GST rates and categories: taxable, GST-free and input-taxed

One rate, three treatments

Australia has one GST rate of 10%. What varies is the treatment of each supply. A supply is either taxable, GST-free or input-taxed. A single business can have all three types of sale, and each needs to be recorded correctly on invoices and the BAS.

Taxable supplies

A taxable supply is one on which you must charge 10% GST. Most sales of goods and services in Australia fall into this category. To be a taxable supply, the sale must be made for payment, be made in the course of an enterprise you run, be connected with Australia, and you must be registered or required to be registered for GST. If all four apply, GST is payable even if you forget to charge it.

GST-free supplies

GST-free supplies are not charged GST, but the seller can still claim credits for the GST in business costs related to making them. Common categories include basic food such as bread, milk, fruit and vegetables and unprepared meat; many health services and medical aids; many education courses; child care; exports; some international transport; and some sales of going concerns.

The boundaries matter. Basic food is GST-free, but confectionery, bakery products like cakes, and prepared food such as restaurant meals are generally taxable. Not all health services are GST-free, and not all education is GST-free. When in doubt, look at the specific ATO guidance on that item.

Input-taxed supplies

Input-taxed supplies have no GST charged on them, and the supplier cannot claim input tax credits for the GST in purchases related to making them. The main examples are financial supplies such as loans, interest and most bank fees, residential rent, and sales of existing residential premises. The effect is that a business making only input-taxed supplies pays GST on its costs and cannot recover it.

A common mix-up is thinking input-taxed means GST-free. They are different because of the credit rules. A landlord renting out a house cannot claim GST credits on repairs for the house, whereas a business selling GST-free exports can claim credits on its costs.

Mixed and composite supplies

Some sales combine several elements. If a sale has distinct parts, such as a taxable item and a GST-free item sold together, you may need to apportion the price. If one element is the real substance of the sale and the others are incidental, the whole sale may take the character of the main element. Hotel and food packages, subscription bundles, and gift hampers are typical cases. Keep clear records of how you decided to treat them.

Getting it wrong

Charging GST on a GST-free sale is a mistake the customer may be able to recover, and not charging GST on a taxable sale can leave you owing the 1/11 share out of pocket. Review the category of each product or service when you set up accounting software, and review again whenever you change what you sell.