Starting up your practice - Part 3
Starting up your practice - Part 3
Registering for an ABN and the GST
Following on from the last Fact Sheet that was published in the June 2017 Newsletter, the next step is to examine the issues of ABN or Australian Business Number and GST or Goods and Services Tax registrations.
ABN – carrying on an enterprise
The ABN is a unique number given to all business entities that are carrying on an enterprise in Australia.
It was initiated in July 2000 as part of the new tax reform system that also saw the introduction of the GST.
Any artist or person who is working in the creative sphere needs to apply for an ABN if they are undertaking any business transactions which, as practising artists, all of you would need to do.
Please note: This advice relates purely to any freelance practice or fees received: it does not relate to any employed position, for example to teaching for an institution.
It provides evidence that all artists are professional in their endeavours and are involved in business to business transactions; for example, by selling art or teaching music.
It is easy to apply for an ABN and registration is possible via an online form from the ABR website at www.abr.gov.au.
The ABN system penalises people who are working in a business environment but who don’t have an ABN by imposing a withholding amount equivalent to the highest rate of tax (currently 47%) from any payment due to them.
For example, if you rendered services to a business for $1,000 and you had no ABN, then the payer is obliged to withhold 47% from that payment, being $470. So they would only pay you the balance of $530. Eventually, you would get the tax back through the tax return system, but it will be quite a while until this happens.
As a precaution and a prudent measure, it is important that you check the eligibility for ABN to see that you are indeed carrying on an enterprise according to the stated requirements. The criteria for this was listed in my first Fact Sheet in the April 2017 Newsletter.
The GST is a tax levied on the sale of all goods and services connected with Australia.
It was introduced in July 2000 and it is the main source of indirect taxation in Australia. It replaced the wholesale sales tax and many other smaller indirect taxes.
The main effect of the GST is to impose a 10% tax on all goods and services including, of course, any art and services provided by individuals and companies in the creative fields.
At the same time, any GST paid by the artist in the furthering of their arts practice can be claimed back through the completion of the business activity statements.
For example, as a registered artist for GST purposes, if you have sales of $10,000, then an additional $1,000 may be added to the sale price, totalling $11,000 (Alternatively, it may be absorbed into the existing $10,000). Then, this amount is treated as a tax liability and is paid [by you] to the government.
Let’s also say that you spend $2,200 on materials which include a GST amount of $200, then, as an artist who is registered for GST, you are entitled to claim that $200 back as an ‘input credit’. The net amount that you end up paying to the ATO is $800.
The Business Activity Statement or BAS is the form that is used to report all these business transactions for all those registered for the GST.
It needs to be filled in on a quarterly basis but provision exists for it to be monthly or annual.
Thresholds for registration
The current threshold that has to be passed before one registers for GST is $75,000 of annual turnover. If you earn under that amount in a 12 month period, then you can be registered optionally.
It is certainly worth getting professional advice to see whether you should register for GST or not because there are a lot of financial factors and potential business complexities that can determine this decision. They include things like cash flow, grants, sales of art in commercial galleries, large purchases these will all have an impact on the decision to register for GST.
The decision to register is one that requires a fair bit of thought and professional assistance from your accountant.