How is GST treated with Profit First?
There are of course exceptions to the rule but GST is a flat 10% that’s added to basically every business sale. And, the thing to remember is that the collected GST is not the business owner’s money, it needs to be paid to the Australian Tax Office.
Using Profit First, the tax percentage needs to be adapted to accommodate for any applicable business taxes including GST.
We also recommend that GST has a completely separate account. It’s treated the same way as your subs and materials account so it comes off first to get your real revenue and then you work out your Profit First percentages.
How does Profit First assist with the management of the GST?
Most business owners do not keep their collected GST money separate, in fact, they often treat it just like any other income coming in. The problem with this is that when the GST bill comes at the end of the quarter, there is not enough money to pay the bill.
With Profit First in play, this stress about paying due taxes is completed alleviated, because as soon as the money comes in, it is allocated to it’s particular account ready to pay the quarterly GST bill.
What are the consequences in Australia if someone does not appropriately pay their GST?
If you don’t pay the GST there are general interest charges that apply to any balances that are unpaid. There are also penalties charged if the GST is not paid and the penalties increase depending on how long its overdue and the amount owing. The debt keeps accumulating until it’s paid. The ATO does offer payment plans but these still attract interest charges and you need to continue to meet your quarterly payments so it’s not something you want to do.
If debt is something a business owner is struggling to get out of, the Profit First methodology offers a cash flow structure that step-by-step relieves the business owner of debt without damaging the business.
I hope your found these tips helpful. If you have further questions about managing the GST with Profit First, don’t hesitate to ask or reach out to any of the Certified Profit First Professionals here, or contact us at Stone Accountants to get the ball rolling with us.