GST is a flat 10% you collect from customers and pass to the ATO, claiming back the GST on your own purchases. Simple in theory — but for tradies there are traps the generic explainer skips: when you actually have to register, the residential-property quoting trap, and how a progress claim hits your BAS before you have been paid. Here is the lot.
When you have to register — the $75,000 threshold
You must register once your GST turnover reaches $75,000 over any rolling 12-month period — current or projected ($150,000 for non-profits). Key points tradies get wrong:
- Turnover is total business income, not profit — and it is the full invoiced amount including materials, not just your labour margin. A chippy turning over $90k, of which $40k is materials, is well over the threshold.
- Side gigs under the same ABN aggregate into the one turnover figure.
- Current vs projected: register if this month plus the previous 11 hits $75k, OR this month plus the next 11 is likely to. A new business that reasonably expects $75k in year one registers up front.
- You have 21 days to register once you are required to.
Failure to register bites. The ATO can back-date your registration to the day you crossed the threshold and assess GST at 1/11th of your sales from that date — even though you never added GST to those invoices, so you wear it out of money already spent. You can claim credits back from the backdated date, but you also cop penalties and interest. Watch the threshold.
How the 10% works
- On a sale, GST is 1/11th of the GST-inclusive price — a $1,100 invoice contains $100 of GST.
- On a purchase, you claim the GST back (an input tax credit) where you hold a valid tax invoice.
- You remit the difference — GST collected minus GST credits — on your BAS.
Tax invoices — and the RCTI trap
For a sale of $1,000 or more, a valid tax invoice must show: the words "Tax invoice"; your business name + ABN; the date; a brief description; the GST amount (per line or total) or the statement "Total price includes GST"; which lines are taxable/GST-free; and the buyer's identity or ABN (required at $1,000+). Under $1,000 the buyer ID is not required. You must issue a tax invoice within 28 days of a customer asking. Use the Tax Invoice template.
RCTIs (recipient-created tax invoices): on some jobs the customer issues the invoice, not you — common where a big contractor pays subbies on measured work. That is only allowed if both parties are GST-registered and there is a written RCTI agreement, and the document says "Recipient Created Tax Invoice" with both ABNs. If a head contractor "self-bills" you, that is an RCTI — make sure the agreement exists and you are not also issuing your own.
The construction quoting trap (residential property)
This is the one that catches tradies. Your labour and materials are almost always fully taxable at 10% — even on residential property where the owner's own position is "input-taxed".
- Existing residential premises: the owner's rent/sale is input-taxed (no GST on the rent, no credits on costs).
- New residential and commercial property: normally taxable (10%), unless the margin scheme applies.
- None of that changes your invoice. Renovating a rental, a new build, or a commercial fit-out — your quote is 10% GST. If an owner tells you "it is residential, so no GST", that is about their supply, not yours. Always quote "including GST" or "plus GST" so there is no argument later.
(Developer-side detail you may hear about but that does not change how you charge: buyers of new residential premises often withhold GST at settlement, and developers may use the margin scheme to calculate GST on the margin rather than 1/11th of the full price. That is the developer's problem — you still charge 10%.)
Cash vs accrual — which suits a tradie
- Cash: you account for GST when the money actually moves.
- Accrual: you account for GST when you issue the invoice or get paid, whichever is first.
The construction difference is real. Issue a $22,000 progress claim ($20,000 + $2,000 GST) in June, paid in August: on accruals you owe that $2,000 in your June BAS — before the client has paid you; on cash you do not report it until August, when you are actually paid. With long payment terms and retention, cash basis usually suits small tradies so you are not funding GST out of your own pocket. You can choose either under $10M turnover; above $10M you must use accrual.
Your BAS (simplified)
Under $10M turnover you can use the simplified BAS — three GST labels: G1 total sales (incl GST), 1A GST on sales, 1B GST on purchases. Net GST = 1A minus 1B. Same labels on cash or accrual; only the timing changes. See BAS Explained.
Common mistakes
- Spending the GST — it is not your money. Set aside 1/11th of every payment (the PAYG & GST Tracker does it).
- The "it is residential, so no GST" trap — your work is 10% regardless.
- Testing the threshold on labour only — it is the full invoiced amount, materials included.
- Claiming credits with no tax invoice, or on the private-use portion.
- Being self-billed (RCTI) with no agreement in place.
- Going accrual on long payment terms and funding GST before you are paid.
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