Debitoor Dictionary

Accounting terms explained in a simple way

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  1. Sales
  2. VAT
  3. VAT registration

Goods and Services Tax (GST) - What is GST?

Goods and Services Tax (GST) is a tax applied by a business on the sale of particular products and/or services provided to customers

Invoicing and accounting software like Debitoor makes it easy to apply GST to your invoices and includes automatic calculations. Try it free for 7 days.

GST refers to sales tax applied by businesses on certain services and products. GST is also referred to as VAT in many countries. Both VAT and GST are applied in the same manner in sales.

GST or VAT

The only distinction between the two terms is the country in which they are used. In countries including Australia, New Zealand, Singapore, India, and others. VAT (Value-Added Tax) is the term used in the UK, Ireland, South Africa, and more.

The GST rate might differ depending on the country, or might be affected by the particular industry or the goods or services being sold, for example, India currently has five different GST rates. The standard GST rates for the countries mentioned above are as follows:

  • Australia: 10%
  • New Zealand: 15%
  • Singapore: 7%
  • India: 0%, 5%, 12%, 18%, 28%

However, there are some products and services that are considered GST-free.

To register or not to register for GST

In many countries, GST registration is not required unless your turnover exceeds a set amount within a year. In Australia, the 2018 amount is $75,000 gross (minus GST). There are also other stipulations that require GST registration, such as:

  • If you run a charitable organisation that has a turnover higher than $150,000 a year
  • You own and operate a taxi or limousine service where customers pay a fare
  • You wish to claim back tax and/or fuel credits

If your business does not fall into one of these categories, then in Australia, it is optional whether you choose to register your business under GST.

The choice of whether to register for GST depends on how much in your business you deal with GST charges and whether you wish to be able to claim this back when it comes time for tax filing.

GST free products and services

In most countries, there are certain goods and services that are considered exempt from GST charges - in other words, they are ‘GST-free’.

In Australia, the most commonly GST-free items include, for example:

  • Most food products
  • Qualifying educational courses
  • Qualifying childcare services
  • Sales occurring in duty-free shops
  • Qualifying religious and charitable services

The above is a short list of some of the products and services that can be considered GST-free. If you have any doubts about whether your business is dealing with GST-free products or services, please get in touch with your accounting professional.

How to add GST to invoices

When creating an invoice, it’s important that the correct GST rate is added for each item included in the invoice. If you work with GST-free products or services, the GST should not be included for those items in your invoices lines. However, GST should be applied to other items on the same invoice, if necessary.

If using Word or Excel invoice templates, it’s necessary to manually calculate the necessary GST amounts, or set up an equation (in Excel) to help with calculations. However, it’s important to update these for any items that have a different tax rate or are GST-free.

Today, there are thankfully alternatives to handling the amounts for different tax percentages manually, or for spending time researching whether you’ve set up the correct Excel equation in the correct spreadsheet cell. Online invoicing software can help you say goodbye to that tedious work.

GST and invoicing software

Invoicing and accounting software like Debitoor gives you the tools to easily include GST on your invoices. If you deal with products or services with different tax rates, these can be saved in your account, meaning there’s no need to update them for each new invoice.

In addition, GST amounts are calculated automatically on every invoice you create as soon as you add your product or service with a click from the drop down menu. It’s that easy.