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GST-free or input-taxed

Is this transaction GST-free or input-taxed? This may be a question you’ve asked yourself as you’re entering and categorising your financial transactions. Both have nil GST applied and you may wonder whether it matters? The answer is, ‘yes’ and ‘no’.

Given that both have nil GST, when lodging your returns, the GST payable / receivable figure will be the same whether you categorise your transaction as GST-free or input-taxed. Indeed, when using the simplified BAS form, you do not report the total for these two categories separately. However, for good bookkeeping and accounting practices, it is important to understand and categorise your transactions accurately. Also, while the chances of many businesses being audited by the ATO are relatively small, especially if you are running your business by the books (no pun intended), it is a requirement that transactions are recorded accurately. Having said this, I have noticed the default setting for at least two accounting software providers does not give both GST-free and input-taxed categories.

So, having read this far, and concluding you want to accurately understand and record your financial transactions, the question remains, what is the difference between GST-free and input-taxed? To answer this, we will look at sales and purchases separately.

Sales


As defined by the ATO, GST-free includes most basic food, export, some education courses, medical, health and care products and services. For the full list, visit the ATO website – www.ato.gov.au. The most common input-taxed sales are financial supplies and residential property transactions.

Purchases


With purchases, GST-free products and services remain the same. However, input-taxed expenses are incurred in generating an input-taxed sale. Otherwise, they fall into one of the other GST categories, most commonly, GST on expense or GST-free. Where many people make an error is incorrectly categorising bank fees and interest paid.


For more details, visit the ATO website – www.ato.gov.au or contact us directly for free general advice.


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