Some GST good news for SMEs

Cost savings, boost to cash flows, less red tape… the federal budget had it all. So how do SMEs really benefit? By TERRY HAYES of Thomson Legal & Regulatory.

By Terry Hayes

There were four measures in this year’s federal budget that will make a difference to the costly compliance that can tie an SME in knots.

Turnover thresholds

First, the Federal Government announced that, with effect from 1 July 2007, businesses will not be required to register for GST until their turnover reaches $75,000 – currently, that limit is $50,000. For non-profit bodies, the new registration threshold will be $150,000 (up from the current $100,000).

As a result, businesses and non-profit bodies with a turnover between the present thresholds ($50,000 or $100,000) and the proposed thresholds ($75,000 or $150,000) will no longer be required to register for GST. Raising these thresholds should ease the compliance burden for SMEs that qualify.

Of course, it is still open for businesses to register for GST even if their turnover is below those thresholds. And being registered means being able to claim GST input tax credits. There is also another advantage for those that voluntarily register for GST: they will have the option of remitting GST annually, rather than quarterly or monthly.

This could certainly provide a boost to cash flows, an important issue for SMEs. But don’t forget about that annual GST remittance. SMEs that qualify for this need to be sure they plan ahead and have the necessary funds available to make that annual remittance. After having paid quarterly or monthly up until now, a move to an annual GST payment might seem like bliss for some SMEs, but don’t get caught with the “out of sight, out of mind” syndrome.

Input tax credits

Another measure announced in the budget that should be a cost-saver for some SMEs is that, with effect from 1 July 2007, businesses will be allowed to claim input tax credits for purchases with a GST-exclusive value of $75 or less without the need for an approved tax invoice.

Currently, to claim an input tax credit, businesses have to obtain an approved tax invoice for all purchases with a GST-exclusive value greater than $50. However, under the proposed changes, for purchases with a GST-exclusive value of $50 or less, the documentation required for income tax purposes will be sufficient to claim an input tax credit.

This measure will also carry over to the “no ABN withholding” arrangements, increasing the threshold for “no ABN withholding” from $50 to $75. This means that PAYG will only need to be withheld by an SME where a payment it makes to a supplier who has not quoted an ABN is more than $75. Again, there are some compliance cost savings here for some SMEs.

While these changes are subject to the unanimous agreement of the states and territories, they should be expected to go through Parliament, although no legislation has yet been introduced.

PAYG annually

Another budget change that should help reduce SME compliance costs will see, with effect from 1 July 2008, the PAYG payment and reporting requirements aligned with the annual payment and reporting requirements for taxpayers who are voluntarily registered for GST.

Currently, taxpayers can remit PAYG annually only if they are not registered for GST and provided they meet other eligibility requirements. The changes announced in the budget will allow taxpayers who voluntarily register for GST, and who report and pay GST on an annual basis, to meet their PAYG obligations on an annual basis, subject to the other eligibility tests.

The Government hopes the change will encourage relevant businesses that are currently remitting GST on a quarterly basis to shift to an annual basis.

Simplified methods

The Government also announced that, with effect from 1 July 2007, the tax commissioner will be given the power to develop simplified accounting methods (SAMs) for all entities with an annual turnover of less than $2 million that make mixed supplies (that is, taxable and GST-free) or mixed purchases.

Currently, SAMs are restricted to retailers that sell food and to charities that make GST-free supplies. Under the changes announced, businesses will be able to approach the tax office to initiate the development of a SAM to simplify their GST calculations and reduce their compliance costs.

A SAM can be used in lieu of having to separately account for GST on taxable supplies. Instead of a business having to calculate the figures, it can use estimates provided by the tax commissioner. There are currently four types of SAM:

• The Business Norms Method – allows use of standard fixed percentages of total sales and purchases to calculate GST-free components.
• The Stock Purchase Method – allows GST liability to be calculated on the basis of applying the percentage of total purchases that are GST-free to total sales.
• The Snapshot Method – a business can keep accurate records for a short period and then consistently apply the resulting percentages.
• The Sales Percentage Method – a means of estimating GST-free purchases based on actual GST-free sales.

A business can only use one SAM at a time and it must notify the tax office of the method it chooses. So, while there are still a number of rules to be complied with when choosing and using SAMs, they do provide a simpler way for SMEs to account for their GST.

Terry Hayes is the senior tax writer at Thomson Legal & Regulatory, a leading Australian provider of tax, accounting and legal information solutions; www.thomson.com.au

For more Terry Hayes features, click here .