How to avoid paying too much GST
No business owner wants to pay more than they have to, and understanding how to manage your GST Liability obligations can reduce GST liability and help you avoid paying too much GST over the financial year.
As the end of the financial year (EOFY) approaches, many business owners are closely reviewing their accounts and looking for ways to reduce or streamline their GST-related costs.
Clients frequently inquire about legal ways to reduce their GST payments because they dislike paying money to the ATO.
Specifically, GST does NOT belong to the business owner. Instead, the business owner acts as a collection agent on behalf of the ATO. In return for collecting and temporarily holding GST, business owners can deduct the GST paid on their expenses.
While you must comply with the law, there is no reason to pay more GST than necessary. Here are 10 strategies to help you legally reduce GST liability and minimize your GST payments.
10 Ways to Reduce your GST payable (Legally!)
- Claim All Eligible Business Expenses: Capture every GST-deductible cost, including office supplies, software subscriptions, and other legitimate expenses.
- Keep Accurate Records: Maintain clear and detailed records to avoid missing out on valid deductions.
- Use Accounting Software: Automated systems track GST obligations in real-time, reducing the chance of errors and help you avoid paying too much GST.
- Review GST Codes Regularly: Misclassified expenses may lead to overpaying GST, so regularly check and update your codes.
- File GST on Time: Late filings can result in penalties and additional costs, so ensure timely submission.
- Separate Personal and Business Expenses: Keeping these expenses separate helps prevent errors and missed deductions.
- Check for GST Credits: Claim credits on capital purchases and major business investments where eligible.
- Understand Special Schemes: Determine if you qualify for GST accounting methods like the Cash Basis, which can improve cash flow.
- Regularly Reconcile Accounts: Monthly reconciliations help ensure you claim all available GST deductions.
- Consult a BAS Agent: Professionals can identify missed deductions and help you stay compliant with GST regulations.
New Business? Be Sure to claim all assets introduced
To help you avoid paying too much GST when starting a business, claim the GST on any assets you introduce, depending on your business structure.
For many, the GST can be significant—especially for tradespeople who have accumulated tools and equipment over time.
Be aware that you may not be able to claim the full GST on your first return. Depending on asset usage, you may need to spread the claim over multiple returns.
Don’t Overlook Second-Hand Goods
GST on second-hand goods is also claimable without a tax invoice. However, you must record all relevant details, including the seller’s name and address.
Be Cautious with Home Business Claims
Sole traders claiming GST on home expenses must be aware that when selling their property, they will owe GST on the business-use portion of the home.
Vehicle Expense Claims
When claiming vehicle expenses, note that you cannot claim GST on mileage allowances. Depending on your situation, it may be more beneficial to claim the business portion of your actual vehicle expenses.
If your vehicle is used for both business and private purposes, only the business-related portion is deductible.
Consider Additional Revenue Streams
If you use your property for Airbnb or similar services, be cautious. Operating under a sole trader structure while also owning the property may trigger GST obligations when selling the property.
Timing Your GST Registration
Strategic GST registration timing is crucial. Late registration may result in paying GST you should have collected, along with interest and penalties. Early registration, on the other hand, could lead to unnecessary costs if your customers are not registered for GST.
New business owners should seek advice from a qualified accountant to get the timing right.
When to Deregister for GST
If you are winding down a business, consider the timing of your GST deregistration carefully. The date of deregistration can affect your liability if you have assets you plan to use personally.
Choose Your Trading Entity Wisely
Your choice of trading entity—whether a sole trader, partnership, company, or trust—affects your GST liability.
For landlords or property developers, setting up the correct business structure can save significant amounts of money.
GST and Real Estate Transactions
GST obligations can be complex when buying or selling property. Errors in these transactions can be extremely costly. Property deals often involve nuances that lawyers may not specialize in, making professional GST advice essential.
Get GST Right with Expert Guidance
While GST may seem straightforward in simple cases, it can become complicated quickly. Avoid assumptions and shortcuts by consulting a professional BAS Agent or accountant.
With the right approach, you can reduce your GST liability while staying fully compliant with the law.
If you want to ensure you’re not overpaying GST reach out to us. We can help you navigate the complexities and maximise your savings.