Under review. This article is being updated for current rates and rules. Check the figures with the ATO or Fair Work before you rely on them.
Goods and Services Tax (GST) Australia is an indirect tax levied on most goods and services sold or consumed in Australia. It was introduced on 1 July, 2000, and is a value-added tax, meaning that it is applied at each stage of the production and distribution process, with the ultimate burden being borne by the final consumer.
As a business owner in Australia, it is important to understand the GST Australia system and your obligations under it. In this article, we will explore the basic principles of GST in Australia, your GST operations, claiming GST credits and how to properly charge GST.
OVERVIEW OF GST
Understanding GST Australia is crucial for managing your business effectively and ensuring compliance with tax regulations.
1.What is GST?
GST Australia is a broad-based tax that applies to most goods and services consumed in Australia. The current rate of GST in Australia is 10%, which means that for every $100 spent on a taxable item, $10 goes to the federal government as GST.
The GST Australia system applies to the value of goods and services sold or consumed, rather than to the income or profits earned by businesses.
The GST system is administered by the Australian Taxation Office (ATO), which is responsible for registering businesses for GST, collecting GST payments, and enforcing compliance with GST laws. Despite what you may have heard, GST is not a direct charge imposed by business -it is indirectly charged by businesses, who then must pay GST to the federal government.
Businesses that have a turnover of less than $75,000 per year are not required to register for GST, while those with a turnover of more than $75,000 per year must register for GST and collect GST on their sales. Note that, if you have a turnover lower than this, you can register for GST if you like.
- Read the ATO’s guide on GST: https://www.ato.gov.au/business/gst/
- Read the ATO’s guide on how GST works: https://www.ato.gov.au/Business/GST/How-GST-works/
- Why does Australia have GST?
The introduction of GST in Australia was part of a comprehensive tax reform package that was designed to create a simpler and fairer tax system. Prior to the introduction of GST, Australia had a complex system of taxes on goods and services, including wholesale sales tax, excise tax, and a range of other indirect taxes.
The GST system was designed to replace these taxes with a single, broad-based tax that would be applied at each stage of the production and distribution process. By doing so, the GST system was intended to reduce the overall tax burden on businesses, promote investment and growth, and increase the efficiency of the Australian economy.
- Why do business owners charge GST?
Business owners are required to charge GST on their sales because they are effectively acting as collection agents for the government. When a business sells a taxable item, they must charge the buyer an additional 10% of the sale price as GST, which they are then required to remit to the ATO.
The GST that businesses collect is not a cost to them, as they are able to claim back the GST that they have paid on their business inputs. This means that the overall impact of GST on businesses is neutral, and they are only required to remit the difference between the GST they have collected and the GST they have paid.
In some cases, businesses may be entitled to claim GST credits for expenses related to their business activities, such as the purchase of goods or services. This can help to reduce the overall cost of doing business, and make it more competitive in the Australian marketplace.
- How much GST is charged?
The current rate of GST in Australia is 10%, which means that for every $100 spent on a taxable item, $10 goes to the government as GST.
However, not all goods and services are subject to GST. Some items, such as fresh food, education, and medical services, are exempt from GST, while others are subject to a reduced rate of GST.
For example, certain medical devices and aids, such as hearing aids and artificial limbs, are subject to a reduced rate of 0% GST. While certain items, such as tampons and sanitary pads, are subject to a reduced rate of 0% GST as well.
- Read the ATO’s guide on GST and medical devices: https://www.ato.gov.au/business/gst/in-detail/your-industry/gst-and-health/
YOUR GST OBLIGATIONS
1.How to register for GST
If your business has a turnover of $75,000 or more per year, you must register for GST with the ATO. You can register online through the ATO’s business portal, or by completing and submitting a paper application form.
You will need an Australian Business Number (ABN) to apply for GST. Your ABN may referred to as a “GST registration number”. This number must be included on all tax invoices that you issue, and you must charge GST on all taxable sales that you make.
- How to calculate GST obligations
To calculate your GST obligations, you need to determine the GST payable on your taxable sales and the GST credits that you can claim for your business purchases.
On net prices:The simplest way to calculate GST is to multiply your net price by 1.1.
Example: $1,000 (net price) x 1.1 = $1,100 (i.e. there is $100 worth of GST).
On GST-inclusive goods:To calculate GST on GST-inclusive prices, you must divide the amount by 11. A mistake often made is calculating the net price by subtracting 10% from the total price, but this is not correct.
Example: $100 divided by 11 = 9.09.
9.09 x 10 (the GST rate of 10%) = $90.91.
- How to place GST on tax invoices
As a business owner, it is your responsibility to include GST in your tax invoices. Tax invoices are documents that detail the goods and services you have sold to your customers, the price of each item, and the GST amount.
When preparing a tax invoice, you must include the following information:
- Your business name and ABN
- The date the invoice was issued
- A brief description of the goods or services sold
- The price of each item sold, including GST
- The total amount payable, including GST
- How to Account for GST
There are two methods for accounting for GST: the cash basis and the accrual basis.
The cash basis method involves accounting for GST when you receive or make a payment, while the accrual basis method involves accounting for GST when you issue or receive an invoice.
4a. Cash Basis Method
If your business has an aggravated turnover of below $10 million, you are able to use the cash basis method to account for your GST. This means you account for the tax on your business activity statement (BAS) covering the period you receive payment.
For example, if you sold a product to a customer for $100 and received payment in the same tax period, you would include $10 in GST payable on your BAS statement for that period.
Similarly, if you purchased goods for your business and paid for them in the same tax period, you would include the GST paid as a credit on your BAS statement for that period.
The cash basis method to account for your GST can be done if:
- Your business is a small business entity (an individual, trust, company or partnership with an aggravated turnover of below $10 million)
- Your enterprise’s GST turnover is below $2 million or below (and you are not carrying on a business)
- You account for income tax on a cash basis
- You run an enterprise that you have agreed with the ATO that you can account for GST irrespective of your GST turnover (applies to entities such as government schools, gift-deductible entities and endorsed charities)
4b. Accrual Basis Method
The majority of larger businesses must use the accrual method. Small businesses can use it if they wish.
Under the accrual basis (non-cash) method, you account for GST when you issue or receive an invoice. For example, if you sold a product to a customer for $100 and issued an invoice in one tax period, but did not receive payment until the next tax period, you would include $10 in GST payable on your BAS statement for the first tax period.
Likewise, if you purchased goods for your business in one tax period, but did not receive the invoice until the next tax period, you would include the GST paid as a credit on your BAS statement for the first.
The method is most appropriate for businesses that usually aren’t paid straight away, but want to still track their real financial position. It is particularly useful if dealing with large sums of money.
- Charging GST when selling goods and services outside Australia
If you are exporting goods outside of Australia, then the payment will usually be GST-free. If your business is registered for GST, you will not need to include GST in the price of exports that are GST-free.
However, you can still claim GST credits (claimed below) that are in the price of purchases used to make your exported goods.
However, it is important to note that if you are sellng GST-free goods overseas, they will only be GST-free if exported within 60 days of EITHER:
- You receive payment for the goods; OR
- You issue an invoice for the goods;
(whatever happens sooner).
This 60-day period does not apply to some goods, such as new boats that you sell for private recreational use.
BUSINESS ACTIVITY STATEMENTS
1.What is a BAS?
As a business owner running a GST-registered business, you have an obligation to inform the ATO of how much tax you collect via sales, and how much GST you have paid on the purchase of goods and services.
The Business Activity Statement (BAS) is a form that every GST-registered business must fill out so the ATO can determine how much tax you owe. You will fill out this document up to 12 times every year, depending on the size of your business,
The BAS will also be used to assess income tax your business owed, as well as employee income tax and other taxes such as fringe benefits tax or fuel tax credits.
- What do you need to include in your BAS?
When filling out your BAS, the information you will need to provide includes:
- The GST your company collects via sales of your goods and services
- The GST you pay when your business makes purchases
- Other information about your business, including the amount of money you made and any employees
You are not required to submit tax invoices when lodging your BAS. However, it is generally a good idea to keep them on your files in case the ATO asks for them.
- How do you lodge a BAS?
Lodging your BAS is a fairly easy process. You can submit your BASA through:
- An online accounting platform such as Xero or MYOB
- Your MyGov account (if you are a sole trader)
- The ATO’s online business portal
- Your BAS agent or registered tax agent
- Your BAS due dates
Your BAS due dates will be determined by the annual turnover of your business.
| Annual turnover | BASA lodging frequency | Deadlines |
| Over $20 million | Monthly | Within 21 days at the end of the month |
| Below $20 million | Quarterly | Q1 - 28 October Q2 - 28 FebruaryQ3 - 28 AprilQ4 - 28 July |
| Less than $10 million | Annually However, you will still be required to pay a GST quarterly instalment. | With income tax return |
If you do not lodge your BAS on time, and you don’t have a good reason, you may be liable to pay the ATO penalties.
- GST payments and refunds
The numbers of your BAS will determine whether you get a refund or you pay GST.
You need to make the payments at the same time you lodge your GST.
But if your GST calculation amount is in the negative, you have paid more GST on purchases than accrued in sales, and you can recover that excess amount submitting a claim with ethe ATO.
GST CREDITS
- What is a GST credit?
When you purchase goods or services for things tat you use in your business, the GST that you pay is included in the purchase price, and your business can claim a credit for this GST when you lodge your BAS. This is called a GST credit, otherwise known as am input tax credit.
A GST credit is a credit that you can claim for the GST included in the price of goods and services that you purchase for your business.
To claim a GST credit, the purchase must be for a business purpose and the supplier must be registered for GST. You must also have a valid tax invoice that includes the supplier’s GST registration number and the amount of GST paid.
If you are entitled to a GST credit, there is a deadline of four years to claim it.
- How to Claim GST Credits
When claiming a GST credit, you can only claim the amount of GST that you have paid on goods and services that are used in your business. You cannot claim GST credits for items that are used for private purposes, such as personal vehicles or home office expenses.
However, for purchases that you use for both business and private purposes (such as the internet or your phone), you may be able to use a GST credit for the portion that you use for business.
To claim a GST credit, you must include the following information on your BAS statement:
- The GST paid on purchases
- The total value of purchases
- The date of the purchase
- The name of the supplier
- The ABN of the supplier
It is important to keep accurate records of all your business purchases and sales to ensure that you are claiming the correct amount of GST credits.
2a. When you need a tax invoice to claim GST credits
To claim a GST credit, you will need to a valid tax invoice to a claim a GST credit if your purchase cost more than $82.50 (including GST).
The entity you purchase from will have 28 days to provide you with a tax invoice once you request one. You will need to wait until you receive your invoice before claiming your GST credit.
If you are charged $82.50 or less (including GST), then ideally you will have a tax invoice. However, if you don’t have one, you should keep a record of your purchase by way of a journal entry with the name and ABN of your supplier, the amount you paid, the date that you purchased it and a description of what you purchased.
2b. When you don’t receive a tax invoice
If you don’t receive tax invoice despite your request, you will need to request permission from the ATO to treat a particular document as a tax invoice.
You can contact the ATO using their online services or simple write to them.
- How to work out your GST credit
Sometimes your business will receive an invoice that does not actually specify an amount of GST.
You will be able to work out the GST included in the price by dividing the amount on the invoice by 11. The resulting figure is the GST credit you claim.