What is the relationship between ABN and GST?

What is GST? 

The Goods and Services Tax (GST), introduced on 1 July 2000, is a 10 per cent tax on the sales or supplies of most goods, services, or other items sold or consumed in Australia.

In the GST system, GST is paid at each step in the supply chain. GST-registered individuals or organisations must include GST in the price of goods or services they supply or sell. GST-registered individuals or organisations can then claim back all GST included in the price of their purchases as input tax credits if it is related to their business. The cost of GST is ultimately paid by the consumer who cannot claim back input tax credits.

How does an ABN come into it? 

An Australian Business Number (ABN) is an identifying number which is used by businesses in all dealings with the ATO. You must have an ABN to register for GST. However, you can have an ABN and not register for the GST if your business income is below the $75,000 per annum threshold. 

If you’re wondering, “Do I need to register for GST as a sole trader?”, the answer is that it depends on your income level. Sole traders earning over $75,000 annually must register for GST.

Depending on the level of income from your operations, you may choose: 

• To register for GST (which requires an ABN). 
• To acquire an ABN, and then not register for the GST. 
• Not to acquire an ABN and to not register for the GST.
  

When you have an ABN and are not GST registered 

Some businesses may decide to get an ABN but not to register for GST if their business’ income is below $75,000 per annum. Having an ABN is useful as the ATO will consider the business to be ‘in business’, and therefore any other businesses they deal with will not be required to withhold 46.5% of any payment as required under Pay As You Go (PAYG). 

When you have an ABN without GST you cannot charge GST on goods and services they provide until they are registered. The decision not to register for GST is generally made based on overall income position, an unwillingness to complete the necessary paperwork, and preparedness to absorb the GST component of materials, equipment, and other items related to the business. Because these businesses must absorb additional GST costs, they may end up earning less from each sale they make than those who are registered for GST.

When you have no ABN and are not registered for GST 

Businesses who do not have an ABN and are not registered for GST may have more difficulty in being recognised as a business by the ATO. This may have tax implications for businesses who want to offset their expenses against income earned from other sources (such as teaching, administration etc.). It may also mean that businesses making payments to your business could ask your business to complete a Statement by a Supplier: reasons for not quoting an Australian Business Number (ABN) to an enterprise (also known as a “Hobbyist Statement’) before they can complete a payment. This standard form provides a number of options as to why you should not have 46.5% PAYG tax withheld.

How to register for GST 

Once you have an ABN for your business then you can register for GST. This allows you to receive GST tax credits on all business-related expenses, potentially increasing your margins. The easiest way to register for GST is through GSTregister.com.au. Simply fill out our form and you will be registered in as little as 24 business hours. We are also tax agents, meaning we can answer any questions you need regarding your registration. For an easy registration process register with GSTregister.com.au today.