Understanding GST for Service-Based Businesses
Service-based businesses—including consultants, freelancers, contractors, accountants, lawyers, designers, IT professionals, and coaches—have unique GST considerations compared to product-based businesses. Unlike retail where GST is embedded in shelf prices, service providers must navigate complex invoicing, international clients, and expense allocation.
This comprehensive guide covers everything service professionals need to know about GST compliance, from registration thresholds to invoicing requirements, international service rules, and maximizing GST credits on business expenses.
Quick GST Facts for Service Businesses
- Australia: Register when annual service revenue reaches $75,000
- New Zealand: Register when annual turnover reaches $60,000
- Tax Invoices: Required for all sales > $82.50 (AUS) or $50 (NZ)
- Payment Terms: GST payable when you issue invoice (not when paid)
- International Clients: Different rules apply for overseas service delivery
1. When Service Businesses Must Register for GST
Calculating Service Revenue for GST Threshold
For service businesses, turnover includes all fees and charges from:
- Consulting fees (hourly, project-based, retainer)
- Professional service fees (accounting, legal, medical)
- Freelance income (writing, design, photography, coding)
- Coaching and training fees
- Commissions and referral fees
- Late payment fees and interest charged to clients
- Reimbursable expenses (if marked up or included in fee)
What NOT to Include in Turnover
- GST itself (calculate turnover GST-exclusive)
- Reimbursable expenses passed through at cost (no markup)
- Grants and government subsidies (usually not taxable)
- Interest earned on business bank accounts (input-taxed)
Voluntary Registration for Service Providers
Even if your revenue is below the threshold, registering for GST can benefit service businesses:
| Benefit | How It Helps Service Providers |
|---|---|
| Claim GST Credits | Reclaim GST on software subscriptions (Adobe, Microsoft 365), coworking spaces, laptops, professional development, advertising |
| Professional Image | ABN and GST registration signal credibility to corporate clients and government agencies |
| B2B Clients Expect It | Many businesses prefer GST-registered suppliers to claim input tax credits |
| Government Contracts | Some government tenders require GST registration |
| Competitive Advantage | GST-registered consultants can offer better net pricing to GST-registered clients |
When NOT to Register Voluntarily
Consider staying unregistered if:
- Your clients are primarily consumers (individuals, not businesses) who can't claim GST credits
- Your expenses are minimal (< 20% of revenue) so input tax credits are low
- You operate in price-sensitive markets where adding 10-15% GST reduces competitiveness
- You want to minimize administrative burden (BAS reporting, record-keeping)
2. GST on Different Types of Services
Standard Services (10% GST in Australia, 15% in NZ)
Most services are subject to GST if the service provider is registered:
- Professional Services: Accounting, legal, financial planning, architecture, engineering
- Consulting: Business consulting, management consulting, HR consulting, IT consulting
- Creative Services: Graphic design, web design, copywriting, photography, videography
- Technical Services: Software development, IT support, network administration, cybersecurity
- Coaching & Training: Business coaching, life coaching, corporate training, workshops
- Marketing Services: SEO, social media management, advertising, PR, content marketing
- Trades & Maintenance: Plumbing, electrical, carpentry, cleaning, gardening
GST-Free Services (0% GST)
Some services are GST-free (you don't charge GST, but can still claim credits on expenses):
| Service Type | Conditions | Example |
|---|---|---|
| Health Services | Provided by registered health practitioners (doctors, dentists, physiotherapists) | Medical consultation, dental treatment, psychology services |
| Medical Services | Services covered by Medicare (Australia) or funded health services (NZ) | GP visits, specialist consultations, allied health |
| Education Services | Provided by eligible educational institutions or certain courses | University courses, TAFE, registered training organizations (RTOs) |
| Childcare Services | Registered childcare providers | Long day care, family day care, outside school hours care |
| Aged Care Services | Residential and home care services | Nursing homes, home care packages |
| Religious Services | Provided by religious institutions | Weddings, funerals, pastoral care |
| Charitable Services | Provided by endorsed charities | Food relief, counseling by charities |
GST-Free vs Exempt: Key Difference
GST-Free (0% GST): You don't charge GST to clients, but you CAN claim GST credits on business expenses.
Input-Taxed (Exempt): You don't charge GST, and you CANNOT claim GST credits on related expenses (e.g., financial services, residential rent).
Input-Taxed Services (No GST, No Credits)
Some services are input-taxed (no GST charged, and you can't claim credits on expenses):
- Financial Services: Lending money, credit provision, financial advice (some exceptions)
- Residential Rent: Providing residential accommodation (not commercial rent)
3. Invoicing Services with GST
Tax Invoice Requirements
If you're GST-registered, you must issue a tax invoice for sales over:
- Australia: $82.50 (including GST)
- New Zealand: $50 (including GST)
A valid tax invoice must include:
Tax Invoice Checklist
- ✅ The words "Tax Invoice" clearly displayed
- ✅ Your business name and ABN (Australia) or GST number (New Zealand)
- ✅ Invoice date
- ✅ Description of services provided
- ✅ Quantity (e.g., hours worked, project deliverables)
- ✅ Price charged (GST-exclusive or inclusive, clearly labeled)
- ✅ GST amount shown separately OR statement "Total price includes GST"
- ✅ Total amount payable
- ✅ Buyer's name (required for invoices > $1,000)
Sample Tax Invoice for Services
TAX INVOICEFrom:ABC Consulting Pty Ltd ABN: 12 345 678 901 Level 5, 123 Business St, Sydney NSW 2000 Email: info@abcconsulting.com.auTo:XYZ Corporation Pty Ltd ABN: 98 765 432 109Invoice Number: INV-2026-001Invoice Date: 15 January 2026Due Date: 14 February 2026 (30 days)Description of Services:1. Business Strategy Consulting (20 hours @ $150/hr) $3,000.00 2. Market Research Report $1,500.00 3. Workshop Facilitation (2 days @ $1,200/day) $2,400.00Subtotal: $6,900.00GST (10%): $690.00TOTAL: $7,590.00Payment Terms: Net 30 daysPayment Methods: Bank transfer to BSB 123-456, Account 12345678This is a tax invoice for GST purposes.
GST-Inclusive vs GST-Exclusive Pricing
For B2B (Business-to-Business) Services
When working with business clients, you can quote prices either way, but must clearly state which:
- GST-Exclusive: "$1,000 + GST" (client pays $1,100 total)
- GST-Inclusive: "$1,100 (incl. GST)" (client pays $1,100 total)
Most B2B services use GST-exclusive pricing because business clients can claim the GST back, so they focus on the base price.
For B2C (Business-to-Consumer) Services
When working with individual consumers (not businesses), Australian law requires:
- Prices must be GST-inclusive
- Example: Advertise "$110 consultation fee" (not "$100 + GST")
- Invoices can show GST breakdown, but advertised price must include GST
Recurring Service Invoicing
For ongoing retainer clients or subscription services:
Monthly Retainer Example
Monthly Retainer Invoice - January 2026Service: Marketing Consulting Retainer Period: 1 January 2026 - 31 January 2026 Monthly Retainer Fee: $5,000.00 GST (10%): $500.00 Total Due: $5,500.00Recurring monthly - Auto-debit on 1st of each month
GST Timing for Retainers
- Non-cash basis (default): GST payable when invoice is issued (even if client hasn't paid yet)
- Cash basis (optional): GST payable when you receive payment (available if turnover < $10M)
4. International Services and GST
Providing Services to Overseas Clients
The GST treatment of services provided to international clients depends on where the service is performedand where the client is located:
| Scenario | GST Treatment | Example |
|---|---|---|
| Service performed in Australia, Australian client | Charge 10% GST | Consulting meeting in Sydney office with Sydney client |
| Service performed in Australia, overseas client (not in Australia when consumed) | GST-free (0%) if exported | Software development done in Melbourne for US client |
| Service performed overseas, Australian client | Generally no GST (outside Australia) | Consulting work performed in London for Australian company |
| Online services to overseas consumer | GST-free (0%) | Web design services for Canadian small business |
| Online services to Australian consumer | Charge 10% GST | Online coaching for Australian client |
Determining if a Service is an "Export" (GST-Free)
A service is generally GST-free as an export if:
- The client is outside Australia when the service is performed
- The service is not consumed in Australia
- The service is not directly connected with goods or real property in Australia
Common Export Service Examples
- ✅ Software development for US company (code delivered electronically)
- ✅ Graphic design for UK business (files sent via email)
- ✅ Online consulting for Singapore client (Zoom meetings)
- ✅ Copywriting for Canadian website
- ❌ Property valuation of Sydney building for overseas investor (connected to Australian property - charge GST)
- ❌ Legal advice about Australian law for US client (Australian law nexus - charge GST)
Receiving Services from Overseas Providers (Reverse Charge)
If you're GST-registered and purchase services from overseas providers who are not registered for Australian GST:
Reverse Charge Mechanism
You may need to account for GST using the reverse charge rules:
- Calculate GST on the service value (even though supplier didn't charge GST)
- Include this GST in both Label 1A (GST on sales) and Label 1B (GST on purchases) on your BAS
- Net effect: Usually zero (you "pay" and "claim" the same GST amount)
Example: You hire a US web developer for $1,000 USD (~$1,500 AUD) On your BAS: - Label 1A (GST on sales): Add $150 (reverse charge GST) - Label 1B (GST on purchases): Add $150 (input tax credit) - Net GST effect: $0 Purpose: Prevents competitive advantage for overseas suppliers
5. Maximizing GST Credits on Service Business Expenses
Common Claimable Expenses for Service Providers
| Expense Category | Examples | GST Claimable? |
|---|---|---|
| Software & Subscriptions | Adobe Creative Cloud, Microsoft 365, Slack, Zoom, Dropbox, Canva Pro, QuickBooks | ✅ Yes (10% of subscription fee) |
| Office Equipment | Laptops, monitors, desks, chairs, printers, phones | ✅ Yes (10% of purchase price) |
| Workspace | Coworking membership (WeWork, Spaces), home office expenses (if 100% business use) | ✅ Yes (commercial); ❌ No (residential rent is input-taxed) |
| Marketing & Advertising | Google Ads, Facebook/Instagram Ads, LinkedIn Ads, website hosting, SEO services | ✅ Yes |
| Professional Development | Conferences, courses, certifications, books, industry memberships | ✅ Yes |
| Travel | Client meetings, conferences, accommodation, flights, meals (business-related) | ✅ Yes (must be business travel, keep detailed records) |
| Professional Services | Accountant fees, lawyer fees, business coach, insurance | ✅ Yes |
| Telecommunications | Mobile phone plans, internet, VoIP services | ✅ Yes (business portion only) |
| Stationery & Supplies | Pens, notebooks, printing, business cards | ✅ Yes |
| Bank Fees | Business account fees, merchant fees, PayPal/Stripe fees | ❌ Generally no (financial services are input-taxed) BUT payment processing fees like Stripe/PayPal include GST |
Home Office Expense GST Claims
If you work from home, you can claim GST on home office expenses using one of these methods:
Method 1: Dedicated Home Office (Full GST Claim)
- If you have a room used exclusively for business (100% business use)
- Claim full GST on office furniture, equipment, commercial-grade internet
- Cannot claim GST on residential rent (input-taxed)
Method 2: Shared Space (Partial GST Claim)
- Calculate business-use percentage (e.g., 40% of room used for business)
- Claim GST proportionally on shared expenses (internet, electricity, phone)
- Keep a logbook to substantiate business use
Method 3: ATO Shortcut Method (80 cents/hour)
- Claim 80 cents per hour worked from home (no GST involved)
- Simpler but cannot claim individual expense GST credits
Motor Vehicle Expenses
If you use a car for business (client meetings, travel between job sites):
Logbook Method (Recommended for GST Claims)
- Keep a logbook for 12 continuous weeks to establish business-use percentage
- Claim GST on fuel, repairs, insurance, registration (proportional to business use)
- Example: 60% business use = claim 60% of GST on car expenses
Cents Per Kilometer Method (No GST)
- Claim 85 cents/km (up to 5,000 km/year)
- Simpler but cannot claim GST on car expenses
6. Service Business GST Scenarios
Scenario 1: Freelance Graphic Designer (Turnover $60k)
Should Emma register for GST?
Situation: Emma is a freelance graphic designer earning $60,000/year. Her main expenses are Adobe Creative Cloud ($80/month), laptop ($2,000/year), coworking space ($300/month), and client coffees ($50/month).
Analysis:
- Turnover $60k < $75k threshold → Not required to register
- Annual GST claimable: Adobe ($96), laptop ($200), coworking ($360), coffees ($60) = $716/year
- Admin time: ~2 hours/quarter for BAS = 8 hours/year
Recommendation: Don't register yet. Annual GST benefit ($716) doesn't justify admin burden. Register when approaching $75k or if targeting B2B clients who prefer GST-registered suppliers.
Scenario 2: IT Consultant (Turnover $150k)
How does James manage GST with international clients?
Situation: James is an IT consultant earning $150,000/year. 60% of revenue comes from Australian corporate clients ($90k), 40% from US tech companies ($60k). Major expenses: laptop ($3k), software subscriptions ($5k/year), coworking ($6k/year), professional development ($4k/year).
Analysis:
- Turnover $150k > $75k → Must register for GST
- Australian clients (60%): Charge $90k + $9k GST = $99k total
- US clients (40%): Zero-rated exports, charge $60k (no GST)
- GST on expenses: $1,800 ($18k expenses × 10%)
- Net GST payable: $9,000 - $1,800 = $7,200/year
Invoicing Strategy:
- Australian invoices: "$X,XXX + GST" (GST-exclusive pricing for B2B)
- US invoices: "$X,XXX (no GST - exported service)" with note explaining zero-rating
Scenario 3: Business Coach (Mixed B2B and B2C)
How does Sarah price for different client types?
Situation: Sarah is a business coach earning $100,000/year. She works with both individual clients (40% of revenue, B2C) and corporate clients (60% of revenue, B2B).
Pricing Strategy:
- Individual Clients (B2C): "$550 per session (incl. GST)" - must use GST-inclusive pricing by law
- Corporate Clients (B2B): "$500 per session + GST" or "$550 (incl. GST)" - either works, but GST-exclusive preferred
GST Calculation:
Total Revenue: $100,000 (GST-exclusive) GST Collected: $10,000 Business Expenses: $20,000 GST on Expenses: $2,000 Net GST Payable: $10,000 - $2,000 = $8,000/year Quarterly BAS: $2,000
7. Service Business GST Checklist
Monthly Service Business GST Tasks
- ☐ Issue tax invoices for all services provided > $82.50 (AUS) or $50 (NZ)
- ☐ Track all client payments and match to invoices
- ☐ Collect tax invoices for all business expenses
- ☐ Code expenses as GST-claimable or non-claimable in accounting software
- ☐ Separate international client revenue (zero-rated exports)
- ☐ Track reimbursable expenses separately (if passed through at cost)
- ☐ Review turnover to check if approaching $75k threshold
- ☐ Back up all records (cloud storage recommended)
Quarterly BAS Tasks
- ☐ Calculate total fees charged (GST-exclusive) - Label G1
- ☐ Calculate GST on sales: G1 ÷ 11 (Australia) - Label 1A
- ☐ Calculate GST on purchases from tax invoices - Label 1B
- ☐ Lodge BAS by deadline (28th of month following quarter-end)
- ☐ Pay GST liability or receive refund
- ☐ Review and reconcile any discrepancies
Annual Review
- ☐ Review total turnover - still above/below threshold?
- ☐ Assess if voluntary registration still beneficial
- ☐ Update pricing strategy for new financial year
- ☐ Review and update tax invoice templates
- ☐ Professional accountant review (recommended)
8. Recommended Tools for Service Businesses
Invoicing Software with GST
| Software | Pricing | Best For | Key Features |
|---|---|---|---|
| Xero | From $35/month | Growing service businesses | Automatic GST calculation, BAS preparation, bank feeds, expense tracking, invoicing |
| QuickBooks Online | From $20/month | Small service providers | GST tracking, invoicing, time tracking, project management |
| MYOB | From $30/month | Australian businesses (strong local support) | BAS lodgment, payroll, invoicing, inventory (if needed) |
| FreshBooks | From $19 USD/month | Freelancers, solo consultants | Simple invoicing, time tracking, expense management, GST reports |
| Wave | Free (paid add-ons) | Bootstrapped freelancers | Free invoicing and accounting, GST-compliant, receipt scanning |
Time Tracking with GST Integration
- Harvest: Time tracking + invoicing with GST (from $12/user/month)
- Toggl Track: Time tracking, integrates with QuickBooks/Xero (from $10/user/month)
- Clockify: Free time tracking, export to accounting software