements and make payments if you have...their website isn't at all helpful about what to do if you're too small to even register for GST.

Any Aussie Metafiltarians have any ideas?

posted by Jimbob to work & money (8 comments total)

(I have just found a "home-based business" section on the ATO website, but it still doesn't mention what we do with the GST on our invoices...just that (once again) we should register for the GST if we need to claim credits for purchases...)
posted by Jimbob at 11:34 PM on September 3, 2007

If you're not registered, you simply don't (can't) charge it.

It won't confuse the accountants, they just won't be able to offset the GST you'd normally charge them.

Believe it or not, you can get reasonably friendly and good advice from the ATO's phone line if you need proper human explanation.
posted by strawberryviagra at 11:41 PM on September 3, 2007

I have an ABN which I have used for small, irregular consulting work. As I don't earn over $75,000, I am not required to register for the GST (and so haven't done so).

When I invoice, I have a small line on the bottom of it which says "This business is not required to register for GST". The price does not include any GST. I have had no problems at all having my invoices paid. The accountants seem to have managed just fine with the idea.

So you don't need to register, you don't need to invoice for or collect GST.

From the ATO's Small Business Guide:
If you’re not registered or required to be registered for GST, you don’t include GST in the price of your sales and you can’t claim credits for any GST included in the price of your purchases, even if they are for your business. But if you can claim the business expense as an income tax deduction, you can claim the entire expense, including GST, on your income tax return.

To answer the next question which may occur to you (how will your wife's income tax on this be paid), there is a section to declare income from this type of work on your standard individual tax return (even though you did it under an ABN - no special paperwork required).
posted by AnnaRat at 11:46 PM on September 3, 2007

Thanks AnnaRat; I'm getting the impression that the people she's doing the work for are bullshitting us on the requirement for the invoice to include GST...

strawberryviagra: I know people who work at the ATO. I've found folks from Metafilter are both more chipper and more efficient, although unfortunately more sober as well.
posted by Jimbob at 11:48 PM on September 3, 2007

They just may not know. The people you are dealing with may not be the accountants who should understand such things.

I have only come to all these answers about what you need to do as a 'very small and occasional business' through much prodding and poking about. It may be that if you ring the ATO, they can give answers. However, it must be such a common scenario that you'd think they'd put together a very quick and easy guide.

To follow up from what I was saying earlier about income tax (though you may already understand that part of the equation), don't forget to set aside some of the money to pay the income tax. If you want to calculate it on whatever basis you get paid (weekly/fortnightly/monthly), the ATO's Tax Withheld Calculator is the way to do it. If she has other income during the year, you'll need to take that into account - look at the tax rates and work it out from there.
posted by AnnaRat at 12:01 AM on September 4, 2007

I've done loads of consultancy-type jobs in .au -- AnnaRat is exactly right, in my experience.
posted by Wolof at 12:41 AM on September 4, 2007

I just put NIL in the GST amount box at the bottom of my invoices.
posted by flabdablet at 7:26 AM on September 4, 2007

If your wife is planning to do more consulting in the future, charging the tax may be a signal to companies that she makes more than $75k a year. This can make her look more "legit".

In Canada, the threshold is only $30k. I registered years ago, before I crossed that line, when a Fortune 500 company came calling. I didn't want to look small time. Of course, it eventually didn't matter.
posted by acoutu at 8:25 AM on September 4, 2007