So, I hear this fairly regularly and I don’t understand.
Actually, I DO understand, I just don’t think YOU do!
Often small business owners look at the GST as “another tax” they have to pay. I hear “I’ve already paid the GST, and now I am being taxed again” when they do their returns after the end of the Financial Year. They lament the strain this puts on their cashflow, and how it is hurting their business.
Without trying to be too blunt, I gotta tell ya…You are looking at it wrong!
You see, the GST isn’t yours in the first place. It is NOT part of your income. It never was!!!
The GST is a tax on the end user. You decide how much you need to charge for a good or service, which factors in all your costs and overheads. Then you add 10% GST to your total. That 10% IS THE GOVERNMENTS MONEY…your bit was what you calculated. This extra 10% you are only collecting on behalf of the Australian Taxation Office.
It goes to follow, then, that if you are struggling to pay your GST at BAS time, you have spent money that isn’t yours. If you repeatedly don’t have the funds waiting to pay your GST, you are either not charging enough for your goods or services to cover your overheads -OR- you are spending too much.
Most of the time, the issue is that your GST you collect on Sales sits in your bank account for up to 3 months, and you look at it as if it is part of the money you have to spend. Bills and costs come in, and you think that is part of your working capital. It really isn’t.
So, unless you always have plenty of money in your bank account to pay your bills, you need to get that money out of there so you really know what your business funds ACTUALLY are.
This also stands for tax withheld from wages payments. This isn’t your money, either – it belongs to your employees…you took it out of their pay, and at the end of the quarter you have to send it to the ATO with your GST.
If you are one of the lucky ones who always has enough liquidity to pay your BAS when you lodge it, then chances are you didn’t even start to read this post…truthfully, I can’t believe you are still reading! I would have thought the Headline wouldn’t have attracted you at all…still…GO YOU!
For those of you who read the Headline and thought “Yeahhhhh…” – you really need to get your head around the above concepts, and you need to set up a couple of procedures to ensure that you don’t constantly get caught short at BAS time. Not only is it stressful, it also depletes your bank account so much that it makes it hard to continue doing what you do.
SO – my advice is this:
Your first step – start today – set up a bank account SOLELY for your BAS payments. You need to be able to separate or quarantine that money so you can SEE what you actually have available to use in the business, so you are not tempted to use what is essentially someone elses money.
Depending on your business activity and how often money goes into your account, set aside a regular time frame to review your earnings. For example, if you get a Merchant Settlement every day, or people pay directly into your bank account based on invoices, I would suggest perhaps weekly or fortnightly. If you get less regular deposits you can perhaps review monthly. Whatever you decide, set it as a regular task. Be disciplined. It should only take five minutes.
Review the deposits for that time period – log into your bank account, and add up all your deposits.
Divide that number by 11, to find how much GST would be included in those deposits.
Transfer that amount into your GST account.
Go to your wages book, or Payroll Software, and find how much the Tax Withheld from your employee wages was, and transfer that amount, too.
Now, the truth is that the GST you transfer will be TOO MUCH – this is because you will have had some expenses, too, that will have GST in them…but the goal here is to have enough money put aside so that you don’t have to stress. When you get a better idea of how this works, you can finesse it a little and reduce the amount you transfer. At first, though, I would recommend you do the full 10%.
The good news is, if you keep putting aside a little more than you need to, you will probably be covered at least partially for any Superannuation Guarantee payments you need to make at around the same time…and by the time it is all due, you are partly into the next quarter, so you will even have some leftovers towards the next BAS.
If you have PAYG Instalments, too, you should be putting some extra aside for that – if a quarterly instalment is $2400, divide that amount by 12 weeks, and put aside the $200 per week.
This is actually how I operate my GST and Tax account. I put it aside, and when I lodge my BAS I ALWAYS have enough there to pay it. BAS isn’t a pressure on me at all – it is just waiting there. At first I watched it rising, and it was tempting to dip into it…but now it just feels normal, and is so empowering to know that I have got it all ready to go when I need it.
Remember, if you can’t AFFORD to put aside the things above (GST, Tax withheld, AND your Instalments) then you have to revisit your charges – these things are just part of the cost of running your business, and if you don’t have enough to do these, then you are not charging enough.
If you need to go through any of these issues, or if you would like some help to see what costs you can reduce, give me a call on 08 9525 5566, 0414 685 893 or make an appointment for a chat.