What is GST?

GST is added to the price of most goods and services sold by a registered business. The business collects the tax at the point of sale, then reports it on its business activity statement (BAS) and pays the net amount to the ATO. Net GST is simply the GST collected on sales minus the GST credits on eligible business purchases.

The arithmetic is straightforward. To add GST to a GST-exclusive price, multiply by 1.1. To find the GST inside a GST-inclusive price, divide by 11: a $220 sale contains $20 of GST. Most small businesses report quarterly, higher-turnover businesses monthly and some annually. Late lodgement or payment attracts penalties and interest, and instalment arrangements can help smooth cashflow.

You must register for GST once your GST turnover meets or passes the compulsory threshold, which at the time of writing is $75,000 for businesses and sole traders and $150,000 for most not-for-profit organisations. Anyone providing ride-sourcing or taxi services must register regardless of turnover. GST turnover is your gross business income excluding GST, including GST-free sales, and generally excluding input-taxed sales, sales of capital assets and sales not connected with Australia; you test it on a rolling 12-month basis or on projected turnover for the next 12 months.

Registration takes effect from the date you cross the threshold or start ride-sourcing. Businesses under the threshold can register voluntarily, usually so they can claim GST credits on their purchases earlier. Not registering when you should can mean back-dated GST, interest and penalties.

Not everything a business sells carries GST. Taxable supplies, such as retail sales and professional services, have GST added and the seller can claim credits on related purchases. GST-free supplies, such as some basic foods, medical services, education and most exports, have no GST charged but the supplier can usually still claim credits. Input-taxed supplies, such as most financial supplies and residential rent, have no GST charged and generally no credits on related purchases.

Getting the category right matters: charging GST on a GST-free sale, or failing to charge it on a taxable one, is one of the most common GST mistakes. Bundled or mixed supplies need to be split so each component gets the right treatment. If you are unsure, check the ATO's guidance or ask a registered tax agent.

A registered business can generally claim an input tax credit for the GST in a purchase if the purchase is for use in the enterprise, it is used in making taxable supplies, and you hold a valid tax invoice for purchases above the tax invoice threshold. A valid tax invoice shows the seller's ABN, the date, what was sold and the GST amount, or states that the price includes GST. For items used partly for private purposes, such as a car or phone, claim only the business portion and keep a logbook or similar record.

Credits go on the BAS for the period in which you received the tax invoice or paid, depending on your accounting method. Keep the records behind each BAS, including invoices, contracts and bank statements, for at least five years; electronic copies are fine if they stay accessible and legible.