What is GST?¶

GST stands for goods and services tax. It is a tax of 10% on most goods and services that are sold or used in Australia. When you buy something at a shop, the GST is usually already built into the price you pay.

GST is a tax on spending. Businesses that are registered for GST collect it from their customers and pass it on to the Australian Taxation Office (ATO). So the business is really collecting the tax on the ATO's behalf.

In one line

GST is a 10% tax on most goods and services. A registered business adds it to its sales, collects it from customers, and sends it to the ATO.

Why this matters¶

If your business is registered for GST, part of the money that comes in is not yours to keep — it is GST you are holding for the ATO. Understanding this helps you set your prices, put the right amount aside, and avoid a surprise when it is time to pay.

What you will learn¶

What GST is and the rate that applies
How a business collects GST and sends it to the ATO
What a GST credit is and how it reduces what you pay

Understanding the concept¶

GST is a broad-based tax, which means it applies to most goods and services, not just a few. The ATO explains that the rate is 10%. If a sale has GST on it, the GST is one-eleventh of the total price. For example, on a $110 sale that includes GST, the GST part is $10.

A business that is registered for GST adds GST to the price of the things it sells. It collects that GST from its customers. It does not keep this money — it sends it to the ATO.

At the same time, the business pays GST when it buys things for the business. The ATO lets a registered business claim back that GST. This is called a GST credit.

So when it is time to pay, the business works out two figures:

the GST it collected on its sales, and
the GST credits it can claim on its purchases.

The business sends the ATO the difference — the GST collected, less the GST credits. If the credits are bigger than the GST collected, the ATO pays a refund instead.

For accountants & bookkeepers

GST is remitted through the activity statement. GST on sales sits at label 1A and GST on purchases (credits) sits at label 1B; the net amount payable or refundable is the difference. Where a GST-inclusive price is known, the GST component is the price divided by 11.

Example¶

Priya runs a small cafe and is registered for GST. She sells a coffee for $5.50. Of that price, $5.00 is her income and $0.50 is GST that she is holding for the ATO.

During the quarter, Priya collects $2,000 of GST from all her sales. She also buys coffee beans, cups and a new grinder for the cafe, and the GST included in those purchases comes to $700. That $700 is her GST credit.

When Priya reports to the ATO, she sends the difference: $2,000 collected minus $700 in credits, so $1,300. The GST was never really her money — she simply collected it from customers and passed the net amount to the ATO.

Common mistakes¶

Treating collected GST as income — it is money you are holding for the ATO.
Forgetting to put GST aside, then being short when the payment is due.
Thinking you send the ATO all the GST you collected — you first subtract the GST credits you can claim on your purchases.

How this works in myaccountant¶

In the app — myaccountant keeps track of the GST on your sales and the GST on your purchases as you record them. It works out the GST you have collected, the GST credits you can claim, and the net amount, then prepares your BAS so the figures are ready to report to the ATO.

Key points¶

GST is a 10% tax on most goods and services sold in Australia.
When a sale includes GST, the GST is one-eleventh of the total price.
A registered business collects GST from customers on the ATO's behalf.
A GST credit is the GST a business can claim back on its own purchases.
The business sends the ATO the GST collected, less the GST credits it can claim.

Learn next¶

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

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