GST core
GST refund
A GST refund arises when the GST credits on your purchases exceed the GST on your sales for a period, and the ATO may pay the difference to you after processing your BAS.
A GST refund is the opposite of GST payable. If the credits you can claim on your business purchases are greater than the GST you collected on your sales, the difference is refundable. This often happens in the early stages of a business, when you are buying equipment and stock before sales build up, and in businesses that make a lot of GST-free sales, such as exporters.
The refund is worked out on your BAS as the difference between label 1B and label 1A. When the credits are higher, the net amount is shown as a refund. The ATO processes the BAS and, if there is no reason to hold it, the refund is paid into your nominated bank account or offset against other debts you may have with the ATO.
The ATO may review a BAS that shows a refund, particularly if it is unusually large or if the business is new. They may ask for tax invoices or other evidence. Having your records ready, with every credit supported by a valid tax invoice, helps speed up the process. A refund can be delayed while checks are carried out, and the ATO may adjust the amount if some claims are not supported.
Refunds can be offset against other tax debts, such as income tax or PAYG withholding. If you owe the ATO money, expect the refund to be applied to that debt first. If the ATO takes a long time to pay a refund that it should have paid, interest may be payable to you in some circumstances under the law, but this should not be relied on.
Common misunderstandings include thinking that a refund means you have made a profit, or that refunds are paid automatically and quickly in every case. A refund simply means credits exceeded GST on sales for the period. Another is overstating credits to generate a refund. Incorrect claims can lead to penalties and interest, as well as repayment of the amounts.
If you regularly receive refunds, consider monthly reporting so that you get the money back sooner. Keep your supporting documents in order and be ready to respond to ATO queries. This page is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A new registered business buys $55,000 of equipment including GST in its first quarter, giving credits of $55,000 / 11 = $5,000. Its sales are $11,000 including GST, so GST on sales is $11,000 / 11 = $1,000. The net amount is $1,000 - $5,000 = -$4,000, so the business is entitled to a GST refund of $4,000, subject to ATO processing and any review.
Practical tips
- Keep tax invoices ready for every credit claimed, because refunds are more likely to be reviewed than payable amounts.
- Consider monthly reporting if you often have refunds, so you get your money back sooner.
- Check your bank details with the ATO are current before lodging, so any refund is paid to the right account.