Concepts
Turnover
Turnover is the total sales or income a business earns over a period, and different tax tests use slightly different versions of it, such as GST turnover or aggregated turnover.
In everyday business language, turnover means the total value of what you sell over a period, before expenses are taken out. It is a measure of the volume of trade rather than profit. A business that sells $400,000 of goods and services in a year has a turnover of $400,000 regardless of whether it made a profit after costs. It is often compared with profit, and it helps show a business's size.
For tax, the word is more technical, because the tax law uses several turnover measures for different purposes. GST turnover is used to decide whether you must register for GST and is generally the total of your business sales, excluding GST, with some adjustments. Aggregated turnover is used to decide whether you qualify as a small business entity and access concessions, and it can include the turnover of connected entities and affiliates.
The GST registration test is a good example. You are required to register when your GST turnover is $75,000 or more, or $150,000 or more for non-profit organisations. The test looks at current turnover, meaning your turnover for the current month and the previous eleven months, and projected turnover, meaning what you expect for the current month and the next eleven. Taxi and ride-sourcing drivers must register regardless of turnover.
Not every receipt counts. GST turnover generally includes taxable sales and GST-free sales such as exports, but excludes sales of input-taxed items such as residential rent and many financial supplies, as well as sales that are not made in the course of your enterprise. The treatment of items such as the sale of a business asset or grants has special rules, so the full list should be checked against ATO guidance.
Turnover matters beyond GST. Various small business concessions, such as simplified depreciation and the ability to use particular accounting methods, depend on turnover thresholds set by legislation. Those thresholds can change, so check the current figures on the ATO website. Keeping monthly sales records makes it easy to monitor where you sit against any of these tests as the business grows.
A common misunderstanding is mixing up turnover with profit, so someone with $80,000 of sales but little profit assumes they need not register. The registration test is about turnover, not profit. Another is forgetting that turnover is generally measured without GST, so when you add up GST-inclusive sales you should remove the GST. This is general information only, so confirm which turnover test applies to you with the ATO or a registered tax professional.
Worked example
A mobile coffee van sells $6,820 of coffee in a month, including GST. To find GST-exclusive turnover, divide by 1.1: $6,820 divided by 1.1 is $6,200. Over twelve months at that rate, turnover is $74,400, just under the $75,000 registration threshold. If sales rise and she projects $75,000 or more, she needs to register within the required time.
Practical tips
- Remove GST from sales before comparing with a turnover threshold. Most turnover tests use GST-exclusive amounts.
- Check the current and projected turnover regularly. Registration can be required based on what you expect, not just past sales.
- Keep in mind that turnover is not profit. A low profit does not stop the obligation to register.