Your business works like a bank, charging & collecting duty for the tax office.
In Australia, most goods & services have a 10% duty on them (GST).
When you issue an invoice, the 10% duty collected on the invoice isn’t yours to keep. You are just collecting it for the tax office.
It does work both ways; when you pay expenses you can claim credits for the GST you’ve paid.
The Business Activity Statement (BAS) is the form used to let the tax office know how much GST you have paid and how much you’ve collected. It also includes the tax withheld from wages.
For most businesses this is required to be lodged quarterly with the tax office.
When you lodge your BAS, if you report that you have received more GST than paid, you will need to pay the difference to the tax office. Conversley, if you have paid more than you collected you will receive a refund from the tax office.
The BAS will also include the amount of tax withheld from wages.
Business owners often get frustrated when they see their bank account going down when they pay their BAS. They feel like it’s a second tax. But in fact it was never yours you were just the collector for the tax office.
It’s easy to get frustrated when you don’t fully understand what you’re paying. Like David Levithan said, “Ignorance is not bliss. Bliss is knowing the full meaning of what you have been given.”
One of the best ways I have seen to remove the emotion out of making BAS payments is to keep a separate “bucket” account for GST. So your main bank account doesn’t fluctuate wildly along with your emotions.
Making numbers simple!