When a tradie has to register for GST

Most tradies start out as sole traders under the GST threshold, and for a while GST is somebody else's problem. Then the work picks up, and one day you are over the line without noticing. The rule itself is simple. The trap is in how the ATO measures it, and what happens if you register late.

The threshold

You must register for GST once your GST turnover reaches $75,000 a year. The ATO explains the rule on its registering for GST page, and it is the source to trust over any summary, including this one.

GST turnover is your business income, not your profit. It is what you invoice, before you take out materials, fuel, tools or wages. A tradie who bills $1,500 a week for fifty weeks has a turnover of $75,000 even if half of it went on materials.

How the ATO measures it

This is the part people miss. The threshold isn't measured over the financial year. The ATO uses two rolling tests, and reaching $75,000 on either one means you must register:

• Current GST turnover: this month plus the previous 11 months.
• Projected GST turnover: this month plus the next 11 months.

The projected test catches the business that is about to get busy. If you have just signed a contract or taken on a big job that will carry you over the line in the next year, you are expected to register now, not once the money has arrived. A new business should register from the start if it expects to reach the threshold in its first year.

The deadline, and the cost of missing it

Once you go over, you have 21 days to register. If you don't, the ATO can backdate your registration to when you should have registered. You then owe GST on the sales you made since that date, even though you never charged your customers for it. Penalties and interest can apply on top.

That is the real cost of registering late: one-eleventh of everything you invoiced in that period comes out of your own pocket, because you can't go back to last month's customers and ask for 10% more.

What changes once you're registered

• Your prices. You add GST to taxable sales. A price to a consumer should be shown as a total that includes GST.
• Your invoices. They become tax invoices, with your ABN, the words "Tax invoice" and the GST shown. Our guide to what the ATO expects on a tax invoice covers the details.
• Your BAS. You lodge business activity statements and pay the GST you've collected, less the GST you've paid on business purchases.
• Your costs. You can claim GST credits on materials, tools, fuel and other business purchases. For a trade business that buys a lot of materials, that is a real benefit.

Registering before you have to

Registration is optional below the threshold, and some tradies register early. The usual reasons are that they work mostly for other businesses, who can claim the GST back and don't mind it being added, or that they spend heavily on materials and want the credits.

The reasons not to: you'll need to add 10% to prices for homeowners, who can't claim it back, and you take on the paperwork of a BAS. Whether it's worth it depends on who your customers are, which is a good conversation to have with your accountant.

Don't charge GST until you're registered

If you're not registered, don't add GST to your invoices, and don't call them tax invoices. Charging GST you aren't registered for is collecting a tax you have no right to collect. If you have done it by mistake, talk to your accountant or the ATO about fixing it.

Common questions about GST registration

Do I need to register for GST as a sole trader?

The same rule applies to a sole trader as to a company: you must register once your GST turnover reaches $75,000, on either of the two tests above. Being a sole trader doesn't change the threshold. What it does mean is that the turnover is yours personally, so if you run more than one business, they are counted together. If you're weighing up the structure itself, see sole trader vs company for tradies, and for the rest of the list, what sole traders must pay.

Do I need to register for GST as a contractor or subcontractor?

If you're in business as a contractor, yes, on the same $75,000 test. A subcontractor who works for builders is running a business like any other, and the builder will usually expect a tax invoice once you're registered. The ATO's rule is written for a business or enterprise; if you're genuinely an employee, you aren't running one. The line between the two is not always obvious, and it matters for more than GST: contractor or employee explains the test.

Do I need to register for GST if I have an ABN?

Not automatically. An ABN and GST registration are separate. You need an ABN before you can register for GST, but plenty of sole traders have an ABN and are rightly not registered because they're under the threshold. Having an ABN doesn't make you registered, and it doesn't mean you can charge GST.

I run more than one business. How does that work?

The ATO counts your gross income from all your businesses towards GST turnover, and you only register once. A tradie with a small second business on the side needs to add the two together when checking the threshold.

Can I register voluntarily, and can I cancel?

Yes to both. Below the threshold registration is optional, but if you choose to register you generally have to stay registered for at least 12 months. You also need to be registered if you want to claim fuel tax credits. If your turnover later drops and you're no longer required to be registered, you can cancel.

How far back can a late registration go?

The ATO can backdate a registration to when you should have registered, and says backdating is limited to four years except in cases of fraud or evasion. Four years of GST on sales you never charged it on is a number worth avoiding, which is why the monthly check matters.

How BizzMate handles GST

BizzMate is set up for businesses that are registered for GST. Every quote and invoice shows GST on its own line with a total that includes it, any line can be switched to GST-free, your ABN prints on every document, and invoices carry the words "Tax invoice" as the ATO requires. An invoice can't be edited once it has been sent, because it is a record of what was charged. Start a free trial to see it on your own work.

If pricing is the next thing on your mind, pricing a job so you actually make money covers the costs most tradies leave out.

This is general information, not tax advice. Your own situation may be different, so check the ATO's guidance or speak to a registered tax agent.