The Goods and Services Tax (GST) is an unavoidable part of doing business in Australia. But the good news is that businesses purchasing supplies or needed services can claim tax credits for GST paid by submitting their tax invoices.
In this article, we’ll cover what a tax invoice is and how to write a tax invoice. We’ll also answer some of the most common questions around them. Let’s get started!
What is a tax invoice?
A tax invoice is a specific type of invoice that sellers of goods and services in Australia will need to provide to certain customers. These invoices indicate the amount of Goods and Services Tax (GST) on a purchase and are used to claim a tax credit.
Sellers must issue a tax invoice on request for any purchase over $82.50 (including GST) within 28 days of the request. That invoice needs to contain enough information to meet several requirements, which we’ll outline below.
Why are tax invoices necessary?
The simplest reason is that they’re required by law. If a customer requests a tax invoice, you must provide one within 28 days.
Tax invoices are also required to claim credit for GST paid on purchases. Since GST is 10% of the purchase price of an item, it can add up to a rather large amount. As such, you’ll definitely want to claim credit for any GST you pay on supplies.
Finally, they provide a convenient extra paper trail for large purchases. Additional copies of invoices or receipts can be useful in the event of a fire, flood or other disasters.
Tax invoices vs. receipts: What’s the difference?
While they might seem very similar on the surface — and often, they are — tax invoices and receipts aren't the same.
Invoices and receipts share some similarities: they’re both created by sellers and given to buyers (or customers). Both show items for purchase.
The two primarily differ in purpose. An invoice is intended to be a request for payment and includes the price and quantity of items, along with other information.
A receipt is proof of purchase. It indicates that a payment was made and finalised. Receipts can list items, quantities, prices, and more — often the same information included on an invoice.
What are the requirements for tax invoices?
There are seven pieces of information that must be included on each tax invoice for sales less than $1,000. For sales over $1,000, the rules are slightly different, although invoices that meet the requirements for the latter can be used for both categories.
Requirements of tax invoices for sales under $1,000
Tax invoices for sales under $1,000 need to provide seven pieces of critical information to be considered valid. These details ensure that the invoice is verifiable. The seven tax invoice requirements are:
the name of the business
the seller’s ABN
a clear statement that the document is a tax invoice
the date the invoice was issued
an itemised list of goods and services provided by the seller
the total price including GST
the extent to which each sale on the invoice is a taxable sale.
Below you can see a tax invoice example that illustrates these elements, as well as a tax invoice template you can use.
Requirements of tax invoices for sales of $1,000 or more
For tax invoices over $1,000, the requirements are slightly different. The seven elements of these invoices are:
the name of the business
the seller’s ABN and the buyer’s ABN or identity
a clear statement that it’s a tax invoice
the date
an itemised list of goods or services
the GST component of the price
the total price, clearly indicating the total amount of GST paid
These requirements are similar, with a couple of key differences. This is highlighted in the example below:
Use eInvoicing to send tax invoices
Traditionally, you’d need to request a paper tax invoice from each company you purchased from and file them manually. These days, accounting software can take care of the busy work for you.
Platforms like MYOB can automatically calculate your tax and GST, and even send the BAS statements and GST reports directly to the ATO, from any device. eInvoicing software also simplifies the sending, follow up and payment collection of tax invoices. They also make it much simpler to keep track of numbers — no more tedious manual data entry.
The only requirement around eInvoicing that the government imposes is that electronic copies need to contain all of the same information their paper counterparts do.
How to handle the rounding of GST in Australian tax invoices
In some instances, the amount of GST will include a fraction of a cent. If there is only one taxable sale on the invoice, you simply round the GST to the nearest cent.
If there is more than one taxable sale on the invoice, special rounding rules come into play. There are two such rules: the total invoice rule and the taxable supply rule.
Total invoice rule
Under the total invoice rule, you total the unrounded amounts of GST for each sale and then round the total to the nearest cent.
In cases where the taxable sales for every item include GST of exactly 1/11 of the price, you can also add up all the GST-exclusive values, calculate GST on that amount and then round to the nearest cent.
Taxable supply rule
With the Taxable supply rule, you work out the amount of GST for each individual sale. You then add up these individual amounts and rounds that total to the nearest cent.
Recipient Created Tax Invoices (RCTIs)
Typically, the tax invoice is produced by the seller, rather than the purchaser. However, in some situations, the purchaser might issue the tax invoice for the purchase. This is called a Recipient Created Tax Invoice (RCTI).
You'd only need to issue a recipient-created tax invoice if the following are true:
you and the seller are both registered for GST
you and the seller both agree (in writing) that you will issue the tax invoice, rather than the seller
the agreement is current at the time of issue
the goods or services in question can be invoiced using an RCTI. These are determined by the Australian Government.
All of these points must be true in order for an RCTI to be considered valid. If any of them isn't true or becomes untrue at any point, then the seller must issue tax invoices from that point forward.
FAQs
What is the difference between a standard invoice and a tax invoice?
The primary difference between a standard invoice and a tax invoice is that the latter is intended only for GST-related purposes and is subject to strict rules and requirements by the Australian government.
A standard invoice, on the other hand, can contain whatever information the businesses involved require.
Who can issue a tax invoice?
Typically, the seller of the goods or services issues the tax invoice. In some specific circumstances, the purchaser might issue one — these are called Recipient Created Tax Invoices (RCTIs) as discussed above.
Can a purchaser (or recipient) issue a tax invoice?
Recipient Created Tax Invoices (RCTIs) can be issued in the circumstances defined in the above section.
Automate tax invoicing and reporting with MYOB
A tax invoice is essentially a special invoice highlighting the GST paid on a transaction. It’s intended to be sent to the government to claim credit for taxes paid.
Tax invoices are a necessary part of doing business in Australia. They can be tedious, though. Skip the manual work and automate your invoicing and reporting with MYOB — we can automate the process, saving you time and stress.
MYOB can send your tax reports straight to the ATO, create detailed reports and extract valuable insights and analytics, all with a single subscription.