We deal with GST everyday but it's a topic that most of us know little about. It stands for goods and services tax and 10% of the price you pay for any everyday item is added GST. For every $5.00 cup of coffee you buy, 50c goes straight to the ATO. Similarly, so does $10.00 of a $100.00 pair of jeans. Luckily we don't have to do any calculations as a consumer to work out how much GST we pay, it's already been added to the price of an item before we purchase it. This doesn't apply to business owners, however. As a business owner you'll need to be able to calculate GST as well as send it to the ATO and produce compliant reports. Continue reading to find out more about GST, how it works and what steps you should take as a business owner to get to grips with it. 

What is GST?

Initiating a conversation about GST sounds like a daunting prospect but it's easier to understand than you think. You should also remember that knowledge is power so the more you can learn about GST and use your lessons practically the simpler it will appear. GST was passed as legislation in 1996 and came into effect on 1st July 2000, it was reconsidered and amended in an attempt to simplify the process with a blanket 10% rule. Changing the GST rate to 10% made it easier for business owners to calculate GST and apply it to their products, it also left little room for error or misunderstanding. The reason it was introduced was to eliminate tax on tax or double taxation, which cascades from the manufacturing level to the consumption level.

How Do I Calculate GST?

If you're a business owner then calculating GST is a skill you'll need to master. If math and number crunching isn't your thing then don't worry, there's a simple formula that you can use for accurate outcomes. Once you know the price of your particular item or service, you multiply it by 1.1 and this will give you your new GST inclusive price. For an item worth $45.00 you would use the following calculation: 45x1.1=49.5. With this in mind you would sell your item at $49.50, which will be inclusive of GST. A simple formulation that will ensure you are complying with your ATO obligations. 

How Do I Report GST?

How often you report GST depends on how much profit your business makes annually. If you're one of the lucky ones and your business earns $20 million you'll need to report GST monthly. Anyone who hasn't quite reached this benchmark will need to report quarterly. Non for profit organisations or companies who have voluntarily registered fall into a different category, they have to report annually unless instructed otherwise. It's common for small and medium sized businesses to report GST using a business activity sheet, also known as a BAS. Information such as total sales, GST on sales and GST on purchases will need to be included before it makes its way to the ATO. 

Summary

Now you have some more information about GST and how it works you should have an idea about how it impacts your business. If you're still unsure there's plenty of user friendly guidance you can make reference to located on the ATO website.