GST is one of those taxes that looks more complicated than it really is. At first, you see invoices, GST codes, tax invoices, GST credits and BAS statements. It can feel like there is a lot going on.
But underneath all of that, the basic idea is quite simple. A business collects GST from its customers. The business may also pay GST when it buys things. The difference is generally what ends up being paid to the Australian Taxation Office (ATO). Once you understand that flow, a lot of Australian GST starts making sense. So that is where we will begin.
What is GST?
GST stands for Goods and Services Tax. It is a broad-based tax on most goods and services sold or consumed in Australia. Australia’s GST rate is currently 10%. So, if a business sells something for $100 before GST, the GST is normally $10.
The customer pays:
Price before GST: $100
GST: $10
Total price: $110
Simple enough.
But there is one important thing to understand from the beginning. That $10 collected by the business is generally not income belonging to the business. The business is collecting it as part of Australia’s GST system. That distinction becomes very important when you start bookkeeping.
Why does Australia have GST?
Governments need revenue. That revenue pays for public services and government programs. GST is one of the taxes used to raise that revenue. Australia introduced GST on 1 July 2000. Rather than taxing only income, GST taxes consumption across a broad range of goods and services.
Think about an ordinary week. You might buy clothes. You might buy a laptop. You might pay an accountant. You might have your car serviced. Many of those transactions can involve GST. GST therefore reaches a very large number of transactions throughout the economy.
What is the current GST rate?
The current Australian GST rate is: 10%
You will probably use this number hundreds of times while doing Australian bookkeeping. If the price is quoted before GST, calculating GST is easy.
Take $500.
GST is:
$500 × 10% = $50
The GST-inclusive amount is:
$500 + $50 = $550
But be careful. If somebody gives you a price of $550 including GST, you should not calculate GST as 10% of $550. We will see why shortly.
Who ultimately bears GST?
This is one of the most important ideas in this module. For ordinary taxable supplies, the final consumer generally bears the GST cost. Businesses registered for GST act as part of the collection mechanism. Let us imagine that you own a stationery shop.
You sell an office chair for:
$300 + $30 GST = $330
Your customer pays you $330. You collected $30 GST. But that does not necessarily mean you send the entire $30 to the ATO. Perhaps you bought the chair from your supplier and paid GST when you purchased it. If you are entitled to a GST credit for that purchase, that credit reduces the net GST you pay to the ATO. This is why GST is sometimes easier to understand as a tax flowing through the supply chain. The tax ultimately sticks with the final consumer.
Businesses are collectors too
Imagine you run a small accounting practice. You issue a client an invoice:
Accounting services: $1,000
GST: $100
Total: $1,100
The client pays $1,100. Your business has collected $100 GST. Now suppose your business purchased office supplies during the same period.
The supplies cost: $220 including GST. The GST included in that purchase is $20. Assuming you are entitled to claim the full GST credit:
GST collected: $100
Less GST credit: $20
Net GST: $80
So the business would generally have $80 net GST from these two transactions to report. Of course, real businesses will have hundreds or thousands of transactions. That is where bookkeeping software and the BAS come in. But the underlying principle remains the same.
GST on sales – GST credits on eligible purchases = net GST position
Keep that idea in your head. We will return to it again and again.
What does the ATO do?
The Australian Taxation Office, or ATO, administers Australia’s GST system. Businesses registered for GST generally report their GST information through an activity statement, commonly a Business Activity Statement (BAS).
The BAS tells the ATO about amounts such as sales, GST collected and GST credits being claimed. Depending on the final position, the business may have GST to pay. Or it may be entitled to a refund.
The ATO also administers GST registrations and cancellations and oversees compliance with GST obligations. As a bookkeeper or accountant, you will therefore see the ATO mentioned constantly. You may as well become friends with those three letters now.
How GST Works
The easiest way to understand GST is to follow a product. So let us sell a table. Our table will travel through four hands:
Manufacturer → Wholesaler → Retailer → Consumer
For simplicity, we will assume every sale is a taxable sale and every business is registered for GST.
Stage 1 — Manufacturer sells to Wholesaler. A manufacturer makes a table.
The manufacturer sells it to a wholesaler for:
Price: $100
GST: $10
Invoice total: $110
The wholesaler pays $110. The manufacturer has collected: $10 GST
For this simplified example, ignore any GST credits the manufacturer may have on its own production costs. So the manufacturer’s GST from this transaction is $10.
Stage 2 — Wholesaler sells to Retailer
The wholesaler wants to make a profit.
So the wholesaler sells the table to a retailer for:
Price: $200
GST: $20
Invoice total: $220
The wholesaler has now collected $20 GST.
But remember what happened earlier.
The wholesaler already paid $10 GST when purchasing the table from the manufacturer.
Assuming the purchase qualifies for a GST credit:
GST collected: $20
Less GST credit: $10
Net GST: $10
The wholesaler therefore has $10 net GST from these transactions.
Stage 3 — Retailer sells to Consumer
The retailer puts the table in a showroom. A customer likes it. The retailer sells it for:
Price: $300
GST: $30
Total paid by customer: $330
The retailer collected $30 GST. But the retailer previously paid $20 GST to the wholesaler. Assuming the retailer can claim that GST credit:
GST collected: $30
Less GST credit: $20
Net GST: $10
Again, the net amount is $10.
Stage 4 — The Consumer
Our customer pays:
$330
That consists of:
Table: $300
GST: $30
Can the ordinary private consumer claim the $30 back from the ATO? No. The consumer is not purchasing the table as a GST-registered business making a creditable acquisition. So the GST chain stops here. The final consumer has ultimately borne the $30 GST.
Now look at the entire chain
| Stage | Sale before GST | GST on Sale | GST Credit | Net GST |
|---|---|---|---|---|
| Manufacturer | $100 | $10 | — | $10 |
| Wholesaler | $200 | $20 | $10 | $10 |
| Retailer | $300 | $30 | $20 | $10 |
| Total | $30 |
The consumer paid $30 GST. And across our simplified supply chain, the businesses account for a total net GST of $30. That is the beauty of the GST credit system.
Without GST credits, tax could pile on top of tax every time a product changed hands. Instead, registered businesses can generally claim credits for GST paid on eligible business purchases.
The tax ultimately falls on final consumption. If this table makes sense to you, you already understand one of the most important concepts in Australian GST.
GST Registration
Now we know how GST works. The next question is obvious. Does every Australian business have to register for GST?. No. GST registration depends on the circumstances of the business.
What is GST turnover?
You will hear the expression GST turnover quite often. Do not automatically think of it as accounting profit. And do not think of it as the amount sitting in the bank account. GST turnover is broadly based on the value of relevant business sales, subject to the GST turnover rules. Certain amounts are excluded when determining GST turnover. So when someone says: “My business made $80,000.”
Your next question should be: What does that $80,000 represent?. Sales?. Profit?. Cash received?. Taxable sales?. GST-free sales?. The terminology matters.
The GST registration threshold
For most businesses, GST registration becomes compulsory when GST turnover reaches the relevant threshold. The general threshold is: $75,000. For non-profit organisations, the threshold is: $150,000.
A business generally needs to register if its GST turnover meets or exceeds the applicable threshold. The ATO says registration is required within 21 days once the business is required to register. So GST registration is something a growing business should monitor. Do not wait until year-end and discover that the threshold was crossed months ago.
A simple example
Meet Johanna. Johanna starts a graphic design business. Her GST turnover is expected to be $50,000. She is below the normal $75,000 threshold. Generally, she is not required to register solely because of turnover. Now suppose the business grows. Her GST turnover reaches the point where she is required to register.
Johanna now needs to deal with GST registration. Once registered, GST becomes part of her normal bookkeeping. Taxable sales need to be identified correctly. GST needs to be accounted for. Eligible GST credits need to be recorded. And activity statements need to be lodged as required. This is why watching turnover matters.
Some businesses have special compulsory registration rules
The $75,000 threshold is not the whole story. One important example is taxi, limousine and ride-sourcing services. If you provide these services, GST registration can be compulsory regardless of turnover. So a rideshare driver earning $20,000 cannot simply say: “I am below $75,000, so GST does not apply to me.” The special registration rule needs to be considered. This is an important lesson for anyone studying tax. Never learn only the general rule. Learn the exceptions too.
Voluntary GST registration
What if your turnover is only $40,000? Can you still register? Potentially, yes. A business carrying on an enterprise may choose to register voluntarily even when it is below the compulsory registration threshold.
Why would anyone voluntarily sign up for more tax paperwork? There can be good reasons. A GST-registered business may be entitled to claim GST credits on eligible business purchases. Registration may also suit businesses dealing mainly with other GST-registered businesses. But voluntary registration also brings responsibilities. Once registered, you need to account for GST correctly. You may need to add GST to taxable sales. You need proper records. And you need to lodge the required activity statements. So voluntary registration should be a business decision. Not a box ticked without thinking.
When does GST registration start?
The effective date of GST registration matters. Why?. Because it determines when the business starts accounting for GST as a registered entity. For example, suppose a business becomes required to register from 1 October. The owner cannot simply ignore October and decide to start dealing with GST from January because January feels tidier.
The correct registration date and the circumstances that triggered registration need to be considered. The ATO can backdate GST registration where appropriate. This can create an unpleasant situation if a business should have been charging GST but failed to do so.
Imagine selling something for $11,000 believing the whole $11,000 belongs to you. Later you discover that you should have been registered for GST. Now part of that amount may represent GST that needs to be accounted for. That is not a surprise any business owner wants. Monitor GST turnover early.
Cancelling GST registration
Businesses do not necessarily remain GST registered forever. A GST registration may need to be cancelled when a business closes. It may also be possible to cancel registration when the business is no longer required to be registered and the relevant cancellation requirements are satisfied.
If a business closes or stops carrying on its enterprise, there can be a requirement to cancel the GST registration within 21 days. There may also be GST consequences when registration is cancelled. For example, adjustments may be required for certain business assets. So cancellation should not simply be treated as: Click cancel. Finished. The final GST position needs to be reviewed properly.
ABN, GST and Business Structure
ABN and GST registration are often mentioned together. So beginners sometimes assume they are the same thing. They are not.
ABN vs GST registration
ABN stands for Australian Business Number. It is an 11-digit identifier used by businesses and other entities when dealing with government and other businesses.
GST registration is a tax registration. You can therefore have an ABN without necessarily being registered for GST. For example, a small sole trader may have an ABN but have GST turnover below $75,000 and not choose to register voluntarily.
So: ABN does not automatically mean GST registered.
This distinction matters when processing invoices. Never assume that because an invoice contains an ABN, the supplier must be registered for GST. GST registration should be considered separately.
Business structures and GST
A business can operate through different legal structures. The most common structures you will encounter include:
- Sole trader
- Partnership
- Company
- Trust
GST principles can apply to all of them. But the entity carrying on the enterprise and holding the GST registration matters.
Sole trader
A sole trader is an individual carrying on a business. For example: Daniel, trading as Daniel’s Bookkeeping. Daniel may have an ABN.
If he is required to register for GST, or chooses to register voluntarily, the GST registration relates to Daniel’s enterprise. The business name does not create a separate legal entity. Daniel remains the individual operating the business.
Partnership
Now suppose Daniel goes into business with Johanna. They create: Daniel & Johanna Accounting Partnership. The partnership is a different type of entity for tax purposes. The partnership can have its own ABN and GST registration. Do not automatically use Daniel’s old sole-trader GST details for the partnership.
A change in business structure can create registration consequences. This is why accountants pay attention when a client casually says: “Oh, I added my brother as a partner last month.” That sentence can mean considerably more than the client realises.
Company
A company is a separate legal entity. For example: Daniel Accounting Pty Ltd. The company can have its own ABN. It can also register for GST. The company’s turnover is relevant when considering the company’s GST registration obligations.
Do not confuse the company with its directors or shareholders. The company is the entity conducting the business.
Trust
A business may also operate through a trust. For example: Johanna Family Trust. A trustee manages the trust. The trustee may be an individual. Or it may be a company. The trust structure can make the paperwork look more intimidating at first. But for GST work, always identify the entity correctly.
Ask:
Who is carrying on the enterprise?
Whose ABN is being used?
Which entity is registered for GST?
Who issued the invoice?
Those questions will save you from many bookkeeping mistakes.
Calculating GST
Now we come to something you will use constantly. Calculating GST. There are two situations.
First: The price excludes GST.
Second: The price already includes GST.
They require different calculations.
Price Excluding GST — $100 plus GST
Suppose the selling price is: $100 + GST. GST is 10%.
So:
$100 × 10% = $10 GST
The customer pays:
$100 + $10 = $110
Therefore:
GST-exclusive price: $100
GST: $10
GST-inclusive price: $110
Easy.
Price Including GST – $110 includes GST
This is where beginners often make a mistake. They calculate:
$110 × 10% = $11. And say GST is $11. That is wrong. Why?. Because the $110 already contains the GST. The original price was $100. GST was $10. Together they became $110. So we need to extract the GST from the GST-inclusive amount. That is where the 1/11 method comes in.
Understanding the 1/11 method
Start with $100. GST at 10% is $10.
So:
Original price = $100
GST = $10
GST-inclusive price = $110
Look at the relationship. $10 is exactly 1/11 of $110.
Therefore, when a price already includes GST: GST = GST inclusive price ÷ 11
So:
$110 ÷ 11 = $10
That is your GST. To find the GST-exclusive amount: $110 – $10 = $100
Examples
You purchase office furniture for: $2,200 including GST. How much GST is included?. Use the 1/11 method: $2,200 ÷ 11 = $200
So:
GST-inclusive price: $2,200
GST: $200
Price excluding GST: $2,000
One more Example
A business receives an invoice for: $880 including GST.
GST is: $880 ÷ 11 = $80
The GST-exclusive amount is:
$880 – $80 = $800
Therefore:
Expense before GST: $800
GST: $80
Total invoice: $880
Why does dividing by 11 work?
Let us understand the maths rather than memorising a trick. Suppose the GST-exclusive price is $100. We can think of that $100 as 10 equal parts of $10. GST adds another $10. So after GST, we have: 10 parts + 1 GST part = 11 parts. The total is $110. GST represents one of those eleven parts. Therefore: GST = 1/11 of the GST-inclusive price. That is the logic behind the rule. Once you see it this way, you do not really need to memorise it.
A very important warning
The 1/11 method works neatly when the entire amount is subject to GST at the standard rate. But not every invoice is that simple. An invoice might contain:
- taxable items
- GST-free items
- input-taxed items
- items outside the GST system
Imagine a supermarket receipt for $110. You cannot automatically say:
$110 ÷ 11 = $10 GST.
Some items on the receipt may be GST-free. The actual GST shown on the tax invoice needs to be considered. This becomes very important in bookkeeping. Never mechanically divide every payment by 11. Understand the transaction first. Then calculate the GST.
Before You Move On
Five things you should remember from this lesson:
1. Australia’s standard GST rate is 10%.
2. GST is generally borne by the final consumer.
3. GST-registered businesses collect GST and may claim GST credits on eligible purchases.
4. Most businesses must register once their GST turnover reaches the $75,000 registration threshold, although special rules and exceptions apply.
5. When a fully taxable price already includes GST, divide the amount by 11 to find the GST component.
Most importantly, do not think of GST as a collection of formulas. Think of it as money moving through a chain. A customer pays GST. A business collects it. The business may have GST credits. The net amount is reported through the GST system. Once that picture is clear in your mind, BAS preparation becomes much easier. And that is exactly where we are heading.
