Australian Business Number (ABN) and Goods and Service Tax (GST)
The Australian Business Number (ABN) provides a single identifier when dealing with the tax office or other government departments and agencies. You need an ABN when interacting with the ATO regarding:
- GST (to claim GST credits)
- The Diesel and Alternative Fuels Grants Scheme
- Luxury Car Tax
- Wine Equalisation Tax
- Applying for an endorsement as a deductible gift recipient
- Applying for an endorsement as an income tax exempt charity
To qualify for an ABN, you must be a business entity carrying on an enterprise in Australia. In addition you will need to register for GST if:
- Your GST turnover is $75, 000 or more
- You are a non-profit organisation with a GST turnover of $150, 000 or more
GST is a tax of 10% in Australia on most goods, services, and consumables. If you are a registered business, you need to pay GST on most goods and services you sell or supply.
Other registered businesses will include GST in the price of items you purchase for your business. You may be entitled to claim input tax credits from the ATO if you are registered for GST and the acquisitions are obtained for the purpose of carrying on your enterprise. Although the liability for paying GST rests with GST-registered entities, the end consumer bears the economic cost.
If you do not charge GST for sales but are entitled to claim input tax credits for GST included in the price you paid for supplies, the supplies will be GST-free. For an input tax sale you do not charge GST on the sale of the goods or services to your customers and you cannot claim input tax credits for the GST portion of your business expenses relating to the items acquired to make the supply.
The reporting periods for GST are called tax periods and can be quarterly or monthly. Quarterly tax periods are three months long, ending 30 September, 31 December, 31 March, and 30 June. Monthly tax periods end on the last day of each calendar month. Entities with an annual turnover of less than $20 million generally have quarterly tax periods, but can choose to have monthly tax periods. Entities with an annual turnover greater than $20 million are required to have monthly tax periods and lodge their activity statements electronically.
The rules for attributing GST payable and input tax credits to tax periods differ according to whether GST is accounted for on a cash or accrual basis. You can account for GST on a cash basis if you meet one of these requirements:
- Are a small business with an annual turnover of less than $2 million. This includes the turnover of your related entities.
- Are not running a business, but carrying on an enterprise with a GST turnover of $2 million or less.
- Account for income tax on a cash basis.
- Carry on an enterprise that the commissioner has determined can account for GST on a cash basis regardless of your GST turnover.
- Are an endorsed charitable institution regardless of your GST turnover.
- Are a trustee of an endorsed charitable fund, gift-deductible entity, or government school, regardless of your GST turnover.
Entities running an enterprise must register for GST if their annual turnover is at or above the registration turnover threshold of $75,000. This threshold is $150,000 for non-profit organisations. Entities below this threshold can also register for GST. If they do, the registration must continue for 12 months. If you are not registered for GST, you cannot include GST on anything you sell or provide. You also cannot claim back any GST included in the price you pay for goods or services used in your business.
Activity Statements
Businesses use activity statements to pay and report various tax obligations, including FBT instalments, PAYG (instalments and withholding), GST, and related tax obligations. They also use activity statements to pay deferred company and superannuation fund instalments. Individuals use activity statements to pay quarterly PAYG instalments.
If your annual turnover is less than $20 million, you can lodge your Business Activity Statement (BAS) monthly or quarterly. However, if your annual turnover is $20 million or more, you must lodge your Business Activity Statement and make payments electronically every month.
PAYG Instalments
Pay As You Go (PAYG) Instalments is a system for paying instalments during the income year towards your expected tax liability on your business and investment income. Your actual tax liability is worked out at the end of the income year when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.
The ATO will contact entities and individuals who are required to pay PAYG instalments, notifying them of their instalment rate. This is calculated according to information in the last assessed income tax return.
PAYG instalments are generally paid quarterly, however some taxpayers pay two instalments a year and some have an annual instalment option. The annual instalment is a single, lump sum payment of your PAYG liability for the year. For more information see the PAYG Annual Instalment Fact Sheet. If you are not eligible to pay an annual instalment, you can pay PAYG instalments quarterly. Each quarter the ATO will send you an activity statement. The due date for lodging this and paying any amounts due will be printed on the statement. This is also the case if you choose the 2-instalment option, which applies to some primary and special professionals (eg sports professionals and authors).
Some entities and individuals pay an instalment amount calculated by the ATO, but most companies work out their own instalment amount based on their instalment rate multiplied by their business and investment income. The main advantage of working out your own instalment amount is that your instalments are based on your income as you earn it, instead of a projection based on your previous tax situation.
PAYG Withholding
You need to withhold payment amounts:
- From payments you make to other workers (e.g. contractors)
- From payments you make to other businesses if they don’t quote their ABN to you on an invoice or another document
- From payments you make to your company directors for their service to you
- If you run your business as a company
- If you have employees
- If you pay employees from another business
If you are an employer or run a business and withhold amounts from payments, you need to:
- Register for PAYG withholding
- Determine the status of your workers (if applicable)
- Familiarise yourself with the types of payments you need to withhold amounts from
- Determine the amounts to withhold
- Report and pay withheld amounts to the ATO
- Provide the ATO with payment summaries
- Lodge an annual report once each income year has ended