GST for Small Business Australia: Complete 2025 Guide

Published January 2025 • 14 min read

The Goods and Services Tax (GST) is one of the most important—and often confusing—aspects of running a small business in Australia. Whether you're a sole trader just starting out, a growing small business approaching the registration threshold, or an established company looking to optimise your GST processes, understanding how GST works is essential for compliance and profitability.

This comprehensive guide covers everything Australian small business owners need to know about GST in 2025, from registration requirements and thresholds to claiming credits and avoiding common mistakes that trigger ATO audits.

What is GST and How Does It Work?

GST is a broad-based 10% tax on most goods, services, and other items sold or consumed in Australia. It's a value-added tax, meaning it's collected at each stage of the supply chain but ultimately paid by the final consumer.

Here's how the GST cycle works for a typical small business:

1. You collect GST - When you sell goods or services, you add 10% GST to your prices (unless the item is GST-free or input-taxed)
2. You pay GST - When you purchase business supplies, you pay GST to your suppliers
3. You report to the ATO - On your Business Activity Statement (BAS), you report the GST you collected minus the GST you paid
4. You remit the difference - If you collected more than you paid, you pay the ATO. If you paid more than you collected, you receive a refund

GST Registration: When Is It Required?

Mandatory Registration Thresholds

How GST Turnover Is Calculated

Your GST turnover includes:

• All sales of goods and services (even GST-free ones)
• Government grants and subsidies related to your business
• Insurance payouts for lost stock or income
• Export income

Your GST turnover does not include:

• Input-taxed sales (like residential rent)
• Sales of capital assets (like selling your business vehicle)
• Personal income unrelated to the business

Projected vs Current Turnover

The ATO considers two types of turnover:

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

If either exceeds the threshold, you must register. This means if you land a big contract that will push your projected annual turnover over $75,000, you need to register before you actually hit that number.

Voluntary GST Registration: Pros and Cons

Even if your turnover is below $75,000, you can choose to register voluntarily. Here's when it makes sense:

Advantages of Voluntary Registration

• Claim GST credits - Recover GST on all business purchases, reducing your costs by up to 9.09%
• Business credibility - Some larger clients prefer dealing with GST-registered businesses
• Fuel tax credits - Only available to GST-registered businesses
• Smoother transition - Easier than scrambling to register when you hit the threshold

Disadvantages of Voluntary Registration

• Price increase - You must add 10% GST to your prices, potentially making you less competitive
• Administrative burden - Quarterly (or monthly) BAS lodgments required
• Record-keeping requirements - Must keep proper tax invoices for all claims
• Cash flow impact - You may collect GST before it's due, but you must manage this money responsibly

Proposed Threshold Increase to $250,000

The Australian Government has proposed increasing the GST registration threshold from $75,000 to $250,000, planned to take effect on July 1, 2025. This change aims to:

• Reduce administrative burden for micro-businesses
• Allow more small businesses to focus on growth rather than compliance
• Align Australia more closely with international thresholds

If passed, this would exempt many more small businesses from mandatory GST registration. However, the change is not yet confirmed—check the ATO website for the latest updates.

Understanding BAS Lodgment

Reporting Frequencies

What's Reported on Your BAS

Your BAS includes several components:

• G1: Total sales (including GST-free and export sales)
• G2: Export sales
• G3: Other GST-free sales
• G10: Capital purchases
• G11: Non-capital purchases
• 1A: GST on sales (GST collected)
• 1B: GST on purchases (GST credits claimed)

Reporting Methods

Small businesses can choose from different GST accounting methods:

• Full reporting: Report actual figures in all GST labels
• Simpler BAS: Only report G1, 1A, and 1B (most small businesses use this)
• Instalment method: Pay a set amount each quarter based on previous year (for eligible businesses)

Claiming GST Credits (Input Tax Credits)

GST credits are one of the main benefits of registration. You can claim back the GST you pay on business purchases, effectively reducing your costs.

Requirements for Claiming GST Credits

To claim a GST credit, you must:

1. Be registered for GST
2. Have purchased the item for business use
3. Have a valid tax invoice for purchases over $82.50 (including GST)
4. Not be claiming for input-taxed supplies

What You Can and Cannot Claim

Apportioning Mixed-Use Purchases

If something is used partly for business and partly for personal use, you can only claim the business portion. For example, if your mobile phone is 70% business use, you can claim 70% of the GST on the purchase and plan.

GST Categories: Taxable, GST-Free, and Input-Taxed

Taxable Supplies (10% GST)

Most goods and services in Australia are taxable at 10%. This includes retail goods, professional services, hospitality, and most business transactions.

GST-Free Supplies (0% GST)

Some items are specifically exempted from GST:

• Basic food items (fresh fruit, vegetables, meat, bread, milk)
• Medical and health services
• Education courses leading to qualifications
• Childcare services
• Exports
• Some government charges

You don't charge GST on these, but you can still claim GST credits on related business expenses.

Input-Taxed Supplies (Special Category)

These supplies are GST-free, but you cannot claim GST credits on related purchases:

• Residential rent
• Most financial services (bank fees, loans)
• Sale of existing residential premises

Common GST Mistakes and How to Avoid Them

1. Missing the Registration Deadline

The Mistake: Failing to register within 21 days of exceeding the threshold.

The Consequence: The ATO can backdate your registration by up to 4 years, requiring you to pay GST on all past sales—plus penalties and interest.

Prevention: Monitor your rolling 12-month turnover monthly, not just at financial year end.

2. Claiming GST on GST-Free Purchases

The Mistake: Claiming GST credits on basic food, medical services, or other GST-free items.

The Consequence: ATO audits, repayment of incorrectly claimed credits, and potential penalties.

Prevention: Check invoices carefully—if there's no GST amount shown, don't claim a credit.

3. Missing or Invalid Tax Invoices

The Mistake: Claiming credits without proper documentation.

The Consequence: Disallowed claims during audits, requiring repayment plus penalties.

Prevention: Collect and file tax invoices immediately. For purchases under $82.50, you don't need a formal tax invoice but should keep receipts.

4. Late BAS Lodgment

The Mistake: Missing the lodgment deadline, even if you owe nothing.

The Consequence: Failure to lodge penalties of $330 per 28-day period, up to $1,650.

Prevention: Set calendar reminders. Lodge on time even if you need to estimate—you can revise later.

5. Not Separating GST in Pricing

The Mistake: Advertising prices as "$100" when you're GST registered, then adding GST at checkout.

The Consequence: Customer complaints and potential ACCC issues for misleading pricing.

Prevention: Always display GST-inclusive prices to consumers. For B2B, you can show "ex GST" with a clear note.

GST Record-Keeping Requirements

The ATO requires you to keep GST records for 5 years. Essential records include:

GST and Invoicing Best Practices

Your invoices must include specific information to be valid tax invoices:

Required Elements for Tax Invoices

• Your business name and ABN
• Date of issue
• Description of items sold
• Quantity and price of each item
• GST amount (can show as "Total includes GST of $X")
• Total price including GST
• For invoices over $1,000: buyer's identity or ABN

Special GST Situations

Importing Goods

GST is payable on most imported goods. If you're registered for GST and importing for business, you can claim the GST paid at customs as a credit on your BAS (under the Deferred GST Scheme).

Exporting Goods

Exports are GST-free. You don't charge GST on goods sold overseas, but you can still claim GST credits on your business expenses related to those exports.

Second-Hand Goods

When buying second-hand goods from unregistered sellers (like at markets), you can claim a notional GST credit of 1/11th of the purchase price if you're buying for resale.

Cash vs Accrual Accounting

Small businesses (under $10 million turnover) can choose:

• Cash basis: Report GST when you receive/make payment
• Accrual basis: Report GST when you issue/receive invoices

Cash basis is often simpler and helps with cash flow management.

Getting Help with GST

If GST feels overwhelming, you're not alone. Here are your options:

• ATO Resources: Free guides, calculators, and webinars at ato.gov.au
• BAS Agent: Licensed professionals who can prepare and lodge your BAS
• Accountant: For complex situations or if you're also dealing with income tax planning
• Bookkeeper: For ongoing GST data entry and reconciliation

Conclusion

GST doesn't have to be complicated. The key principles are straightforward: register when required, charge 10% on taxable sales, keep good records, claim legitimate credits, and lodge your BAS on time. By understanding these fundamentals and avoiding common mistakes, you can stay compliant while minimising your tax burden.

Remember to monitor your turnover regularly, especially as you approach the $75,000 threshold. And if the proposed increase to $250,000 passes, many small businesses will have one less compliance obligation to worry about.

When in doubt, consult a BAS agent or accountant. The cost of professional advice is far less than the penalties and interest from getting it wrong.

Sources & Further Reading

• ATO - Registering for GST
• ATO - Claiming GST Credits
• Business.gov.au - Register for GST
• Small Business GST Threshold Guide
• GST and Small Business: 2025 Guide