Topic: GST 101: a beginner’s guide for Australian small businesses

Last reviewed: 17/12/2025

Focus: Accounting Practice Analysis

GST 101: Beginner’s Guide for Australian Small Business (2025)

GST (Goods and Services Tax) is a 10% value-added tax that Australian small businesses must register for (in most cases) once GST turnover reaches $75,000, then correctly charge on taxable sales, claim credits on eligible business purchases, and report/pay to the ATO via a BAS. In practice, GST compliance is less about “adding 10%” and more about getting classifications right (taxable vs GST-free vs input taxed), issuing compliant tax invoices, reconciling GST control accounts to the BAS, and keeping records that satisfy ATO requirements.

Featured Answer: GST is a 10% tax on most goods and services sold in Australia, and a small business generally must register when GST turnover is $75,000 or more. Once registered, the business charges GST on taxable sales, claims GST credits on eligible purchases, and reports the net amount to the ATO in the Business Activity Statement (BAS).

What is GST in Australia (and who is it really collected by)?

GST is a 10% tax governed by the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and administered by the Australian Taxation Office (ATO). It is established that GST is collected by registered businesses on behalf of the government, then remitted through BAS reporting.

Output tax collected on taxable sales (GST you charge customers)
Input tax credits on creditable acquisitions (GST you pay on business purchases, where eligible)
Net GST payable/refundable reported on the BAS

ATO guidance on GST basics, registration, taxable sales and credits (ATO website)
GST Act 1999 (primary legislation)
ATO rulings and determinations where classification is complex (for example, mixed supplies, vouchers, digital products, property and leasing)

When do you need to register for GST (and what is “GST turnover”)?

You generally must register for GST if your GST turnover is $75,000 or more (or $150,000 or more for non-profit organisations). This threshold is based on GST turnover, not accounting profit.

Current GST turnover: turnover for the current month plus the previous 11 months
Projected GST turnover: turnover for the current month plus the next 11 months

Turnover test: It is about gross business income (excluding GST), not net profit.
Includes GST-free sales: GST-free sales can still count toward the turnover threshold even though GST is not charged.
Excludes input taxed supplies: Many input taxed supplies are not included in GST turnover in the same way (care is required; this is an area where classification matters).
Voluntary registration: You may register below the threshold, but doing so creates BAS obligations and record-keeping requirements.

A sole trader consultant invoices $6,800/month (ex GST). Annualised, that is $81,600. Registration should be considered immediately, because projected GST turnover is likely to exceed $75,000.

How do you charge GST correctly on your invoices?

You must charge GST on taxable supplies when registered (or required to be registered), unless an exception applies. For most standard business-to-customer sales in Australia, GST applies at 10%.

Pricing display: If you advertise prices to consumers, it is generally expected they are GST-inclusive (subject to specific rules and contexts).
Tax invoice requirements: For GST-registered businesses claiming credits, a valid tax invoice is usually required for purchases above the ATO’s threshold (commonly $82.50 including GST). The ATO sets the specific invoice content requirements.
Correct GST treatment by product/service: The supply must be classified as:

You sell services for $2,200 including GST.
GST component is $200.
Revenue (ex GST) is $2,000.

What’s the difference between taxable, GST-free and input taxed?

The difference is decisive because it determines whether you charge GST and whether you can claim GST credits. Misclassification is one of the most common causes of BAS adjustments in ATO reviews.

Taxable supplies: GST applies at 10%; you remit GST; you can generally claim input tax credits on related purchases.
GST-free supplies: GST is not charged; you can generally still claim input tax credits on related purchases (subject to normal creditable acquisition rules).
Input taxed supplies: GST is not charged; you generally cannot claim input tax credits on related purchases.

GST-free often includes certain basic food, certain health and education supplies, and exports (specific conditions apply under the GST Act and ATO guidance).
Input taxed often includes certain financial supplies and residential rent (classification depends on facts and legislative definitions).

A small business landlord leasing residential property typically treats rent as input taxed. If they purchase services relating to that input taxed activity, GST credits are generally not available. Incorrectly claiming credits is a frequent adjustment item.

You are registered (or required to be registered) for GST
The purchase is for a creditable purpose (i.e., for your business, not private)
The supply to you was taxable (the supplier charged GST)
You have valid evidence, typically a tax invoice where required
You have “paid” or are “liable to pay” under the GST attribution rules (the timing depends on your accounting basis)

If the expense is 100% business and taxable, you usually claim 1/11th of the GST-inclusive price as a credit.
If the expense is partly private, you must apportion and only claim the business portion.

You buy a laptop for $1,650 including GST, used 80% for business.
GST included is $150 (1/11th of $1,650).
Claimable GST credit is $150 × 80% = $120.

Which BAS reporting cycle should you use (monthly, quarterly, or annually)?

Your BAS cycle is determined by ATO rules, your turnover, and sometimes by ATO direction. Many small businesses report quarterly, while larger businesses commonly report monthly.

Cash flow impact (paying GST monthly can reduce BAS shocks)
Administrative capacity and systems quality
Accuracy and timeliness of reconciliations

It should be noted that selecting a GST accounting method (cash vs accrual) can materially affect when GST is reported and claimed, and the ATO has specific eligibility conditions and rules for changing methods.

What are the most common GST mistakes the ATO reviews in small businesses?

The ATO’s compliance programs routinely focus on BAS integrity, misclassification, and poor substantiation. The mistakes below are repeatedly observed in practice.

Claiming GST credits without valid tax invoices (where required)
Treating GST-free or input taxed sales as taxable (or vice versa)
Private use not adjusted (motor vehicle, phone, home office, meals/entertainment)
GST claimed on expenses that do not have GST (bank fees, many loan-related charges, certain government charges, wages)
Double-counting GST due to coding errors (especially where apps and bank rules are used without review)
Incorrectly reporting GST on deposits, progress payments, and invoice timing (especially when cash vs accrual is misunderstood)
Not reconciling GST collected/paid to the BAS labels before lodgment

How should you keep GST records to satisfy the ATO?

You must keep records that substantiate BAS amounts, including sales and purchase documentation. The ATO’s record-keeping guidance sets expectations around retaining invoices, receipts, and other evidence.

How you calculated GST on sales (including invoice/tax invoice integrity)
How you calculated GST credits (including tax invoices and apportionments)
That amounts reported on the BAS are supported by underlying ledgers and reconciliations

Maintain a GST control account and reconcile it each BAS period
Retain tax invoices in a consistent system (cloud storage or practice platform)
Document GST classification decisions for non-standard items (so you can defend treatment in a review)
Perform BAS-to-ledger tie-outs before lodgment

How do you reconcile GST and BAS properly (what accountants actually do)?

A correct BAS is the result of reconciliation, not data entry. In a professional workflow, the BAS is validated against the ledger, bank activity, and supporting documents.

Confirm sales figures align to the correct period and GST classification.
Review the GST collected (output tax) for reasonableness against turnover.
Review GST credits (input tax) for tax invoices, apportionments, and non-creditable items.
Reconcile the GST control account movements to BAS labels.
Validate adjustments (fuel tax credits, PAYG withheld, PAYG instalments, and other BAS components where applicable).
Document key judgments and retain evidence.

This is precisely where automation has the largest impact: the faster the data is classified correctly, the sooner reconciliation becomes a review process rather than a rebuild.

How does AI accounting software help with GST compliance and BAS reconciliation in Australia?

AI accounting software Australia is increasingly used to reduce coding errors, speed up reconciliations, and standardise GST treatment across many clients. The key benefit is consistent categorisation and repeatable mapping rules, which directly improves BAS accuracy.

Faster transaction classification
Fewer exceptions requiring senior review
Cleaner GST control accounts
More reliable BAS reconciliation

MyLedger: Automated bank reconciliation with AI-powered reconciliation and GST enforcement, typically reducing reconciliation from 3–4 hours to 10–15 minutes per client (around 90% faster).
Traditional tools: Often require manual review and coding, with BAS reconciliation taking materially longer, particularly across multiple clients.

If your pain point is “how to automate bank reconciliation” while improving GST coding integrity, the highest ROI is typically achieved by standardising charts, applying mapping rules, and using AI suggestions as a first pass—then reconciling exceptions.

What practical GST examples should small businesses understand first?

Small businesses should first master the “everyday” GST situations that drive most BAS outcomes: standard sales, mixed-use expenses, and classification.

Café or retailer: Most sales taxable; purchases largely creditable; errors often occur with staff meals, private drawings, and mixed-use vehicle costs.
Consultant or tradie: Sales taxable; common issues include deposits/progress claims, contractor vs employee confusion (not GST directly, but impacts record quality), and private use adjustments.
Health/education provider: Supplies may be GST-free depending on facts; classification is critical and should be supported by written rationale based on the GST Act and ATO guidance.
Property-related business: Input taxed vs taxable treatment can be complex; professional advice should be obtained where property sales, commercial leasing, or short-stay accommodation is involved.

How do you get started with GST registration and your first BAS?

A correct start prevents years of clean-up work. Once registered, your GST setup must align with your invoicing, bank feeds, and bookkeeping process.

Confirm whether you are required to register based on GST turnover and business projections (per ATO guidance).
Register for GST and select an appropriate reporting cycle and accounting method (cash or accrual), ensuring eligibility requirements are met.
Set up a chart of accounts that clearly separates:
Configure GST codes for common transactions and document any non-standard classifications.
Implement a BAS reconciliation routine and keep evidence ready for ATO review.

How Fedix Can Help (Next Steps)

Fedix helps Australian accounting practices and small businesses move from manual coding to reliable, repeatable BAS outcomes by automating the workflow from bank statement to reconciled numbers.

Learn how MyLedger by Fedix supports automated bank reconciliation, GST enforcement, and practice-standard mapping rules for consistent BAS coding.
Standardise your GST treatments and reduce clean-up work at quarter-end, particularly if you manage multiple entities or many clients.
Review your current process for bottlenecks (3–4 hours per client reconciliation is common) and evaluate whether MyLedger’s 10–15 minute reconciliation workflow is achievable in your environment.

Automated bank reconciliation best practices for BAS season
GST coding controls and GST control account reconciliation procedures for Australian practices
Division 7A and year-end working papers automation (practice workflow)

Conclusion

GST compliance for Australian small businesses is fundamentally a system-and-process discipline: correct classification, correct evidence, correct timing, and proper BAS reconciliation. According to ATO guidance and the GST Act 1999, you must register when turnover thresholds are met, charge GST correctly on taxable sales, claim only eligible GST credits, and retain records that substantiate BAS labels. In modern practice, the most reliable path to fewer GST errors and faster BAS lodgment is consistent coding supported by automation and disciplined reconciliations.

Frequently Asked Questions

Q: When do I need to register for GST in Australia?

You generally must register when your GST turnover is $75,000 or more (or $150,000 or more for non-profits), based on current or projected turnover tests described in ATO guidance. Voluntary registration is possible below the threshold, but BAS obligations then apply.

Q: Do I always add 10% GST to my prices?

No. You charge 10% GST only on taxable supplies when registered (or required to be registered). Some supplies are GST-free (0% GST) or input taxed (no GST charged and credits generally not available), depending on the GST Act definitions and ATO guidance.

Q: Can I claim GST credits on every business expense?

No. GST credits generally require that the supplier charged GST, the purchase is for a creditable purpose, and you hold valid evidence (usually a tax invoice where required). Expenses with private use must be apportioned, and input taxed activities can restrict credits.

Q: What is the difference between cash and accrual GST accounting?

Cash (where eligible) generally attributes GST when you receive or make payments, while accrual attributes GST when invoices are issued/received (subject to the GST rules). The selection affects BAS timing and should be aligned to your systems and cash flow profile.

Q: What records does the ATO expect for GST and BAS?

ATO record-keeping guidance expects you to retain invoices, receipts, and documentation that supports your BAS calculations, including tax invoices where required and working papers showing GST reconciliation. You should be able to explain classifications and substantiate reported figures.

Disclaimer: This article provides general information for the 2025–2026 Australian tax context and does not constitute legal or tax advice. GST outcomes depend on specific facts and the application of the GST Act 1999 and ATO guidance. Professional advice should be obtained for complex classifications (including property, financial supplies, and mixed supplies).