NeatSum
How GST works for Australian businesses
The goods and services tax (GST) is a 10% tax on most goods, services and other things sold or consumed in Australia. For a business, the idea is simple: if you are registered, you add GST to what you sell, you claim back the GST included in what you buy for the business, and you pay the difference to the Australian Taxation Office (ATO). The detail is in which sales carry GST, which purchases you can claim, and when each one counts.
This is a guide for owners of Australian small and medium businesses (SMEs). It is general information rather than tax advice: the ATO's guidance at ato.gov.au sets the rules, and a registered tax or BAS agent can apply them to your situation.
GST is not your money
A registered business collects GST from its customers on the ATO's behalf. When you sell something for $110 including GST, $100 is your sale and $10 belongs to the ATO. In your books it is a liability from the moment of the sale, and it is paid over when you lodge your Business Activity Statement (BAS).
The same works in reverse on purchases. The GST in a supplier's bill is, for a registered business, generally a credit you claim back rather than a cost.
Do you need to register?
You must register for GST if:
- your GST turnover (your gross business income, not your profit) is $75,000 or more a year, now or expected in the next 12 months ($150,000 for non-profit organisations), or
- you provide taxi or ride-sourcing services, whatever your turnover.
You have 21 days from reaching the threshold to register, and you need an ABN to do it. Below the threshold, registering is your choice. Registering lets you claim GST credits on your purchases, but it also means adding GST to your prices, which matters if your customers are consumers who cannot claim it back, and lodging a BAS every period.
Working out the GST
- To add GST to a price that excludes it, multiply by 1.1: $500 becomes $550, of which $50 is GST.
- To find the GST inside a price that includes it, divide by 11: a $4,950 sale including GST has $450 of GST in it, and $4,500 is the sale.
Dividing by 10 instead of 11 is the most common GST arithmetic error. The inclusive price is 110% of the GST-free amount, so the GST is 10/110 of it, which is one eleventh.
Taxable, GST-free and input-taxed
Most sales are taxable: you charge 10% GST and claim credits on the related purchases. Two other categories matter:
| Charge GST on the sale? | Claim GST credits on related purchases? | Examples | |
|---|---|---|---|
| GST-free | No | Yes, generally | Most basic food, many health and medical services, some education courses, exports |
| Input-taxed | No | No, generally | Residential rent, financial supplies such as lending |
Some things are outside GST altogether, for example wages, and many bank fees and government charges carry no GST to claim.
Tax invoices
A tax invoice is the document that supports a GST credit.
- If a registered customer asks for one on a taxable sale over $82.50 including GST, you must give them a tax invoice within 28 days.
- To claim a GST credit on a purchase over $82.50 including GST, you need a tax invoice from the supplier.
For sales under $1,000, a tax invoice needs to show that it is intended as a tax invoice, the seller's identity and ABN, the date, what was sold (including quantity and price), and the GST amount or a statement that the total includes GST. From $1,000 it must also show the buyer's identity or ABN. The ATO publishes the current requirements, and they are worth checking against your own invoice template.
Cash or accrual: when GST counts
You report GST on either a cash basis or an accrual basis, and the choice changes which BAS a transaction lands in.
- On a cash basis, you report GST on a sale in the period you are paid, and claim GST on a purchase in the period you pay for it.
- On an accrual basis, you report GST in the period you issue or receive the invoice (or are paid, if that happens first), whether or not money has moved.
Most businesses with an aggregated turnover under $10 million can choose the cash basis, which suits a business whose customers take a while to pay: you are not paying the ATO GST you have not yet collected. Larger businesses generally account on an accrual basis. Check your eligibility with the ATO before you choose or change.
This is a GST reporting choice. It is related to, but separate from, the accrual principle in accounting itself, which records revenue when it is earned; the first chapter of the free Learn Accounting course explains why cash and profit are different numbers.
Reporting and records
GST is reported and paid through your BAS, usually each quarter. What is a BAS? covers the labels, the due dates and how to prepare one. Keep your GST records, including tax invoices, generally for five years.
GST in NeatSum
In NeatSum's GST and BAS reporting, every invoice, bill and journal line carries a tax code: new companies start with GST 10%, GST Free and BAS Excluded. Enter a price including GST and NeatSum takes out the one eleventh for you. GST collected and GST paid are kept in separate accounts, you choose a cash or accrual basis for the company, and the BAS figures are prepared from the ledger. NeatSum does not lodge them with the ATO; you or your agent do that.
To see GST worked through as journal entries, with a clearing account and a month of real transactions, read the GST chapter of Learn Accounting. And if you are wondering what NeatSum is, here is what it does and who it is for.