GST in Xero is managed through Tax Rates. The Tax Rates available to use in a Xero Organisation are set up based on the Business' GST Registration and the Reporting Requirements set out in the Activity Statement.

There are four types of Tax Rates:

• Not Reportable GST (BAS Excluded) > when using this tax rate in a transaction the GST is not calculated and the transaction is not included in the Activity Statement Report;
• GST Free > when using GST Free Tax Rates in transactions the GST is not calculated. However, as GST Free transactions must be reported in the BAS, these transactions are included in the Activity Statement Report;
• GST > when using GST Tax Rates in transactions, Xero will calculate 10% GST and post this value to the GST Liability account. GST transactions are then reported in the Activity Statement report;
• GST on Imports > this Tax Rate is used exclusively to track GST purchase transactions from Custom Duty when goods are imported from overseas. More information on how to use this Tax Rate type is available on our GST on Imports User Guide.

Tax Rates must be assigned as default GST calculator rates when creating Accounts and Items (Products & Services). Additionally, they can be assigned to Contacts to establish the default GST applicable to that particular Customer or Supplier. The assigned Tax Rate to accounts/items/contacts will become the default rate in Sales, Purchases and other transactions in Xero.  When a transaction is created using Contacts, Items or Accounts with conflicting default Tax Rates, Xero will choose the default Tax Rate based on the following priority hierarchy:

GST Calculated by Tax Rates

When GST is 10% of a purchase or a sale transaction, it should always be calculated using Tax Rates. GST should never be manually calculated and posted directly to the GST Account.

When a GST type Tax Rate is assigned to a transaction, the GST calculation applies differently depending on the transaction's Default Amounts:

1. No Tax > Xero will automatically override any default Tax Rate to BAS Excluded;
2. Tax Exclusive > Xero will add 10% GST to the amounts entered in the transaction;
3. Tax Inclusive > Xero will deduct 1/11 GST from the amounts entered in the transaction;
   
   è  Scenario 1 - No Tax
   
   
   
   è  Scenario 2 - Tax Exclusive
   
   
   
   è  Scenario 3 - Tax Inclusive
   
   

Transactions that include both Goods or Services inclusive and exempt of GST

Occasionally, the calculated GST in some Tax Invoices may seem to be less than 10%. Australian GST is always calculated as 10% of the applicable goods or services sold or purchased. When the GST is less than 10% of the total value of the invoice, it simply means this transaction includes some goods or services that attract GST and others that are exempt. In this case, the Invoice amount must be broken down into multiple lines and the Tax Rate assigned to each line modified accordingly. 

Example 1 - Supermarket Receipts

Supermarket receipts may include the purchase of both Unprocessed Food Items, which are GST Free in Australia, and processed food or other items which attract GST (i.e. cleaning products). Therefore, when making a purchase of Staff Amenities, the receipt should be reviewed before processing it as a Spend Money transaction through the bank feeds. If the receipt includes both GST applicable and GST Exempt items, the GST portion of the receipt must be split from the GST free portion of the transaction.

An example of a Supermarket receipt for Amenities

1. Calculate the GST portion and the GST free portion of the purchase (see above)
2. Find the Bank Feed transaction
   
   è  The Bank Feed Transaction
   
   
   
   
3. Click on Add details
   
   è  The Bank Feed Spend Money Transaction is displayed
   
   
   
   
4. Select/Enter the following details:
   • Spent as > Confirm: Direct Payment
   • To > Select: Supermarkets
   • Date > Confirm the date from the Bank Feeds
   • Amounts are > Confirm: Tax Inclusive
   • Line 1 Description > Type: Staff Amenities(GST Portion)
   • Line 1 Qty > Type: 1
   • Line 1 Unit Price > Type the total value of the GST Inclusive Portion of the expense
   • Line 1 Account > Select: Staff Amenities
   • Line 1 Tax Rate > Confirm: GST on Expenses
   • Line 2 Description > Type: Staff Amenities(GST Free Portion)
   • Line 2 Qty > Type: 1
   • Line 2 Unit Price > Type the total value of the GST Free Portion of the expense
   • Line 2 Account > Select: Staff Amenities
   • Line 2 Tax Rate > Change to: GST Free Expenses
5. Click on the paper icon  to attach/upload the receipt
6. Click on [Save Transaction]

Example 2: Purchase of Insurance

Most Insurances include Stamp Duty charges which are GST Exempt (Non-reportable). Therefore, Stamp Duty should be separated from other Insurance charges which are applicable to GST (Premium, ESL, Broker Fees etc).

Example of an Insurance Invoice

1. Create a new bill in Xero
   
   è  The New Bill screen
   
   
   
   
2. Select/Enter the following details:
   • From > Select the Insurance Company Contact
   • Date > Type the date from the Insurance Invoice
   • Due Date > Type the due date from the Insurance Invoice
   • Line 1 Description > List the insurance charges from the invoice that include GST
   • Line 1 Qty > Type: 1
   • Line 1 Unit Price > Type the total value of the insurance charges that attract GST as per the invoice
   • Line 1 Account > Select: Insurance Expenses
   • Line 1 Tax Rate > Confirm: GST on Expenses
   • Line 2 Description > Type: Stamp Duty
   • Line 2 Qty > Type: 1
   • Line 2 Unit Price > Type the total value of the insurance Stamp Duty as per the invoice
   • Line 2 Account > Select: Insurance Expenses
   • Line 2 Tax Rate > Change to: BAS Excluded
3. Click on the paper icon  to attach/upload the Invoice
4. Click on [Approve]