This may be a question you ask yourselves quite often. While the answer isn’t the same for everyone, there is one general principle that I believe everyone running a business should endeavour to understand.
GST is not your money. Yes it might hit your bank account, but remember that your true revenue is the figure AFTER GST has been deducted. Think of yourself as a sort of quasi-tax collector for the ATO. You charge your customers your fee plus GST; they pay you an amount that includes this which you then remit to the ATO every quarter or month depending on your turnover. So say you bill your customer $1000 plus GST. $1100 is going to be deposited in your bank account, but remember it’s the $1000 that’s actually yours. The $100 will go towards what you will need to report and remit to the ATO come BAS time.
I’ve found that clients who tend to ask the question above is because they have generally spent the cash, leaving them in the unfortunate position of possibly being unable to pay their BAS when it falls due. In order to avoid this, a good habit to develop would be to set up an account specifically for GST (maybe interest-bearing), so you can park the cash there and leave it until BAS time. The same principle applies to tax withheld on employees’ wages. Utilizing the above strategy can help clients avoid a cash shortage when BAS time comes around.
This is a very simple ‘set and forget’ strategy and if you have an account that earns interest, you’ll even get a little bit extra back. If you find yourself dipping into this account rather than your everyday account, this can potentially be indicative of other cash flow problems. In this case, you may need a budget to give you the guidance and direction you need to get your business back on track.
So talk to your Proactive accountant today, where we can develop and help you implement a plan of action to give you the peace of mind you deserve when it comes to your cash flow.
Cash is king, after all.
Also Read: When is the right time for Tax Planning