GST core
GST payable
GST payable is the amount of GST you owe the ATO for a reporting period, being the GST you collected on sales minus the GST credits you can claim on purchases.
GST payable is the result when the GST on your sales is greater than the credits on your purchases for a period. In simple terms, you collect GST on behalf of the government when you make taxable sales, and you pass on the amount that is left after subtracting the GST you paid on your business purchases. The amount is reported on your BAS and paid by the due date.
On the BAS, the GST on sales is reported at label 1A and the credits are reported at label 1B. The net amount is 1A minus 1B. If the result is positive, it is the GST payable. The figures in these labels come from your sales and purchases, which is why correct coding of GST-free, input-taxed and taxable items matters, as it affects both labels.
For a business that uses the cash method, only the GST on payments received and credits on payments made in the period are included. Under accrual, the invoice dates are important. In either case, the GST you collect is not your income. It is held on trust, in effect, for the ATO, so it is wise to set it aside in a separate account to avoid a cash flow squeeze when the BAS is due.
If you do not pay GST payable on time, the general interest charge can apply to the unpaid amount, and there may be penalties for failing to lodge. If you cannot pay in full, contact the ATO before the due date. They may agree a payment plan, though interest can still accrue. Ignoring the debt can lead to firmer collection action.
Common misunderstandings include thinking GST payable is 10 per cent of profit or turnover, or that it equals the GST on all sales. In reality it is the net figure after credits. Another is confusing the GST payable with the income tax payable, which is a separate liability. A business can have a profit and little GST payable, or a loss and a large GST payable, depending on the timing and the nature of its sales and purchases.
To avoid surprises, review your GST position at least monthly, using your accounting software to estimate what the next BAS will be. This content is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
A registered business had taxable sales of $66,000 including GST in the quarter. GST on sales (1A) is $66,000 / 11 = $6,000. Purchases of $22,000 including GST give credits (1B) of $22,000 / 11 = $2,000. GST payable is $6,000 - $2,000 = $4,000, which is paid with the BAS by the due date.
Practical tips
- Move the GST you collect into a separate savings account so you have the money when the BAS is due.
- If you cannot pay on time, contact the ATO before the due date to discuss a payment plan.
- Reconcile your GST control account at the end of each month, so there are no surprises when you prepare the BAS.