Australian sole traders do not automatically charge GST simply because they have an ABN or operate a business. You should only add GST to your invoices if you are registered or required to be registered for GST.
Understanding the difference is important. Charging GST when you are not registered can create problems for both you and your clients.
What is GST?
Goods and Services Tax, or GST, is a tax of 10 per cent that applies to most goods and services sold or consumed in Australia.
A GST-registered business generally collects GST from customers and reports it to the Australian Taxation Office through a Business Activity Statement. The business may also be able to claim credits for GST paid on eligible business purchases.
When does a sole trader need to register for GST?
A sole trader is generally required to register for GST when their GST turnover reaches $75,000.
GST turnover is based on your gross business income, not your profit after expenses. You need to consider both your current turnover and your expected turnover.
If you expect your turnover to reach the threshold, do not wait until the end of the financial year to investigate your obligations. GST registration is not determined only by the amount shown in your previous tax return.
Can you register when earning less than $75,000?
Yes. A sole trader can generally register voluntarily even when turnover is below $75,000.
Voluntary registration may be useful when:
- Your clients prefer dealing with GST-registered suppliers
- You have significant business expenses containing GST
- You expect your turnover to exceed the threshold soon
- You want to establish your GST processes early
However, registration also creates additional responsibilities. You will generally need to charge GST on taxable sales, lodge Business Activity Statements and maintain suitable records.
How much GST should a sole trader charge?
GST is generally 10 per cent of the price before GST.
For example, if your service costs $1,000 before GST:
- Price before GST: $1,000
- GST: $100
- Total price: $1,100
If the total price already includes GST, divide the GST-inclusive amount by 11 to calculate the GST component. For a total of $1,100, the GST component is $100.
What should appear on a GST invoice?
If you are registered for GST, the document should generally be labelled Tax Invoice.
It should include:
- Your business name or personal name
- Your ABN
- The invoice issue date
- A description of the goods or services
- The amount payable
- A statement showing that GST is included
- The GST amount or enough information to calculate it
Additional information may be required for tax invoices of $1,000 or more. This generally includes enough information to identify the buyer or their ABN.
What if you are not registered for GST?
If you are not registered for GST, issue a standard invoice rather than a tax invoice.
You should:
- Use the title Invoice
- Include your ABN
- Show the total amount payable
- Avoid adding a GST amount
- Avoid stating that the total includes GST
You can include a note such as “GST not applicable” or “Not registered for GST” if you want to make the position clear to the client.
Does having an ABN mean you are registered for GST?
No. An ABN and GST registration are separate.
You can hold an ABN and operate as a sole trader without being registered for GST. Many freelancers and small sole traders begin this way while their turnover remains below the registration threshold.
Do not use your ABN as evidence that you can charge GST. Check your actual GST registration status through your Australian Business Register details or tax records.
Should your prices include GST?
When quoting Australian consumers, prices should generally be presented as the total amount they need to pay, including any applicable GST.
For business clients, quotes may show the amount before GST, the GST component and the total payable. Make the pricing basis clear before the client accepts the work.
Avoid surprising a client by adding GST at the invoice stage when the quote did not clearly explain that GST would be added.
What happens when you register partway through the year?
Once your registration takes effect, update your invoice settings and begin applying the correct GST treatment to relevant sales.
You should also review:
- Existing quotes and contracts
- Recurring invoices
- Your advertised prices
- Payment links
- Website pricing
- Your record-keeping process
Whether you can add GST to an existing agreed price may depend on the wording of the agreement. Check your contracts and obtain professional advice where necessary.
Keep your GST records accurate
Maintain copies of invoices, tax invoices, receipts and GST calculations. Accurate records will make it easier to prepare Business Activity Statements and provide information to your accountant or tax agent.
Invoicing software can help apply consistent GST calculations and prevent GST from being added when it should not be. However, you remain responsible for selecting the correct GST treatment.
GST circumstances can vary, particularly for overseas clients, mixed supplies and GST-free services. Speak with a registered tax agent or accountant when you are unsure how the rules apply to your business.
