No. If you’re registered for GST, the GST you collect from customers isn’t included in your taxable income.
Say you invoice a client $1,100 including GST. For income tax purposes, the sale is $1,000 — the other $100 is GST you’ve collected to pass on to the ATO through your BAS.
The same principle applies to expenses. If you’re entitled to claim a GST credit on a purchase, you generally claim the GST-exclusive amount as your income tax deduction.
This article contains general information only and isn’t personal tax advice. Every business is different, so speak with a registered tax agent or BAS agent about your specific situation.
Key takeaways
- GST is excluded from assessable income for any business registered or required to be registered for GST — you declare the GST-exclusive sale price, not the GST-inclusive one.
- The same exclusion applies to deductions. GST credits claimed on a business purchase are subtracted before the deduction is worked out, so the GST component isn’t claimed twice.
- GST collected isn’t business income — it’s held on the ATO’s behalf and reported through the BAS, separately from your income tax return.
- A business below the GST registration threshold generally doesn’t charge GST at all, so there’s no GST component to exclude in the first place.
- Turnover tests are separate from taxable income. They commonly use GST-exclusive amounts, but the exact definition depends on the test, so don’t assume a BAS total is the right turnover figure.
- The BAS and the income tax return can report different totals for the same sales. The BAS method and labels determine how GST is shown; the income tax return uses GST-exclusive figures.
On this page
- The short answer
- Why GST isn’t treated as income
- How GST-registered businesses report income
- The same exclusion applies to your deductions
- BAS figures vs tax return figures
- How to reconcile your BAS and P&L
- The cash flow trap: spending GST you’ve collected
- If you’re not registered for GST
- Does GST affect PAYG instalments?
- A worked example
- Getting help
The short answer
Taxable income is worked out from assessable income minus allowable deductions, and GST never enters either side of that equation for a GST-registered business. When GST is payable on a sale, the ATO’s guidance on what to include in assessable business income is explicit that the GST component is excluded from the income you declare. The same logic runs in reverse for purchases: where a GST credit can be claimed, that credit is excluded from the deduction. Our what is taxable income guide covers the full assessable-income-minus-deductions formula this sits inside.
Why GST isn’t treated as income
GST is a tax the business collects from its customers on the ATO’s behalf, not money the business has earned. A $1,100 GST-inclusive sale is really a $1,000 sale plus $100 the business is temporarily holding before passing it on through the BAS. Our GST explained guide covers how that collection-and-remittance cycle works in more detail — the short version is that GST only ever passes through a registered business, it doesn’t add to what the business has actually earned.
That’s why GST is left out of taxable income. Including it would overstate your income and, ultimately, your tax bill.
How GST-registered businesses report income
If you’re registered or required to be registered for GST, you exclude the GST component from your assessable income when calculating what to declare on your tax return. This applies whether you use the cash or accruals method for GST reporting — the accounting method affects when the transaction is reported, not whether the GST portion of it is stripped out.
| What’s recorded | Where it’s reported | GST included? |
|---|---|---|
| Sale price charged to the customer | Invoice, receipt | Yes — this is the GST-inclusive amount |
| GST component of that sale | BAS (GST section) | Used to calculate the GST reported |
| Assessable income from that sale | Income tax return | No — the GST-exclusive amount only |
In practice, this usually happens automatically if your accounting software is set up correctly. GST-registered Xero, MYOB or QuickBooks files generally record sales net of GST in the profit and loss, with the GST component tracked separately in a GST liability account.
Software helps, but it isn’t a guarantee. GST-inclusive prices entered against the wrong tax rate code, or transactions coded as GST-free when they shouldn’t be, can still overstate income without anyone noticing until the figures are reviewed.
The same exclusion applies to your deductions
The exclusion runs both ways. If a business is entitled to claim a GST credit on a purchase, the deduction claimed for income tax purposes excludes that GST component too. A $2,200 GST-inclusive piece of equipment, where the full $200 GST credit can be claimed, produces a $2,000 deduction — not $2,200.
This matters because claiming the GST-inclusive amount as a deduction while also claiming the GST credit on the same purchase effectively claims the GST twice: once as a BAS credit, and once inside the tax deduction.
There are exceptions, though. You might only be entitled to part of the GST credit, particularly where a purchase has some private use. So don’t assume every expense can simply be divided by 1.1 and treated that way for both GST and income tax.
BAS figures vs tax return figures
Business owners comparing the two forms side by side sometimes assume a mismatch means something’s been recorded wrong. Often it hasn’t. The BAS and the tax return measure different things, and the BAS can use either GST-inclusive or GST-exclusive reporting for relevant labels. Our BAS explained guide covers what the BAS itself is actually reporting, alongside the GST component.
How to reconcile your BAS and P&L
If the sales figure on your BAS doesn’t match your profit and loss report, don’t assume something is wrong straight away. First, make sure you’re comparing the figures on the same basis.
Your P&L will normally show sales excluding GST. Depending on how the BAS has been prepared, the sales figure you’re looking at may be GST-inclusive. That alone can explain part of the difference.
If the numbers still don’t make sense, we usually work through a few common causes:
- sales coded as GST-free or out of scope when they shouldn’t have been;
- GST-inclusive amounts posted directly to an income account;
- refunds or credit notes falling into a different reporting period; and
- cash-basis GST reporting shifting unpaid invoices into a later BAS period.
Private-use adjustments and expenses where only part of the GST can be claimed can create differences too.
The goal isn’t to force your BAS and P&L to show exactly the same number. They don’t always need to. What matters is being able to explain the difference and trace it back to the underlying transactions.
The cash flow trap: spending GST you’ve collected
One situation that comes up fairly often with newer GST-registered businesses is treating the GST sitting in the bank account as available cash. The money’s physically there after a sale settles, but the GST portion needs to be accounted for and paid to the ATO through the BAS.
A business that spends down to its bank balance without setting the GST portion aside can end up short when the BAS is due, even though nothing was recorded incorrectly. That doesn’t make the cash-flow problem disappear. GST needs to be kept separate in the bank account too, not just on paper.
If you’re not registered for GST
A business below the GST registration threshold generally isn’t required to register, and if it isn’t registered, it shouldn’t be charging GST on its sales at all. In that case, there’s no GST component to exclude from assessable income — the full sale price is the assessable amount, because no GST was ever charged on top of it.
This starts to matter when a business approaches the registration threshold. A sole trader who’s been treating their full invoice amounts as income won’t need to change that treatment until they actually register for GST — at which point the GST exclusion starts applying to sales made from the registration date.
Does GST affect PAYG instalments?
PAYG instalments are based on instalment income, which is a GST-exclusive figure — broadly your gross business and investment income, before deductions, but still excluding GST. Since GST isn’t counted as income, it doesn’t get added into the instalment income calculation and then subtracted out again. If instalment income and tax payable both cross the relevant thresholds, instalments are calculated on that GST-exclusive figure.
A worked example
On the BAS, the $1,000 GST is used in calculating the GST reported and, depending on GST credits for the same period, remitted to the ATO. The BAS may show the underlying sales on a GST-inclusive or GST-exclusive basis, depending on the method selected. On the tax return, only the $10,000 GST-exclusive amount is included in assessable income. If the business also buys $2,200 (GST-inclusive) of stock for that job and claims the full $200 GST credit, the deduction claimed is $2,000, not $2,200 — the GST component is excluded on both sides.
Getting help
Keeping GST and income tax properly separated usually comes down to how transactions are coded when they’re entered, not something that needs fixing at tax time. Getting the GST tax-rate coding right on every sale and purchase as it happens helps keep your BAS and tax return accurate, without GST getting mixed into your income tax figures.
If you’d like help setting this up correctly or reviewing whether it’s already being done right, our BAS services cover GST registration, coding and reporting, and our tax accountant service can confirm your income tax figures are excluding GST properly before lodgment.
Not sure your GST and income figures are lining up correctly?
We’ll check your BAS and tax return figures are treating GST consistently.
Official resources
Frequently asked questions
Is GST part of my business's income for tax purposes?
No. If you're registered or required to be registered for GST, the GST component of a sale is excluded from your assessable income. You report the GST-exclusive amount, because the GST portion was always the ATO's money, collected on its behalf rather than earned by the business.
Do I pay income tax on the GST I collect?
No. GST collected from customers is a liability owed to the ATO, not business income, so it doesn't get taxed as income. It's reported and remitted separately through the BAS. Treating GST collected as available cash, rather than money already earmarked for the ATO, is one of the more common cash flow mistakes small businesses make.
If I'm not registered for GST, does this still apply to me?
If you're not registered for GST, you generally shouldn't be charging it in the first place, so there's no GST component to strip out — your full sale price is simply assessable income, as-is. This question usually only becomes relevant once turnover approaches the GST registration threshold.
Does the same GST exclusion apply to my deductions?
Yes. If you're entitled to claim a GST credit on a business purchase, you also exclude the GST component from the deduction you claim for income tax purposes. Claiming the full GST-inclusive amount as a deduction while also claiming the GST credit on the same purchase would effectively double up the GST portion.
Why do my BAS figures and my tax return figures look different for the same sales?
The BAS can report sales and purchases on either a GST-inclusive or GST-exclusive basis, depending on the method selected and the labels being completed. Your income tax return reports the GST-exclusive value, because GST isn't part of your income. Seeing different totals across the two isn't necessarily an error — it reflects what each form is actually measuring.
Does GST affect which tax bracket or company tax rate I fall into?
Not directly. GST is excluded before your taxable income is calculated, so the taxable income figure your tax rate is applied to has never included a GST component to begin with. Turnover tests are separate calculations and commonly use GST-exclusive amounts, although the exact definition depends on the test — check the relevant ATO guidance rather than assuming a BAS total is the right figure.
What if I use the cash accounting method for GST — does that change anything?
No. Whether you report GST on a cash or accruals basis affects when a transaction is picked up on your BAS, not whether the GST component is excluded from assessable income. The exclusion applies either way — only the timing of the GST reporting itself changes.
Can I get this wrong without realising it?
Yes, and it happens more often in DIY bookkeeping files than people expect — usually from recording GST-inclusive sale prices as income without splitting out the GST component first. Reconciling your sales and expense accounts against your BAS figures each period is the most reliable way to catch it before it flows through to your tax return.
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