GST: Understand What You Are Collecting

It's easy to look at your business bank balance after a strong month and think you have more money available to spend than you really do. We've helped plenty of business owners separate what the business has actually earned from the GST they have collected — so they can manage their cash with confidence and avoid surprises when BAS is due.

If your business is registered for GST, here are a few simple things worth understanding.

Understand what you are collecting

When your business is registered for GST, the GST you collect on taxable sales generally needs to be reported to the ATO. It's not extra income — it's an amount you're collecting on the ATO's behalf.

For example, if you charge a customer $1,100, that may include $100 of GST. That $100 is not simply extra business income available to spend. It belongs to the ATO and will need to be paid when your next BAS is due.

Understanding this distinction is the first step to managing your cash flow with confidence.

Remember the GST you pay

GST can work in both directions. When you purchase eligible business goods or services, you may be able to claim a credit for the GST included in those purchases. This is known as an input tax credit, and it can reduce the net amount of GST you need to pay to the ATO.

So while you're collecting GST on your sales, you may also be claiming some back on your expenses. Keeping your bookkeeping current means those credits are recorded properly — and you're not paying more than you need to.

Don't let GST create a cash flow problem

One of the most common problems we see is spending all the cash that comes into the business without considering the GST portion. Then BAS time arrives, and you need to find the cash to cover your GST obligation along with other amounts that may be due — such as PAYG withholding or superannuation.

It's a stressful position to be in, especially when the money has already been spent. The good news is that it's easily avoided with a simple habit.

Set your GST aside

Regularly moving the GST you collect into a separate savings account is one of the simplest ways to stay on top of your obligations. It makes it easier to see what cash is actually available for your business, and it keeps money ready and waiting when your BAS is due.

Many business owners set this up as an automatic transfer each week or month. Once it becomes part of your routine, you rarely have to think about it — and BAS time becomes far less stressful.

Staying on top of GST throughout the quarter

Managing GST doesn't need to be complicated. The key is to stay consistent throughout the quarter rather than leaving everything to the last minute.

• Keep your bookkeeping current so your GST is being recorded accurately as you go.
• Review what you are collecting and paying regularly, so there are no surprises.
• Know what you may need to set aside, and move it into a separate account before it gets spent.

A little attention each month makes BAS time much easier — and gives you a clearer, more honest picture of what your business is actually earning.