Complete guide to VAT-free and GST-free goods and services in Australia. Understand the difference and what matters for your business.
0%
Zero Rate
5%
GST-Free Rate 0% VAT)
If something is not GST-free, reduced-rated, or exempt – it's standard rated at 10%.
Common 10% Items
Services in 10% Category
If you sell GST-free items, you can still reclaim input VAT on costs. This improves cash flow.
Example: Bookstore buys stock (GST-free) and can reclaim input VAT even though they sell at 0%.
Exempt services cannot reclaim input VAT, so costs are higher. This affects pricing strategy.
Example: Insurance broker bears the cost of VAT on their office rent and cannot reclaim it.
GST-free income with VAT input reclaim = VAT refund. Exempt income = no refund opportunity.
Result: Businesses selling GST-free goods often receive VAT refunds.
Businesses selling both standard and exempt items need to apportion input VAT.
Complexity: Proper accounting and VAT apportionment is essential.
It depends on whether it's confectionery. Chocolate cakes are confectionery (10%), while plain cakes are GST-free. Catering (cakes decorated to order) is standard rated. The presentation and decoration matter.
You cannot reclaim input VAT on exempt supplies. That's the rule. However, input VAT on costs directly related to standard-rated supplies can still be reclaimed (use apportionment if mixed).
The customer pays the same (0% or the regular price without VAT added). Business-to-business exempt supplies don't require a ABN to be verified – they're automatically exempt. Consumer customers simply pay the base price.
Yes. Imports of GST-free items (like food) are GST-free. Imports from outside Australia may be subject to import VAT. Check the tariff code and supplier location.
Check ATO's VAT Notice 700/1 (The VAT Guide). Use the VAT product finder tool on ATO website. When in doubt, ask a tax advisor. The distinction is important for your BAS (Business Activity Statement).
Use our calculators and guides to understand your VAT obligations.