Paul Drum, head of business and investment policy at the accounting professional body CPA Australia.
As a small business owner, should you charge GST?
With less than $75,000 in annual turnover, you don't have to charge GST, giving you a kind of competitive advantage from a price point of view over those that do have to charge GST on the same types of goods and services.
However, many small businesses like to charge GST anyway. One, because they intend to get bigger and don't want to have to raise their prices afterwards. Two, because they want an image in the market that they are larger than they actually are.
If you are not charging GST, the market immediately knows you are very small. It does not send a confident signal that you have the organisational backing to do what the client wants you to do.
Some big businesses will not deal with you unless you are registered for GST because it is too difficult for them to deal with suppliers if some charge GST and others do not.
Large retailers might have tens of thousands of different line items, and it is complicated to have to reclaim input tax credits on some suppliers and not others.
Should you hold collected GST in a separate bank account?
No. Part of the beauty of collecting GST is that you actually have the use of that money and that cash flow until you have to pay it. So if you are quarantining, I would wonder if you are running your business properly because you should be using it to your advantage: get interest on it, or use it where it is needed. Of course, you have to ensure you have the funds when you need to pay the Tax Office.
What is the best payment cycle?
If your turnover is $20 million or more, you have to pay monthly. If your turnover is less than that, you pay quarterly. Very small companies can only pay annually. The longer you have the use of the money, the better. For most small businesses, quarterly or monthly is fine.
However, it is important to remember that GST is not a tax on business but on the consumer. In business, when you buy items and they have GST on them, you get a refund. So whether you lodge monthly, quarterly or annually might depend on how much your refunds are going to be. If you have a lot of input tax credits to come back, you might want to be lodging more regularly.