Looking for opportunities to improve cashflow? If you import goods as part of your business, you don’t have to pay goods and services tax (GST) upfront if you’re registered for the ATO’s deferred GST scheme. Instead, you can defer and offset GST amounts in your next activity statement. However, there are some eligibility requirements – including a condition that your business lodge activity statements monthly (rather than quarterly).
If you’re not already taking advantage of the ATO’s scheme to defer GST payments on imports, it’s time to talk to your adviser. The scheme can benefit not only wholesalers, distributors and retailers, but also any business that imports goods for use in carrying on its business.
Usually, GST is payable on most imports into Australia and goods will not be released until the GST is paid to customs. This can have significant cashflow implications for importers. While you’re generally able to claim a credit later for the GST paid, you still need to have the funds to pay the GST at the time of importation.
The ATO’s deferred GST scheme allows participants to defer payment of the GST amount until their next business activity statement (BAS) is due.
This means you can start selling or using the imports in your business right away without having to come up with the GST amount when the goods arrive in the country.
We often have this discussion with any client that imports goods from overseas to assess the cash flow implications of being able to defer and offset the GST in their next business activity statement, in particular at start up.
For example, one of MGI Adelaide’s existing clients approached the team as they were establishing a start-up wholesale food distribution business whereby 90% of the product lines were being imported from overseas. Their concern was that the stock and GST had to be paid before their goods are released and as a result, there would be a time lag (of possibly up to 60 days) between payment of stock/GST and collection of funds from their customers. This would have a significant impact on cash flow. The MGI Adelaide team assisted this particular client with a budgeting process that involved electing to defer the GST through the ATO’s deferred GST scheme which allowed them to take some of the pressure off borrowing and use this cash for start-up capital and running costs.
Eligibility for the scheme
Businesses who wish to take advantage of this scheme must apply first and be approved by the ATO. To be eligible, you must have an ABN and be registered for GST. You must also lodge and pay your BAS online. This can be done yourself or through your registered tax or BAS agent.
Another key requirement is that you must also lodge your BAS monthly, which means that if you’re currently lodging quarterly you’ll need to elect to lodge monthly. (When you make this election, the change won’t take effect until the start of the next quarter, so you won’t be able to defer GST on imports until the start of that quarter.) If this applies to you, you’ll need to weigh up whether the deferred GST scheme is worth giving up quarterly BAS lodgment.
Once you’re approved for the deferred GST scheme, it’s important that you lodge and pay your monthly BAS on time. The ATO may remove you from the scheme if you fall behind, and in this case you’d need to reapply for the scheme.
Timing of the deferral and credits
Once you’re approved, your GST amounts on taxable imports will be deferred until the first BAS you lodge after the goods are imported (which for monthly lodgers is due 21 days after the end of the month). The deferred amount is reported electronically by customs to the ATO, who will use this data to pre-fill the “deferred GST” in your BAS.
The deferred GST liability is then effectively offset by a GST credit you can claim for the deferred amount. As with all GST amounts you pay on purchases you make for your business, you can claim a credit for the deferred GST liability on your imports to the extent that you use the goods in carrying on your business (and you can’t claim a credit for private use or to make input-taxed supplies). Therefore, the overall effect of participating in the deferred GST scheme is that your GST on imports is deferred and offset, and you aren’t required to have funds available to pay the GST when the goods are initially imported.
Could your cashflow be improved?
Contact one of our offices to discuss how the deferred GST scheme could benefit your business or to explore other strategies for improving your cashflow position.