Do I need to pay GST and if so, can I avoid it?

[marjak15]

Hi, I've got a business on ebay where I can turnover over more than $75,000 (gst threshold), but my income from $75000 turnover is probably only around $20,000. The bulk of my turnover is in what I originally paid for the items I resell, and postage. 

I would like to make around $40,000 a year from my business, but paying gst might make my business not worthwhile. I would have to turnover $150,000 to make $40,000 a year and from what I've heard, the GST on that would be around $15,000 making it not worthwhile. 

Can I take postage off plus what I originally paid for the items when calculating my turnover? If I can't, are there any ways around paying GST ie. setting up multiple businesses etc? Are there possibly exceptions for my situation where I don't earn much compared to the turnover I make?

Thanks for any help

[lyndal1838]

By mid next year you will be paying GST on the stock you get from overseas so you will have credits to claim back.

But, as I asked you previously, if you close down because of the GST what other sort of business do you think you could start up and not have to pay GST when you reach $75000 turnover?

[jensmanchester-australia]

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@marjak15 wrote:

I don't think what you're saying applies to me. I can't get gst credits on any of my stock. In some situations you would want to stifle the growth of a business. Keeping under GST threshold means I won't pay 7500 in tax. Turning over 74499 and keeping the 7500 is much better for me than turning over say 85,000 and paying 8500 in gst. All the extra work for 10,000 extra turnover, then paying 7500 to have that extra 10000 (which is not all income, just turnover) seems bad in my situation. That's my understanding of how GST works, but I may be wrong. 

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marjak15 - that is a very short term view of running a business. You need to look at where you plan your business to be in 5 years time....not just the day your turnover ticks over from $74,999 to $75,000.

[marjak15]

Thanks for that, very helpful.

[englishrosegardens]

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@marjak15 wrote:

I don't think what you're saying applies to me. I can't get gst credits on any of my stock. In some situations you would want to stifle the growth of a business. Keeping under GST threshold means I won't pay 7500 in tax. Turning over 74499 and keeping the 7500 is much better for me than turning over say 85,000 and paying 8500 in gst. All the extra work for 10,000 extra turnover, then paying 7500 to have that extra 10000 (which is not all income, just turnover) seems bad in my situation. That's my understanding of how GST works, but I may be wrong. 

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You don't pay 10% of your sales as GST, so the GST on $75,000 isn't $7,500.  As davewil pointed out, it's closer to 9%.  That's because you take the base price and add 10% to it to get the sale price.  If your turnover is $75,000 you'll pay $6,818 and be left with $68,182 for yourself.

If you're offering free postage you may be better off charging postage separately.  I'm not sure on this but it's worth asking your accountant about it.  The postage amount may be treated as revenue of a sort but it might not be considered to be part of your turnover, so it may be worth keeping it separate.  Notice all the "may"s and "might"s!

If you're able to sell $75,000 on ebay then I'd be very surprised if adding GST to your prices would slow your sales down all that much.  If you're selling an item for $5, most people would probably be happy to pay $5.50 for it, or $22 instead of $20, etc.  If you're in a really competitive field and another 10% is going to kill or stifle your sales, I'm really surprised you can even sell $75K.

[davewil1964]

Not to mention that ALL postage is GST rated, so GST input credits will be available for all postage, which will reduce the GST payable even more.

[englishrosegardens]

Yes, I was trying to get my head around the gst on postage but I wasn't in the mood so it was all too hard.

[chameleon54]

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@jensmanchester-australia wrote:

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@marjak15 wrote:

I don't think what you're saying applies to me. I can't get gst credits on any of my stock. In some situations you would want to stifle the growth of a business. Keeping under GST threshold means I won't pay 7500 in tax. Turning over 74499 and keeping the 7500 is much better for me than turning over say 85,000 and paying 8500 in gst. All the extra work for 10,000 extra turnover, then paying 7500 to have that extra 10000 (which is not all income, just turnover) seems bad in my situation. That's my understanding of how GST works, but I may be wrong. 

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marjak15 - that is a very short term view of running a business. You need to look at where you plan your business to be in 5 years time....not just the day your turnover ticks over from $74,999 to $75,000.

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Short term view ? Maybe yes, Maybe no.

There are many situations where people running businesses dont actually want to continue to expand and grow indefinately. When I was earning a full time income from ebay, I was working fairly hard 5 days a week. Our turnover from two stores in seperate names was less than the $150,000 that would require us to register for GST. ( two stores, seperate names of ownership ) . Because our overheads where much lower than B & M businesses and our mark ups and profit margins much higher than B & M stores, we could make a reasonable living from ebay.

We had reached the point where we would need to start employing people if we where to expand any further. We didnt want the stress of employing people ( been there, done that, dont want to do it again ) and didnt want to spend the time filling out BAS statements and increasing our record keeping obligations.  Time spent on bookwork is time, not spent on selling and actually making money.

I personally think if it suits Marjak15 to sell $149,000, making $40,000 profit and not pay GST, thats OK for him / her. Once you start selling & packing $150,000 of lower value items on ebay, you are going to be running anyway and will not be able to realistically handle any more.

If the OP cant really increase prices to cover the GST and remain competative, they are better off taking whatever legal steps they can to avoid the system. The 9 or 10% WILL come straight off of thier profit if they cant claim input tax credits as stated. This means they will need to sell and pack around $45,000 worth of stock at the stated approx 30% profit margin and based on $150,000 turnover. Thats an awfull lot of work to go to just to pay the Governments GST. Looking at what the OP sells ( games, records etc. ) I can imagine it would be difficult to buy the items in a way that provides input tax credits.

[clarry100]

I understand you may not pay gst on stock. Neither do we because we import it in lots under $1000. But we do pay gst on other business operating costs which can be used to offset the gst you need to pay on sales. I've done a spreadsheet model for our situation and I would estimate we would only need to hand over about 5% of our sales. So on your example of $75000 we would pay about $3750 in gst. So that means we would need to increase our product price by 5% to cover that. Assuming our sales volume remained the same we have not lost a cent. In fact because we would have sold more to reach the $75000 threshold our profits would be up. So we hope to reach that and beyond one day.
You don't see the likes of Coles and Woolworth's downsizing their business because they have to pay gst. The end buyer is the one who ends up out of pocket for the gst not the middle man. Ie us sellers.

[photo-video-accessories-pty-ltd-australia]

There is no GST on International postage - only on domestic - just like you don't charge GST to an overseas customer.

[davewil1964]

How much of the OP's business is overseas?

If they're importing to re-export, that is a HUGE niche market and paying their fair share of tax shouldn't be an issue.

And if they're exporting and don't have to charge or pay GST on overseas sales then the question is moot.