Concepts
Freight
Freight is the cost of moving goods from one place to another, and its GST treatment depends on whether the transport is domestic, international or part of the sale of the goods.
Freight refers to the transport of goods by road, rail, air or sea, and to the charges made for doing so. It appears in business in several forms: a courier fee you pay to send products to a customer, a delivery charge you add to an order, an import freight charge paid to an overseas carrier, and the cost of moving stock between your own premises. GST can apply differently to each, so it helps to identify exactly who is supplying what to whom.
Domestic freight, that is transport within Australia, is generally a taxable supply. A registered courier or carrier charges GST of 10% on its fee, and a business that is registered and uses freight for its enterprise can claim an input tax credit if it holds a tax invoice for purchases over $82.50 including GST. This is the situation for most small businesses buying couriers and postage-like services to deliver goods to customers in Australia.
International freight is dealt with under the rules for international transport, and transport of goods from Australia to overseas, or from overseas to Australia, is generally GST-free when it meets the requirements. The freight bill on an export may therefore carry no GST. For imports, the amount on which GST is worked out at the border generally includes the cost of freight and insurance to bring the goods to Australia, so freight forms part of the value of the taxable importation.
When you charge customers a delivery fee, the treatment generally follows what you are selling. If the delivery is simply part of a taxable sale, GST applies to the total price including delivery. If the goods are GST-free, such as certain basic foods, whether the delivery charge is part of the same supply or a separate taxable service can need careful thought, and it is worth checking ATO guidance for your product. Show delivery on the invoice as a clear line so the GST treatment is visible.
Exporters in particular should keep proof of export, such as shipping documents and customs records, to support GST-free treatment. Freight forwarders and customs brokers may charge GST on some services and not others, so each line on their invoice should be read closely. Records should be kept for five years in case the ATO asks.
A common mistake is assuming all freight is GST-free because the goods are going overseas, when only the qualifying international leg and related services may be. Another is claiming a credit on freight charged without GST. Businesses sometimes forget that if they supply free shipping, the cost still carries GST that may be claimable, but the sale price is the whole GST-inclusive amount for the taxable goods.
The exact answer depends on the goods, the destination and the arrangement. This is general information only, so please confirm your situation with the ATO or a registered tax professional.
Worked example
A registered online shop sells a product for $110 including GST and charges $11 for delivery within Australia, so the customer pays $121. GST on the sale is $121 divided by 11, which is $11. The shop pays a courier $8.80 including GST, giving a credit of $0.80. The shop reports $121 in sales and claims the $0.80 credit on its BAS.
Practical tips
- Keep tax invoices from couriers and carriers, because they support credits over $82.50 and clearly show whether GST was charged.
- For exports, hold evidence such as bills of lading, air waybills or customs documents to prove GST-free treatment of the sale and related freight.
- Show delivery charges on a separate invoice line so customers and your accounting software can see how GST applies.