Report on why and how Penny should register her business to GST
The goods and services tax in Australia is a value added tax of 10% on most goods and services sales. GST is levied on most transactions in the production process, but is refunded to all parties in the chain of production other than the final consumer.
As the Penny White currently operating as a sole trader, should surely register for GST as the business of Penny is growing and turnover may exceed the limit also in few years, but if she do it voluntarily at this point of time it will give the benefits in future, plus she will be prepared and her processes will be streamlined already when her turnover goes up and it will be already smoothen. Moreover there are certain benefits for GST registered dealers:
A non-GST registered company cannot charge GST on the invoices issued by the company and will issue a retail invoice unlike a tax invoice issued by a GST registered Supplier. GST can be claimed only from a tax invoice and not retail invoice. Therefore, A GST registered business purchasing goods from non-GST registered business will not be able to claims any GST credit as the supplier is not authorised to include GST
If somebody is in business then he/she must have an ABN whereas, if the turnover of business is below limit then he/she do not need to register for GST. You cannot register for GST without an ABN.
All Australian businesses whose turnover is above the minimum threshold (currently $75,000 per annum) are required to register for GST. Businesses whose turnover is below the threshold may register if they wish to.
A GST-registered business must charge its customers GST on taxable goods and services it provides, but is entitled to a credit for any GST it has paid for its expenditures on these goods and services as well as capital purchases. A registered business must periodically lodge Business Activity Statements (monthly, quarterly or annually), and at the same time pay the net amount of GST owed to the tax office (if more GST is paid than collected, a refund is paid by the tax office instead).
1. Calculate and report GST quarterly- Calculation sheet method or the accounts methods can be used.
2. Calculate and report GST annually- Calculation sheet method or the accounts methods can be used.
3. Pay in instalments- This option can be chosen only if i) annual turnover is $ 2 million or less ii) no GST refund received in last 2 quarters and iii) submitted 2 quarterly BAS.
Once you have prepared the GST calculation sheet and the draft Business Activity Statement (BAS) then the next action is lodging your activity statement and paying the tax office. You can lodge and pay electronically or by mail but you need to do this on time to avoid interest and penalties
But once it is decided that Penny is going for GST registration, she should also do a changes in current booking keeping system, changes in the invoicing, adding modification packs in the accounting software system she is using. A training should be conducted for the accounts personal who will be looking after this area. Because after that compliance part is very important.
Changes in Accounts: There will be few changes in the current chart of accounts as there will GST Account, input credit Account, PayG account all these will have to added and Sales and purchases entries will change accordingly
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