Not all sales attract GST. Australian GST law divides supplies into three categories: taxable, GST-free, and input-taxed. The distinction between GST-free and input-taxed is important because it affects whether you can claim input tax credits on the costs you incur to make those supplies.
The Three Categories at a Glance
| Type | GST charged on sale? | Can claim input tax credits? |
|---|---|---|
| Taxable supply | ✅ Yes (10%) | ✅ Yes |
| GST-free supply | ❌ No | ✅ Yes |
| Input-taxed supply | ❌ No | ❌ No |
The critical difference: with GST-free supplies you get the best of both worlds (no GST to charge, but still entitled to credits). With input-taxed supplies, you get neither — no GST on sales, and no input tax credits on related costs.
GST-Free Supplies
GST-free supplies are zero-rated — you charge 0% GST — but the supply is still “taxable” in a technical sense, which is why you can still claim input tax credits on related purchases.
Common GST-Free Items
Food:
- Most basic foods — fresh fruit and vegetables, meat, poultry, fish, dairy, eggs, bread, cereals
- Ingredients for cooking at home
- But not: hot food, restaurant meals, confectionery, soft drinks, savoury snacks, or food marketed as ready-to-eat
Health:
- Services provided by a medical practitioner (GP, specialist, surgeon)
- Most allied health services (physiotherapy, psychology, optometry, chiropractic — with conditions)
- Hospital accommodation
- Most medications listed on the Pharmaceutical Benefits Scheme (PBS)
Education:
- Primary and secondary education
- Higher education and vocational education and training (VET) courses
- But not: hobby classes or short non-accredited courses
Exports:
- Goods exported from Australia
- Certain services provided to non-residents (often zero-rated)
Other:
- Child care services
- Religious services by non-profit bodies
- Water, sewerage, and drainage services
Practical Impact of GST-Free Status
If you are a GP, for example, you do not charge GST on consultations. But you can still claim input tax credits on your practice expenses — rent, medical equipment, office supplies. The absence of GST on your income does not affect your credit entitlement on costs.
Input-Taxed Supplies
Input-taxed supplies sit outside the GST system entirely. You do not charge GST, but you also cannot claim input tax credits on expenses that relate to those supplies. This means the GST embedded in your business costs becomes a real expense, not a recoverable credit.
Common Input-Taxed Items
Financial Supplies:
- Lending money or providing credit (interest income)
- Dealing in shares or securities
- Providing a guarantee
- Many insurance products (though some are taxable — general insurance is taxable; life insurance is input-taxed)
- Bank fees charged by financial institutions
Residential Property:
- Selling an existing residential property (GST does not apply)
- Renting out a residential property (residential rent is input-taxed)
Note: Selling a new residential property is generally a taxable supply — GST applies to new house and apartment sales. Only subsequent sales of the same property are input-taxed.
Precious Metals:
- First supply of precious metals (gold, silver, platinum) in certain forms
Practical Impact of Input-Taxed Status
A residential landlord collects rent without GST. However, they also cannot claim input tax credits on property management fees, repairs, or other property costs. The GST on those expenses becomes part of the cost of owning the property (and may be deductible as a tax deduction — see Rental Property Deductions — but is not refundable via the BAS).
A bank that earns interest income faces a similar restriction — it cannot claim input tax credits on the costs of administering loans.
Mixed Supplies — Apportionment
Many businesses make a mix of taxable, GST-free, and input-taxed supplies. In those cases, input tax credits must be apportioned — you can only claim the credit for the portion of a purchase that relates to taxable or GST-free activities.
For example, a life insurance company might also sell general insurance (taxable). It must apportion its overhead costs between the two activities and claim credits only on the taxable portion.
Related Articles
- GST Australia Explained
- GST on Property Transactions
- When Do You Need to Register for GST?
- GST and Business Tax hub
Frequently Asked Questions
Is fresh bread GST-free? Yes — most bread sold as a grocery item is GST-free. Hot bread sold as ready-to-eat food (e.g., a warm bread roll from a café) is taxable.
I rent out a house and also run a consulting business from home. Do I get input tax credits on my home office costs? The rental activity is input-taxed, so costs purely related to rental income do not generate input tax credits. Costs related to your consulting business (a taxable activity) can generate credits. Shared costs (like internet) need to be apportioned.
Is private health insurance GST-free or input-taxed? Private health insurance (hospital cover, extras) is input-taxed. General insurance (car, home, landlord) is taxable — you pay GST on the premium and the insurer claims input tax credits on related costs.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent or BAS agent. Find one through the Tax Practitioners Board register.