Ok so you are out there now, freelancing like you always dreamed of. Bosses are a quaint memory and a smug work/life satisfaction is your new normal. You once led a structured cubicle life, held prisoner by the hands of a watch and a tight annual leave schedule. But no longer, you have tossed this yoke aside and strode boldly onto the stage of life and yelled ‘I am a freelancer!’
So that’s pretty good, but how are you to handle your new tax requirements? Genius at GST are you? If not heed the advice.
1) $75,000 is the magic number
GST or the goods and services tax generally applies to most businesses in Australia, with certain rules for certain industries and circumstances. There are generally two reasons you would apply as a freelancer: you earn over the gross threshold or you are in a taxi industry.
Up until you earn $75, ooo a year you will not need to register for GST. Creep over that threshold however and you will most certainly need to register for GST – the penalties are rather severe if you do not.
If you operate as an uber driver or similar however, you need to register regardless as a part of the governments new rules dictating the taxi and ride share industry.
2) You can register voluntarily
Regardless of the above, you can always put your hand up and register for GST anyway. Why would you want to do that? A few sneaky benefits might tempt you such as claiming GST credits on purchases. What does that mean? If you bought a camera for freelance photography work you can claim the GST you paid as a tax credit. This can really work in your favour if you are purchasing a lot of work related equipment.
3) Accidentally exceeded the threshold?
It happens. You were more competent and popular than you anticipated and you have earned more than $75, 000 without yet registering for GST. Please avoid the truck heading right for you. Always keep an up to date record of your income, your accounting software will make this a pedestrian triviality, so rely on it. If you go over, you have 21 days to notify the ATO. Don’t feel like it? Neglect to do it? Enjoy the ATO hunting you down and rubbing your nose in your mistake by charging you anyway, adding a fine and applying interest on your unpaid GST for good measure. Just do it.
4) Registering for GST
First up, you’ll need an ABN. Which you should already have, right? Do so through the ATO business portal if need be.
Now will you go for cash or accrual? this is a choice you need to decide upon when registering for GST and almost always it will be ‘cash’ for freelancers and sole traders. Choosing cash accounting means you record your income and expenses on the day income is received or goods are purchased. Accruals means you record income on the day you issue an invoice, not when you receive funds – almost always unnecessary and needlessly complicated for freelancers. Go cash.
5) GST and invoices
You now need to charge your customers GST. When you are registered for GST your invoices should clearly read ‘tax invoice’. if you are not, then no tax applies and you need it to read ‘invoice’.
Simply make this change and ensure your services or goods all have a GST component included in the cost breakdown. Done!