One of the quickest ways to affect a business is to cripple the cashflow! So, it’s important to understand what money belongs to the business and what money belongs to other regulatory authorities and to plan the right timing for payments to minimise the impact.
Let’s start by understanding the implications of GST.
What is GST?
GST is a 10% tax on Goods and Services that is used or consumed by the public. Business have a responsibility to report GST to the Australian Taxation Office (ATO) if they are registered for GST.
For businesses, GST comes in 2 forms.
- GST Collected
- This is GST that the business collects from their clients.
- This amount is payable by the business to the ATO.
- GST Paid
- This is GST that the business pays for their supplies/goods.
- This amount is refunded to the business by the ATO
Misconceptions of GST for Business.
Most businesses charge clients for GST on their invoice, but often they do not realise that 10% of the total amount is not an Income to the business. This is money owing to the government. Due to this, the money will often be spent and when it is time for tax obligations, they do not have enough money stashed away to make payments.
Other reasons for spending “borrowed” money
Some business use “or borrow” their GST in their business to provide some financial relieve in certain areas of their business. This may help short term cash flow but only if the amount they have borrowed is paid back into the business before the BAS payments are due to the ATO.
We highly recommend speaking to your Accountant in regards to this as this is not the most ideal way. Your Accountant can help you plan the timing to maximise cash flow. The alternative, is always being behind trying to find money you haven’t got to make overdue payments that attract hefty penalties. It’s so much easier to do your homework with your Accountant.
What if you have spent money that’s not yours?
The best course of action is to organise to pay authorities back, usually the ATO. However, we see clients having difficulties is paying the business back. Seek advice, talk to your Accountant and explore what options suit your situation before you consider spending money that might not be yours. It’s the best course of action to avoid a potential disaster.
Corporate Manager/ Accountant
Integra Business Accountants