What Is GST? A Guide for Australian Businesses

By Jen Bacquiano · 9 March 2015 · Updated 16 March 2026

Goods and Services Tax (GST) is a 10% tax on most goods and services sold in Australia. Businesses with annual turnover of $75,000 or more ($150,000 for non-profits) must register for GST, charge it on taxable sales, and report it to the ATO through their Business Activity Statement (BAS). You claim back the GST paid on business purchases as input tax credits

GST is a value-added tax, which means it's collected at each stage of the supply chain but only the end consumer actually bears the cost. As a business, you're the collection mechanism. You add 10% to your taxable sales, collect it from your customers, then offset it against the GST you've paid on your own business purchases. The difference goes to (or comes back from) the ATO each BAS period

When do you need to register for GST?

GST registration is mandatory once your business reaches $75,000 in annual GST turnover ($150,000 for non-profit organisations). GST turnover means your gross income from taxable supplies - not your profit, not your net income, but total revenue before expenses

You can voluntarily register below the threshold if you want to claim GST credits on your business purchases. This makes sense if your business spends significantly on GST-inclusive inputs (equipment, materials, professional services) and wants to recover that GST through BAS lodgements. It doesn't make sense if most of your customers are consumers who'll see a 10% price increase

Once registered, you must stay registered for at least 12 months. You can cancel after that if your turnover drops below the threshold

What is and isn't subject to GST

Not everything attracts GST. The distinction matters because coding it wrong on your invoices and in your accounting software affects your BAS

Taxable supplies (10% GST applies) - most goods and services sold in Australia by a GST-registered business. This includes professional services, construction work, retail sales, hospitality, technology services, and equipment sales
GST-free supplies (0% GST) - basic food (unprocessed, not prepared meals), most health and medical services, education courses, childcare, exports, and some financial services. You still report these on your BAS but no GST is charged or collected
Input-taxed supplies - residential rent, financial supplies (loans, credit), and some insurance. You don't charge GST, and you can't claim GST credits on purchases related to making these supplies. This is where it gets complicated and where we see the most coding errors

The tricky area is mixed supplies - businesses that provide both taxable and GST-free services. A physiotherapy practice charges GST on gym memberships but not on clinical treatments. A food business charges GST on hot takeaway but not on fresh produce. Getting the split wrong across hundreds of transactions means your BAS figures are wrong every quarter, and the error compounds

How GST works in Xero

When you set up a transaction in Xero, every line item has a tax rate applied. The main ones you'll use are

GST on Income - for taxable sales. Xero adds 10% to the amount and tracks it as GST collected
GST on Expenses - for business purchases with GST. Xero records the GST component as a credit you can claim
GST Free Income / Expenses - for GST-free supplies. Reported on BAS but no GST calculated
BAS Excluded - for transactions that don't appear on BAS at all (owner drawings, loan repayments, transfers between accounts)
No GST - for purchases from unregistered suppliers or personal expenses

Xero uses these tax rates to calculate your BAS automatically. Labels 1A (GST on sales) and 1B (GST on purchases) are populated from your coded transactions for the period. If your coding is consistent and correct, your BAS preparation in Xero takes minutes. If it's not, you're reconciling discrepancies at quarter end - which is what we spend most of our pre-BAS review time fixing across client files

Common GST mistakes that trigger ATO attention

These are the GST issues we flag most often during quarterly reviews

Claiming GST on expenses that don't have GST - insurance premiums, bank fees, government charges, wages. If there's no GST on the supplier's tax invoice, you can't claim a credit. Coding them as "GST on Expenses" in Xero inflates your refund and the ATO's data matching will find it
Missing GST on cash purchases - fuel, office supplies, meals bought with cash or a personal card then claimed as business expenses. If the receipt shows GST and the expense is business-related, the credit should be claimed. Missing it means you're paying more tax than you need to
Private expenses coded to the business with GST claimed - this is the fastest way to get an ATO review notice. Personal phone bills, home internet, personal vehicle costs coded as business expenses with GST credits claimed. The ATO cross-references your claimed credits against industry norms and flags outliers
Not adjusting for private use proportion - if an expense is partly business and partly private (a phone used 60% for business), only the business portion qualifies for a GST credit. Claiming 100% on a 60% business asset overstates your credits

GST registration threshold - when $75,000 gets complicated

The $75,000 threshold is based on projected turnover, not just historical revenue. If you reasonably expect to exceed $75,000 in the current month and the next 11 months combined, you're required to register - even if you haven't hit the number yet. This catches businesses that land a large contract or start scaling quickly

The other trap is late registration. If you should have registered but didn't, you're liable for GST on all taxable sales from the date you were required to register, not the date you actually registered. You've already charged your customers the price without GST built in, so you're effectively paying the 10% out of your own margin. We see this at least a few times a year with businesses that grow past the threshold without realising it

If you're approaching $75,000 in turnover and haven't registered, talk to your bookkeeper or BAS agent now rather than after you've passed it

GST registration thresholds and reporting obligations referenced in this article are sourced from the Australian Taxation Office, current as at March 2026

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Common questions

The Australian GST rate is 10%, applied to most goods and services sold by GST-registered businesses. Some supplies are GST-free (basic food, health services, education) or input-taxed (residential rent, financial supplies). The rate has been 10% since GST was introduced on 1 July 2000.

GST registration is mandatory when your annual GST turnover reaches $75,000 ($150,000 for non-profits). GST turnover means gross revenue from taxable supplies, not profit. You can voluntarily register below the threshold to claim GST credits on business purchases.

GST-free supplies have no GST charged but you can still claim GST credits on related purchases. Input-taxed supplies also have no GST charged, but you cannot claim GST credits on purchases related to making those supplies. Residential rent and most financial services are input-taxed.

You are liable for GST on all taxable sales from the date you were required to register, not when you actually registered. Since your prices did not include GST, you effectively pay the 10% from your own margin. The ATO can also charge penalties for late registration.

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