GST-Free, Input-Taxed and Taxable Sales — What's the Difference?

All three categories — taxable, GST-free and input-taxed — describe how GST applies to a sale. Taxable sales include GST in the price. GST-free sales don't include GST, but you can still claim GST credits on the purchases behind them. Input-taxed sales don't include GST, and you generally can't claim GST credits either. That third distinction — whether you can still claim credits — is where the real financial difference lies.

Two businesses can both make sales with no GST in the price — one GST-free, one input-taxed — and end up in very different financial positions. A GST-free business still gets to claim back the GST it paid on ingredients, equipment and other inputs. An input-taxed business generally can't claim that GST back at all, meaning it's effectively an absorbed cost, built into pricing rather than recovered.

A grocer sells GST-free fresh food. They pay $2,200 (including $200 GST) for delivery van servicing used to distribute that stock — they can claim that $200 back as a GST credit, even though the food itself carries no GST.

A landlord earns input-taxed residential rental income. They pay $1,100 (including $100 GST) for a plumber to fix a rental property — because the rental income is input-taxed, they generally can't claim that $100 GST credit back. It simply becomes part of the cost of the repair.

Businesses that make largely input-taxed sales — residential property investors and lenders are the clearest examples — often can't structure around this; it's simply built into how those industries work. But it's worth understanding clearly if your business is considering entering an input-taxed space, since the inability to claim GST credits genuinely affects the underlying economics, not just the paperwork.

Some businesses make a genuine mix of all three types — a medical practice might provide GST-free medical services alongside taxable retail items like skincare products, for example. In these cases, GST credits on shared costs — rent, admin, equipment used across the whole business — generally need to be apportioned between the taxable/GST-free activities and the input-taxed ones, which adds real complexity to BAS preparation.

• Do I know which of my income streams are taxable, GST-free, or input-taxed?

• For any GST-free income, am I still correctly claiming GST credits on related purchases?

• For any input-taxed income, am I correctly excluding GST credits on related purchases?

• If my business mixes categories, are shared costs being apportioned correctly?

The ATO's Simpler BAS guide explains all three categories with detailed tables and examples.

ato.gov.au — Simpler BAS GST bookkeeping guide https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/business-activity-statements-bas/goods-and-services-tax-gst/simpler-bas-gst-bookkeeping-guide

• your business makes a mix of taxable, GST-free and input-taxed sales and you want the apportionment done correctly;

• you're entering an industry with significant input-taxed activity and want to understand the GST implications first;

• you're not confident your GST credits are being claimed and excluded correctly across your income types; or

• you want your accounting software configured to handle this distinction automatically.

→ Do I Need to Charge GST on Everything I Sell?

→ Business and Personal Use of the Same Purchase — How Do GST and Tax Claims Work?

→ Understanding BAS — What Am I Actually Reporting and Paying?

SKC Accounting | Knowledge Centre | Knowledge Guide 066

Last reviewed: August 2026

General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.