Explains how you collect GST on sales, and offset it against GST you pay on purchases
One of the questions we get asked by new business owner's coming to grips with GST and Business Activity Statements is how does this GST thing work?
"If on the sales side I'm charging GST ... and receive it, then on the other expense side I pay a bill that has GST in it" do I only pay the difference to the ATO (once a quarter via the BAS?)"
Short answer is .. yes.
This means that if you're a startup and you are in pre-sales mode - ie head down in development and/or early marketing activities and pretty well just spending money, then this means that you're making losses. As you're mostly just incurring expenses at this stage, you'll be paying GST but not collecting much (because you're not selling much). Therefore, if you are registered for GST, you will be able to (via your BAS) claim all the expenses and the related GST and get the GST back from the ATO ... as cash. This is why we recommend that startups should register for GST up front even if they don't pass the $75,000 income threshold when you're required to register.
Oh, and if you're in this situation, and you're doing some innovative (research &) development you can also be getting back 45% of your R&D as cash through the R&D tax incentive.
From time-to-time, Remco also runs free Accounting 101 for startups lunchtime sessions in both Sydney and Melbourne with General Assembly that you might be interested in.
This illustration courtesy of the ATO may also help: