Since 2011, retailers in Australia have been pushing the federal government to impose sales tax on online purchases. The argument is that non-taxation of online purchases makes it expensive for local merchants to compete against their overseas counterparts. Business tax in Australia is known as the Goods and Sales Tax (GST).
SaaS Startups and GST
In Australia, most goods and services consumed in the country are charged a 10% GST. This equivalent of EU VAT is levied both on goods and services bought on and offline. Australian SaaS companies need to register for GST to comply with the country’s tax rules.
Companies that register for GST:
- Have to include GST in the price of sales to their customers.
- Can claim credits for the GST included in the price of their business purchases.
While every player in the supply chain pays GST, it is consumers who bear it, since they cannot claim GST credits.
SaaS companies are exempted from paying GST until annual turnover reaches or surpasses $75,000. If your company grosses $75,000 or more, you will have to register for GST. You will then be required to include GST in the price of your service and issue customers with a tax invoice on purchase. All GST collected should be paid to the Australian Taxation Office (ATO) when you lodge your business activity statement (BAS).
Recording GST for your SaaS Startup
You can record GST easily to keep your SaaS company in good books with the ATO. Here are some tips to help you manage your GST obligations:
- Use business accounting software that produce tax invoices automatically and generate reports of payable GST and credits at BAS time.
- You can better align your GST liabilities with your SaaS business cash flow using the “cash accounting” method.
- Deposit the GST in a separate bank account.
GST Tax Invoices
The GST you collect should be sent to the ATO. The tax invoices you send need to include certain information depending on whether the services you provide cost less than $1000 or more than $1000.
i) Invoices for sales of less than $1000
If the cost of your service is less than $1000, you need to include the following minimum information in your invoice:
- Indicate that the document serves as a Tax Invoice
- Your company identity
- Your Australian business number (ABN)
- The date the tax invoice was issued
- Description of the service packages sold, including the quantity (if applicable) and the price at which they were sold.
- Total GST amount or total cost of service inclusive of the GST
ii) Invoices for sales of $1000 or more
If you have service packages that cost $1000 or more, the information you submit to the ATO for the sales should include the following apart from above mentioned details:
- Your customer’s name or ABN
“It is unlawful to promote part of the price of a product, without also specifying its full cash price, for example, ‘$200 plus GST’.” You can learn more about pricing practices & recommendations for Australia here.
Get more information on tax invoices at the following links:
Lodging your BAS (Business Activity Statement)
To claim GST credits, you need to lodge an annual GST return with the ATO. You can pay your BAS in person, by mail or electronically. Payments should be made on time to avoid interests and penalties.
Generally, your BAS will be issued about two weeks before the end of the reporting period. For GST, this period us usually every three months. The final date for lodging and paying will be shown on your BAS.
More information on lodging a BAS is available at the following links:
- Guide to activity statements – how to prepare, lodge and pay your BAS.
- How to lodge your BAS online.
- Lodging your business activity statement on time.
Summary of Australian GST for SaaS Startups
- SaaS Startups grossing annual revenues of $75,000 or more need to register for GST.
- GST is generally included in the price of the service, unless explicitly stated clearly.
- GST is not charged to overseas customers.
Please comment if you have a specific input to share with fellow Australian startups.