GST core
GST-free supply
A GST-free supply is a sale on which no GST is charged to the customer, but the seller can still claim input tax credits for the GST included in the costs of making it.
A GST-free supply is something that would normally be part of the GST system but which the law treats as having a GST rate of zero. The customer pays no GST on top of the price. This is different from simply being outside the system, because the seller still counts the sale as part of their GST turnover and still reports it on the BAS.
The most familiar examples are most basic food, such as bread, milk, fruit, vegetables, meat and eggs, as well as many health services, many education courses, certain child care services, some medical aids and appliances, and exports of goods and services to customers overseas. International transport is also generally GST-free. Each category has detailed conditions, so a product that sounds similar can end up being taxable. A plain loaf of bread is GST-free, for instance, but a restaurant meal or a snack food is generally taxable.
The key advantage for the seller is the right to claim credits. A GST-free business charges no GST on its sales, yet it can claim input tax credits for the GST on its business purchases, provided it is registered and holds valid tax invoices. In practice this often means a GST-free seller receives a refund from the ATO, because it is paying GST on costs but collecting none on sales.
This is the main difference from an input-taxed supply. With input-taxed supplies, such as financial supplies and residential rent, there is also no GST charged to the customer, but the seller cannot claim credits on the related purchases. People often confuse the two because from the customer's side the result looks identical. For the business, the difference can be significant.
On the BAS, GST-free sales are included in total sales at label G1, and the portion that is GST-free is reported separately at the GST-free sales label. Getting that split right matters because the ATO compares the figures. If a business sells a mix of taxable and GST-free items, its accounting software should apply a different tax code to each so the reporting is accurate.
Common mistakes include assuming that all food is GST-free, or treating a business as exempt from registration because its goods are GST-free. Turnover from GST-free sales still counts toward the registration threshold of $75,000 ($150,000 for non-profit organisations). A business that makes only GST-free sales may still need to register, and may well want to so it can claim credits.
Rules in this area depend on the exact product or service, and the details are set by legislation and ATO guidance that can change. This is general information only, so check the specific item with the ATO or a registered tax professional before treating a sale as GST-free.
Worked example
Maria runs a registered farm shop. In one quarter she sells $18,000 of fresh vegetables and eggs, which are GST-free, and $6,000 of GST-exclusive gift hampers that are taxable. She charges $600 GST on the hampers. She also paid $1,100 GST on packaging and fuel. Her GST payable is $600 less credits of $1,100, so she is entitled to a $500 net refund, even though most of her sales carry no GST.
Practical tips
- Do not confuse GST-free with input-taxed. Only GST-free sales let you claim credits on the related business purchases.
- Report GST-free sales correctly using the right tax code in your accounting software, because the ATO cross-checks BAS labels.
- Remember that GST-free sales still count toward your GST turnover when you test the registration threshold.