Taxable, GST-free and input-taxed sales¶

Not every sale is treated the same way for GST. Even when a business is registered for GST, some of what it sells has GST added and some does not. The ATO sorts sales into three kinds — taxable, GST-free and input-taxed.

Knowing which kind a sale is tells you two things: whether to add GST to the price, and whether you can claim back the GST on the purchases behind that sale.

In one line

Sales are either taxable (GST added), GST-free (no GST, but you can still claim credits), or input-taxed (no GST, and you generally can't claim credits).

Why this matters¶

If you charge GST on something that should be GST-free, you overcharge your customers. If you don't charge it on something taxable, you can end up owing the ATO out of your own pocket. Getting the category right keeps your prices and your BAS correct.

What you will learn¶

The three kinds of sales for GST
The difference between GST-free and input-taxed sales
Common examples of each kind

Understanding the concept¶

Taxable sales are the most common kind. GST applies, so you add GST to the price and send that GST to the ATO. You can also claim GST credits on the purchases you made to produce those sales. Most everyday goods and services are taxable sales.

GST-free sales have no GST added to the price. But — and this is the key point — you can still claim GST credits on the purchases relating to those sales. The ATO lists examples such as most basic food (like plain fruit, vegetables, meat, bread and plain milk), many health services, some education, and exports.

Input-taxed sales also have no GST added to the price. The difference is that you generally cannot claim GST credits on the purchases relating to those sales. The ATO gives two common examples: renting out residential premises (a home for someone to live in), and most financial supplies (such as lending money for a fee).

The practical difference is all about credits:

Taxable — you charge GST, and you can claim credits.
GST-free — you don't charge GST, but you can still claim credits.
Input-taxed — you don't charge GST, and you generally can't claim credits.

For accountants & bookkeepers

GST-free and input-taxed supplies both carry no output tax, but they differ on input tax credits: acquisitions that relate to GST-free supplies are creditable, while those relating to input-taxed supplies generally are not. This is why apportioning purchases between input-taxed and other supplies matters when completing the BAS.

Example¶

Priya's cafe mostly makes taxable sales — coffees and hot meals — so she adds GST to those prices and claims credits on her supplies. She also sells whole loaves of plain bread to take home. Plain bread is basic food, so that is a GST-free sale — no GST on the price, but Priya can still claim credits on the ingredients.

Across town, Jordan owns a house and rents it out to a family to live in. That rent is an input-taxed sale — Jordan does not add GST to the rent, and generally cannot claim GST credits on the costs of the rental, such as repairs. Same landlord, different rules, because the type of sale is different.

Common mistakes¶

Thinking GST-free and input-taxed are the same — the difference is whether you can claim credits on related purchases.
Adding GST to basic food or residential rent, which should not have GST.
Claiming GST credits on costs that relate to input-taxed sales, when you generally cannot.

How this works in myaccountant¶

In the app — when you record a sale or a purchase, myaccountant lets you set how GST applies to it, then uses that to work out the GST on your sales, the credits you can claim, and the figures for your BAS.

Key points¶

There are three kinds of sales for GST: taxable, GST-free and input-taxed.
Taxable sales have GST added, and you can claim credits.
GST-free sales have no GST, but you can still claim credits.
Input-taxed sales have no GST, and you generally can't claim credits.
Basic food and many health and education services are common GST-free sales.
Residential rent and most financial supplies are common input-taxed sales.

Learn next¶

General information only — not tax, super or financial advice.

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