GST Not Included ;)

[johnleung23]

Hi,

I'm doing my financial projections for an F&B outlet and working GST into the picture. As an F&B outlet not charging service (and therefore must incorporate the GST into the pricing), the GST doesn't really get passed onto the customer. It becomes more of a expense (and a big one at that, as it is proportional to your revenues). I'm quite new to the concept of GST and didn't really find the IRAS website very informative.

I have a few questions regarding GST and would appreciate any help:

1. What typical expenses cannot be claimed for input tax? I imagine direct labour is one, since I can't actually ask my employees for a tax invoice. I also imagine that goods and services purchased from non-GST registered traders cannot be claimed, as in theory, they should not have charged GST correct?

2. If my input tax exceeds my output tax do I get a "GST credit"?
Found the answer, it's Yes.

3. Can GST paid on capital assets be used as input tax?

4. What sort of costs are incurred by becoming GST registered? I have read about SPRING's GST Assistance that covers software, hardware, and even ... an internet connection?

5. Are there any important caveats surrounding GST that I should consider while projecting my financials?

6. Besides keeping GST taxable turnover under 1m, are there strategies to lower the GST burden?

Would appreciate any help or helpful links.

Thanks, -j

[sundaymorningstaple]

First of all, unless your turnover is more than 1 M you do not need to register and charge GST. This means you do not have to incorporate GST into your rates to a customer in the first place. Any GST you pay for supplies (if buying from GST registered companies) you would just treat as an expense item. This makes it easy on your calculations unless you are projecting more than 1M revenue.

If you are required to register for GST then you do have an additional burden but where the new GST registered user makes their first mistake is in not allowing for the GST collected to remain in the bank, usually spending it and then finding themselves having to use an OD facility to cover the GST when the Quarter is filed. (and the penalties for late filing and interest are steep to say the least).

Aside from cutting you own throat (keeping revenues below 1M). About the only way to lessen you tax or expense burden is to buy your supplies from Non-GST registered companies (not always possible)

http://www.iras.gov.sg/irasHome/page.aspx?id=1780

The above site and related links are pretty clear.

[johnleung23]

And 2 more questions...

1. Does the GST "collected" count as taxable income?

2. Can the GST paid on supplies be claimed as an expense to reduce taxable income?

Thanks, -j

[johnleung23]

Interesting comment Sunday...

So what you are suggesting is to try and purchase from Non-GST registered traders as they should, in theory, have lower prices...

I would have imagined net prices being comparable regardless of a trader's GST status.

Thinking about this more, even if they did provide a discount, I doubt it would be greater than the 7% you could claim back as input tax from a GST registered trader.

-j

[sundaymorningstaple]

Think about it this way.....

Let's assume I'm a small niche provider of French Truffles so my turnover is only 600K/pa. I'm not a GST registered trader so my sales to you do not have GST in them. My competitor is GST registered. I sell my Truffles to your (non-GST registered) restuarant for $1000. My competitor matches my sales price to you @ $1000. When you get my invoice you pay $1000 and deduct $1000 as an expense. When you get my competitor's invoice is $1070 to you due to 7% GST. As you are non-GST registered, you cannot claim back the GST from the Gov't. All you can do is expense it with the cost of the truffles. Which is better? Buying from me or my competitor?

If you are GST registered, you do not report the GST as income nor can you expense the GST you pay.

[Winxkid]

Well-said Sunday!

[bruinbear]

Impressive responses Sunday.

It appears that you are a tax expert as well!

I was just googling up the IRAS website to check out the GST resources and I must say they put up a lot of stuff there but kinda mind-boggling to a non-practitioner.

Anyway I found this link:
http://www.iras.gov.sg/irasHome/page03.aspx?id=3452

It talks about voluntary registration, which I understand to mean that if your business turnover is less than $1M/annum you can still register for GST. But from the way the IRAS wrote this website, they appear to be trying to discourage businesses from registering. Am I reading it right?

[Strong Eagle]

Think about it this way.....

Let's assume I'm a small niche provider of French Truffles so my turnover is only 600K/pa. I'm not a GST registered trader so my sales to you do not have GST in them. My competitor is GST registered. I sell my Truffles to your (non-GST registered) restuarant for $1000. My competitor matches my sales price to you @ $1000. When you get my invoice you pay $1000 and deduct $1000 as an expense. When you get my competitor's invoice is $1070 to you due to 7% GST. As you are non-GST registered, you cannot claim back the GST from the Gov't. All you can do is expense it with the cost of the truffles. Which is better? Buying from me or my competitor?

If you are GST registered, you do not report the GST as income nor can you expense the GST you pay.

Almost correct. You have to report the GST as income on your P&L, otherwise there is no way to make A/R and cash balance bank to revenues earned. However, GST is immediately removed from gross revenues and added to a liability account of GST due (payable quarterly, with interesting rules).

The competitor who has to collect GST will still often sell at $1,000 to avoid the problem you noted. Then he/she will also collect a GST refund for all expenses to the business. So, in theory, the only real difference to the guy who pays GST is the profit margin he makes is GST taxable.

For my business, it doesn't matter to my clients to much... all must charge GST, therefore, the GST I must charge is just a wash.

[sundaymorningstaple]

SE, Fair enough. My answer was based primarily on the fact the most today use computerized accounting systems like MYOB (we use Premier) where that is done automatically so it doesn't show up as revenue at all but is automatically placed into a liability account. For the non-accountancy trained, I use the simple explanation as their bookkeeper/accountant would know the difference.

[Winxkid]

cool... We have a in-depth thread for now....

Thanks for sharing with Us, guys!