Concepts
GST code
A GST code is the specific setting in accounting software, such as GST on income or GST-free expense, that tells the system how to calculate and report GST on a transaction.
A GST code is the setting in your accounting software that tells it how to handle GST for a sale or purchase. It determines whether the software splits the amount into a GST-exclusive part and a GST part, whether any GST is reported as collected or claimable, and which BAS labels the transaction feeds. Different products name their codes differently, but they usually include options for taxable sales, taxable purchases, GST-free, input-taxed, capital purchases and not reportable.
The code controls the arithmetic. For a taxable sale priced at $110 including GST, the software calculates GST using the GST fraction of one-eleventh, which gives $10, and treats the other $100 as the GST-exclusive amount. For a GST-free sale, the whole amount is sales and no GST is recorded. Input-taxed sales carry no GST and are generally excluded from some BAS figures. Understanding how the maths works helps you recognise when a code looks wrong.
On purchases, the GST code determines whether a credit is claimed. A business purchase that includes GST and is supported by a valid tax invoice normally uses a taxable purchase code, and the GST amount flows into the credit total. A purchase of capital items, such as equipment, may use a separate capital code so that it appears at the right BAS label. Purchases that carry no GST, such as most bank fees and wages, use codes that produce no credit.
Because codes drive the BAS, a regular check is worthwhile. Look at the transactions listed under each code in your GST report. Do the GST-free sales really qualify as GST-free? Are there any expense items with a high value but no GST? Are there purchases with GST that did not produce a credit? Reviewing the exceptions often uncovers coding errors before they reach the ATO.
Some situations call for care. Items that are partly private need to be apportioned so only the business share is claimed. Purchases from suppliers that are not registered for GST should not include GST. Imported goods and services may have different treatment. Changes in a supplier's GST status or a change to your own registration status may require the codes to be adjusted from a particular date.
A common misunderstanding is that using the code means the treatment is automatically correct. The code simply reflects your decision. If you are unsure whether something is GST-free or taxable, check the ATO guidance or ask a registered BAS agent, rather than guessing. Another is changing codes on old transactions after a BAS has been lodged without considering whether an amendment is needed. This is general information only, so confirm how this applies to you with the ATO or a registered tax professional.
Worked example
A trades business buys a $3,850 piece of equipment, including $350 GST, and codes it as a capital purchase with GST. The GST of $3,850 divided by 11, which is $350, flows to its credits, and the $3,500 GST-exclusive cost appears at the capital purchases label. If it had been coded as GST-free, the $350 credit would have been missed, and the BAS would have underclaimed.
Practical tips
- Review the GST report by code each period and investigate unusual items.
- Use a capital purchase code for equipment so it feeds the correct BAS label.
- If unsure whether a supply is taxable or GST-free, check ATO guidance before coding it.