Spoke · Pillar: BAS / GST Compliance

Standard 10%. Division 38 GST-free. Division 40 input-taxed.

Three GST classifications. The difference between them drives every BAS line. Get the classification right per transaction and BAS prep is straightforward; get it wrong and the error compounds across thousands of lines.

Why this lives on XIntelliSync, not on a textbook accounting site

Division 38 GST-free vs Division 40 input-taxed is the borderline-classification trap that catches half of mixed-supply SMBs. Restaurant + takeaway, gym + supplements, real estate + financial supplies — every one has a GST classification cliff that XIntelliSync's automated-gst-calculation agent flags at transaction-time. The agent doesn't make the call for you (interpretation stays your bookkeeper's), but it surfaces the mixed-supply exposure before it compounds into a BAS error 90 days later. The article below is the classification framework with worked mixed-supply examples.

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Quick answer

Division 38 GST-free supplies (basic food, medical, education, exports, childcare): NO GST charged AND GST credits on inputs ARE claimable. Division 40 input-taxed supplies (residential rent, financial supplies, insurance premiums): NO GST charged BUT GST credits on inputs are NOT claimable. Everything else: standard 10% GST. Mixed-supply businesses must apportion input credits between taxable and input-taxed activity.

The three classifications

Standard. GST-free. Input-taxed. Same outcome on the invoice; different impact on credits.

Standard taxable supply

10% GST

Charged on customer invoice

YES — 10% GST charged on the customer invoice

Credits claimable on inputs

YES — GST credits claimable on related business expenses

Examples: Most goods and services — restaurant meals, consulting, retail goods (non-basic-food), software subscriptions to AU customers, vehicle hire, accommodation.

Division 38 GST-free supply

0% GST

Charged on customer invoice

NO — no GST charged on the customer invoice

Credits claimable on inputs

YES — GST credits claimable on related business expenses

Examples: Basic food (bread, milk, fresh fruit/veg, plain meat), medical services (Division 38-7), education courses (Division 38-85), exports (Division 38 export rules), approved childcare (Division 38-145).

Division 40 input-taxed supply

0% GST

Charged on customer invoice

NO — no GST charged on the customer invoice

Credits claimable on inputs

NO — GST credits NOT claimable on related business expenses

Examples: Residential rent (Division 40-35), financial supplies (Division 40-5: lending, insurance premiums, bank fees), second-hand digital currency. Mixed-supply businesses must apportion input credits.

Worked examples

Five real scenarios. Five different classifications.

How the classifications interact in practice — including mixed-supply transactions where multiple classifications apply on the same invoice.

Hospitality (Restaurant)

Scenario: Restaurant sells a $40 meal consumed on-premises + a $5 takeaway loaf of bread.

Classification: Restaurant meal: STANDARD 10% taxable ($4 GST collected). Bread loaf qualifies as basic food per Division 38 Schedule 2: GST-FREE ($0 GST). Two classifications on one transaction line.

Healthcare (Allied Health)

Scenario: Physio practice charges $120 for a session paid by Medicare bulk-bill + $80 for an ergonomic cushion.

Classification: Medical service: GST-FREE under Division 38-7 ($0 GST). Cushion sale: STANDARD 10% taxable ($8 GST collected). Mixed supply — apportion input credits per Division 17.

Real Estate (Mixed Property Manager)

Scenario: Property manager collects $2,000 commercial rent + $3,000 residential rent + charges $500 management fee.

Classification: Commercial rent: STANDARD 10% taxable ($200 GST collected). Residential rent: INPUT-TAXED under Division 40-35 ($0 GST, no credits on related expenses). Management fee: STANDARD 10% taxable ($50 GST collected). Apportion input credits between taxable and input-taxed activity.

Digital / Tech (SaaS Exporter)

Scenario: SaaS company sells $5,000 subscription to AU customer + $5,000 subscription to UK customer.

Classification: AU sale: STANDARD 10% taxable ($500 GST collected). UK sale: GST-FREE under Division 38 export rules — service consumed outside Australia ($0 GST). GST credits on AWS hosting, dev salaries, etc. fully claimable.

Finance (Insurance Broker)

Scenario: Broker arranges $10,000 general insurance premium for a client + earns $1,500 brokerage commission.

Classification: Insurance premium itself: INPUT-TAXED under Division 40-5 (financial supply) — premium does not include GST charged by the broker. Brokerage commission: STANDARD 10% taxable ($150 GST collected). Input credits on broker office expenses must be apportioned per Division 11-15 financial-supplies methodology.

External GST guidance + lodgement portals

Where to verify classifications. Where to lodge BAS.

When in doubt about a specific transaction classification, the ATO is the authoritative source. Once classifications are confirmed and BAS prepared, lodge externally at one of these official portals:

ATO GST guidance — ato.gov.au/business/gst

Authoritative source for GST classification rules, Division 38 / Division 40 references, and current public rulings.

ATO GST-free sales reference

Detailed guidance on Division 38 GST-free supplies — basic food list (Schedule 2), medical, education, exports, childcare. Official source of truth for boundary cases (e.g., basic vs processed food).

A New Tax System (Goods and Services Tax) Act 1999 — austlii.edu.au

The actual legislation. Division 38 GST-free supplies and Division 40 input-taxed supplies are statutory categories. Cite the legislation in disputed classifications.

ATO Business Portal — bp.ato.gov.au

Lodge prepared BAS once GST classifications are confirmed. Requires myGovID + RAM access.

All 22+ industries served

GST classification + Division 38/40 treatment by industry.

The most-relevant GST classification feature for every industry XIntelliSync serves.

  • Construction

    TPAR mandatory — building & construction industry must report contractor payments annually by 28 August. GST on supplies, GST credits on materials. Progress claim invoicing creates BAS timing complexity.

  • Healthcare

    Many medical services GST-free under Division 38-7 (medical services) and Division 38-10 (other health). Allied health may be partially GST-free. Pharmacy mixed — most prescription medicines GST-free, retail products taxable.

  • Hospitality

    Restaurant meals consumed on-premises taxable at 10% GST. Takeaway food may be GST-free if it qualifies as basic food per Division 38. Liquor always taxable. Tip pooling does not affect GST.

  • Retail

    Most retail goods 10% GST taxable. Basic food items (bread, milk, fresh fruit/veg, plain meat) GST-free under Division 38 Schedule 2. Mixed baskets require per-line classification — software with up-to-date ATO classification codes is essential.

  • Consulting / Professional Services

    Most consulting services 10% GST taxable. Exports of services may be GST-free under Division 38. Sub-contracted work to other GST-registered consultants — GST on supplier invoice claimable as input credit. TPAR may apply for cleaning/IT/security services.

  • Digital / Tech

    Software licences and SaaS subscriptions to AU customers: 10% GST. Exports to overseas customers: typically GST-free under Division 38 export rules. TPAR mandatory for IT services to other businesses. Stripe/payment-processor fees include GST claimable as input credit.

  • Finance

    Most financial supplies INPUT-TAXED under Division 40 — no GST charged on supply, no GST credits claimable on related expenses. Fee-based services (advisory, brokerage) often taxable at 10% GST. Mixed-supply businesses must apportion input credits.

  • Legal

    Legal services 10% GST taxable. Trust account holdings are NOT consideration for supply — no GST until earned/billed. Disbursements (court filing fees, expert reports) may be GST-free or taxable per ATO rulings. Expense recoveries treated per the Goods and Services Tax Ruling GSTR 2000/37.

  • Childcare

    Childcare services GST-free under Division 38-145 if approved-services or registered-carer. CCS subsidy reconciliation creates BAS timing complexity. Materials and supplies (10% GST) claimable as input credits.

  • Education

    Most education courses GST-free under Division 38-85 (education courses) when delivered by registered training organisations or approved tertiary providers. Course materials may be partially taxable. International student fees typically GST-free under Division 38 export rules.

  • Manufacturing

    Manufacturing supplies generally 10% GST taxable. Exports GST-free under Division 38. Raw materials with GST claimable as input credits. Capital purchases (machinery, vehicles) GST claimable in the period acquired. Quarterly BAS most common; monthly required if turnover exceeds $20M.

  • Transport

    Road freight services 10% GST taxable. International freight (export and import legs) typically GST-free under Division 38. Fuel tax credits available — separate claim through BAS. TPAR mandatory for road freight services to businesses.

  • Mining

    Mining production 10% GST taxable; exports GST-free. Substantial fuel tax credits, R&D tax incentive offsets, and capital allowances flow through BAS. Native title and royalty payments have specific GST treatment per ATO mining-industry rulings.

  • Agriculture

    Most fresh food (bread, milk, fruit, vegetables, meat) GST-free under Division 38 Schedule 2. Processed/packaged food typically taxable. Fuel tax credits available for off-road farm machinery. Livestock sales GST-free between primary producers.

  • Fitness

    Fitness services 10% GST taxable. Membership fees GST applies. Equipment retail (apparel, supplements) taxable. Personal-trainer commissions to contractors may trigger TPAR if industry-wide reporting becomes mandatory.

  • Non-profit

    Charitable not-for-profits with GST registration: most fundraising events GST-free under Division 38 if non-commercial test passes. Gifts and donations not consideration — no GST. Government grants may or may not be consideration depending on conditions. NDIS supports GST-free under Division 38-38.

  • Events

    Event ticket sales 10% GST taxable. Bundled packages (ticket + food + accommodation) require apportionment per ATO events-industry guidance. Sponsorship income generally taxable. Door-takings reconciliation drives BAS-period accuracy.

  • Creative

    Creative services to AU clients 10% GST taxable. International commissions GST-free under Division 38 export rules. Royalty income taxable. TPAR may apply for security/courier/cleaning sub-contractors used in production.

  • Marketing

    Marketing services 10% GST taxable. Media spend pass-through (Google Ads, Meta Ads) — GST treatment depends on whether you re-bill or just facilitate. Overseas service exports GST-free under Division 38.

  • Human Resources

    HR consulting and recruitment services 10% GST taxable. Placement fee payments are taxable supplies. Background-check pass-through costs require apportionment if charged at-cost vs marked-up.

  • Insurance

    General insurance premiums INPUT-TAXED under Division 40 — no GST on the premium portion, but the policy holder may claim a decreasing adjustment. Life insurance premiums GST-free. Brokerage and intermediary services taxable at 10% GST.

  • Real Estate

    Residential rent INPUT-TAXED under Division 40 — no GST charged, no GST credits on related expenses. Commercial property rent generally 10% GST taxable. Sale of new residential premises taxable; existing residential GST-free under Division 38. Property management fees 10% GST taxable.

GST classification. Questions answered.

What's the difference between GST-free and input-taxed?+
GST-free (Division 38) supplies have NO GST charged AND you CAN claim GST credits on related expenses. Input-taxed (Division 40) supplies have NO GST charged BUT you canNOT claim GST credits on related expenses. The practical impact: GST-free is favourable to businesses (no GST burden, full credits); input-taxed is unfavourable (no GST burden, but trapped GST cost on inputs). Most basic food, medical, and education supplies are GST-free. Most residential rent and financial supplies are input-taxed.
How do I classify a transaction at point of sale?+
Three steps: (1) Identify what is being supplied — is it goods, services, or a combination? (2) Check Division 38 — is it explicitly GST-free under any of the categories (basic food, medical, education, exports, childcare, water/sewerage, religious services, donor-funded gifts)? (3) Check Division 40 — is it explicitly input-taxed (residential rent, financial supplies, second-hand digital currency)? If neither Division 38 nor Division 40 applies, it is a STANDARD 10% taxable supply. For mixed supplies (e.g., a basket containing both basic food and processed food), apportion line-by-line at point of sale.
What counts as basic food under Division 38 Schedule 2?+
Schedule 2 of the GST Act lists specific basic-food items as GST-free. Examples: bread, plain rolls, plain biscuits, butter, cheese, eggs, fresh fruit, fresh vegetables, plain meat, plain seafood, plain rice, plain pasta, plain milk (full-fat / skim / lactose-free), plain water. Excluded (taxable): processed food (chips, crisps, ice cream, prepared meals), confectionery, biscuits with chocolate or filling, savoury snacks, drinks with added sugar/flavour. The line between basic and processed is detailed in ATO public rulings — when in doubt, check ato.gov.au/business/gst/when-to-charge-gst-(and-when-not-to)/gst-free-sales/.
How do I apportion input credits for a mixed-supply business?+
If your business makes both taxable supplies AND input-taxed supplies (e.g., property manager handling both commercial and residential rent), you must apportion input credits. The ATO accepts several apportionment methodologies: revenue-based (proportion of taxable revenue to total revenue), floor-area-based (for property businesses), or direct-attribution (where an expense is exclusively for one supply type). Apply consistently and document the methodology. For financial supplies specifically, Division 11-15 sets the reduced-input-tax-credit (RITC) rules — financial supply businesses can claim 75% of GST credits on certain "reduced credit acquisitions" (e.g., processing services, debt collection).
Are exports always GST-free?+
Generally yes, but with conditions. Goods exported within 60 days of payment (or invoice if earlier) are GST-free under Division 38-185. Services consumed outside Australia by a non-resident are GST-free under Division 38-190 (export of services). For digital products and services to non-residents, the test is whether the recipient is outside Australia — for B2C digital exports to consumers in Australia, GST applies under the digital products / Netflix tax rules (effective 1 July 2017). Always document the export evidence (shipping documents, customer address, payment source).
What about second-hand goods?+
Second-hand goods purchased from non-GST-registered sellers and on-sold by a GST-registered business attract a "global accounting" margin scheme treatment under Division 66. The GST is calculated on the margin (sale price minus purchase price) rather than the full sale price. This applies commonly to dealer-sold second-hand vehicles, art, and collectibles. The GST classification per transaction depends on whether the seller and buyer are both GST-registered.
How does XIntelliSync classify each transaction?+
XIntelliSync's GST Calculation agent applies ATO classification logic against every transaction at point of entry. For supplier invoices: it checks the supplier's ABN against ABN Lookup to verify GST registration, applies the correct tax code to the line, and flags any classification ambiguity for manual review. For sales: it checks each item against the Division 38 GST-free schedule (basic food list, medical services list, education list), against Division 40 input-taxed list, and defaults to standard 10% if neither applies. XGVS verification gates run on every BAS preparation to cross-reference each classification against ATO code tables.

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