GST is not ‘tax’

As a business owner, it can feel like we are always paying taxes to the ATO. It feels like there is a tax for everything we do which is why it can be frustrating as a business owner. Hey, we get it, we are business owners too.

As the boss you need to understand all your tax obligations to make sure you don’t get any unwelcome surprises.

However, it is important to understand that all taxes are not created equal.  For example, there is a difference between GST & Tax (usually the short form for income tax).

It is important to remember that they are not the same.

Income tax is a tax on profit while GST is a tax on consumption.

GST is the tax you pay on goods or services you purchase. The GST you charge on your sales is not your money, it never has been your money and never will be.

If you are registered for GST, then you charge and collect it on behalf of the government, sort of like a middleman. It was never yours to keep. It should not be considered as part of your cash flow or money to use to pay for goods or staff. It should just be kept aside in order to pay the government each quarter.

Another strategy to ensure you don’t overspend is to prepay what you owe directly to the ATO.

Tax paid on income and profit is different. This is the amount you are paying based on your business making a profit. Profit is the difference between income earned and expenses incurred.

Profit is the net income earned by a business or individual after deducting all expenses, including costs of sales or production and overheads from the revenue generated by selling goods or services. There’s also even a difference between profit and cash, but that’s a whole other article.

We get it, no one likes to pay tax and no one should pay more tax than they have to, but if you are making a profit, then tax is the buddy that comes with it. It can feel like a weird brag, but paying taxes is a good thing. What catches most people is that they don’t set aside for it, so it feels like ‘too much.’

We can help you avoid falling into this very common trap.

If you want to put a solid cash flow planning strategy in place so you don’t get nasty surprises from the ATO then we invite you to book a time to talk.