GST sounds simple enough: if you’re registered for GST, you charge 10% on your sales and claim back the GST you pay on business expenses.
In practice, it’s not always that straightforward.
Some things you’d naturally expect to include GST don’t. Others that seem like they should be GST-free are actually taxable. And getting the distinction wrong can mean overclaiming GST credits or underpaying GST on your BAS.
Here are some of the common areas that cause confusion.
GST-Free Doesn’t Mean ‘Not Included in the BAS’
First, an important distinction.
A GST-free sale is still generally reported as a sale on your BAS — you simply don’t charge GST on it.
That’s different from a transaction being completely outside the GST system or BAS excluded.
This distinction becomes particularly important when transactions are being coded in accounting software such as Xero. Choosing “GST Free” and “BAS Excluded” isn’t necessarily the same thing.
Food: One of the Trickiest Areas
Food is probably the classic example of GST rules not being quite as intuitive as you’d expect.
Many basic foods are GST-free, including things such as fresh meat, eggs, plain milk, fruit and vegetables and ordinary bread. But confectionery, savoury snacks and many prepared foods are taxable.
Even very similar products can have different GST treatments.
For example, an ordinary bread roll can be GST-free when purchased from a bakery, but the GST treatment can change when food is sold for consumption at a restaurant or café.
So “it’s food” isn’t enough to determine whether GST applies.
Health Services Aren’t Automatically GST-Free
Another common assumption is that anything medical or health-related must be GST-free.
Many medical services are GST-free, but specific conditions need to be met. For example, this can include services for which a Medicare benefit is payable, or certain services provided by recognised health professionals where the treatment meets the relevant requirements.
Some services remain taxable — cosmetic procedures are one example identified by the ATO.
The same applies to medical aids and appliances. An item doesn’t become GST-free simply because it has a medical purpose; specific requirements apply.
Education Can Be GST-Free — But Not Every Course Is
Certain recognised education courses and associated course materials can be GST-free. However, that doesn’t mean every seminar, workshop, online course or training program automatically qualifies.
Whether GST applies depends on the type of education being provided and whether it meets the requirements under the GST rules.
Businesses providing training or education therefore shouldn’t assume their services are GST-free simply because they’re teaching somebody something.
No GST on Wages, Super or Most Bank Fees
The confusion also works in the opposite direction when businesses are claiming GST credits.
Wages don’t contain GST. Neither do the superannuation contributions you make for employees.
Many bank fees and loan interest are also input-taxed, meaning there generally isn’t GST available for you to claim back.
These are common areas where simply applying “10% GST” to every business payment can cause problems.
Loan Repayments Aren’t Just Another GST Expense
If your business makes repayments on a loan, don’t assume there’s GST to claim simply because the loan was used for business purposes.
The repayment of the borrowed money itself doesn’t give you a new GST credit each time you make a repayment, and loan interest is generally input-taxed.
If the loan was used to purchase an asset, such as a vehicle or equipment, the GST treatment generally relates to the original purchase rather than simply claiming GST on each finance repayment.
This is one reason your bookkeeper needs the original purchase invoice and finance documents when you buy an asset on finance.
Overseas Doesn’t Automatically Mean GST-Free
It’s also risky to assume that anything involving an overseas supplier or customer has no GST.
Certain exports of goods and services can be GST-free, but there are specific conditions that need to be satisfied.
Likewise, Australian GST can apply to certain digital products and services supplied from overseas. The fact that the supplier isn’t Australian doesn’t automatically tell you the GST treatment.
Check the Invoice — Don’t Just Guess
When you’re claiming GST on a business purchase, the starting point should be the supplier’s invoice rather than assuming every expense contains 10% GST.
You generally can’t claim a GST credit where there was no GST in the purchase price in the first place. This can occur because the purchase was GST-free or input-taxed, or simply because the supplier wasn’t registered for GST.
For purchases over $82.50 including GST, you also generally need a valid tax invoice to claim the GST credit when lodging your BAS.
The Bottom Line
GST isn’t always as simple as adding or subtracting 10%.
GST-free, input-taxed and BAS excluded all mean different things, and similar-looking transactions can sometimes have completely different GST treatments.
The best approach is not to guess. Keep your invoices, make sure transactions are coded correctly and ask when something unusual comes up — particularly with food, health and education services, overseas transactions or larger purchases.
Getting the GST treatment right as you go is much easier than discovering several BAS periods later that the same mistake has been repeated over and over.
If you’re unsure whether you should be charging GST on something you sell, or claiming GST on a business purchase, get in touch with the team at Geyer Accountants. We can help make sure you’re applying the right GST treatment from the start.
