Picking the right GST codes is one of the most challenging parts of doing your books. If you are registered for GST that is. If not, skip this post.
GST Codes
GST codes have a direct impact on your net GST position and hence your cashflow, so it is important to get this right. Unfortunately, getting it right is not always that easy.
Confusing
GST codes are confusing because our GST system is confusing. And each accounting system using different codes doesn’t help either.
Purpose
A GST code tells your accounting system whether a transaction includes GST and if yes, what to do with it.
You set a default GST code for each account but you can override this at any time for a particular transaction. So an account can include transactions with different GST codes.
Meaning
A GST codes means one of five things: A transaction is either included in your BAS statement or it isn’t.
And when it is included, it is either subject to GST or it isn’t. And for purchases with GST you either get a GST credit or you don’t. That’s all.
Accounting Software
What a GST code actually looks like depends on your accounting software. Each software tends to use its own codes, which doesn’t help. Here are two examples.
Xero uses: GST on Income – GST Free Income – GST on Expenses – GST on Capital – GST on Capital Imports – GST Free Expenses – GST Free Capital – Input Taxed – BAS Excluded
MYOB uses: NTR – GST – CAP – EXP – FRE – ITS – INP – GNR. And just in case you are wondering what that means: Not Reported – Subject to GST – Capital – Export – GST Free – Input-Taxed Sale – Input-Taxed Purchase – GST Not Registered
Sales
Giving your sales the right GST code is usually not difficult since most of your sales tend to have the same code.
GST on Income (G1): Sales in Australia unless GST-free, sale of business assets and company cars, rental income from commercial property, sale of commercial property unless sold as going concern.
When you sell a company car, the entire sale is subject to GST. Whether the sale price is above or below the car limit is not relevant.
Export Sales (G2): Sales from Australia to overseas
Other GST Free Sales (G3): GST-free sales in Australia, for example most basic food, health and child care services
Input-Taxed Sales (G4): Sale of shares and residential property (unless you trade), rental income from residential property (unless you trade), interest income
Purchases
This is where it gets tricky. Allocating GST codes to your purchases is the hardest part of your set up. Here is an overview, but please check your invoices and adjust where required.
Purchases With an Input Tax Credit (G10 and G11): Any purchase you make to generate sales subject to GST from a supplier registered for GST not making an input taxed supply will give you an input tax credit.
This includes gas, electricity, phone, merchant banking fees, office rent, workers compensation, contractors. Always with the caveat that the supplier must be registered for GST and charge GST for that supply.
Purchases Without GST in Price (G14): Whenever the supplier is not charging GST, you don’t receive an input tax credit.
Examples are ASIC fees, bank fees, land tax, overseas merchant fees, motor vehicle regisration, stamp duty, water, interest paid.
Not Included in BAS
Some things are not included in your BAS. Examples are dividends, superannuation, wages, sales from overseas to overseas.
Wages are not listed in your G10 and G11, but they are listed under W1 and W2 showing the ATO what PAYG you withheld from what wages. So nothing to do with GST.
Allocating the right GST codes to your accounts is one of the more difficult parts of doing your books. It is an area that requires a bit of time and attention, since mistakes can cost you a lot of money in missed GST credits.
Please email or call if you get stuck. We love to help.
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Disclaimer: Tax Talks does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 04 December 2020
