Tax invoice vs invoice

For businesses, it’s important to know the difference between a tax invoice and a non-tax invoice. The difference mostly comes down to GST. A tax invoice is issued by a business registered for GST to charge the goods and services tax and let the customer claim GST credits. A regular invoice is used when GST does not apply.

Let’s take a look at why this matters when sending invoices to customers.

What is a tax invoice?

A tax invoice is a legal document used to claim goods and services tax (GST) credits. It’s primary evidence of a taxable sale and is required for your GST reporting.

Only GST registered businesses can issue tax invoices. A standard tax invoice should always include details like the seller’s ABN and the GST amount. Without either, the customer can’t claim a tax credit.

What is a regular invoice?

This is a payment request document used when no GST is charged. Businesses not registered for GST issue regular invoices for the goods or services they sell.

Regular invoices have no strict legal requirements. They include the business name, invoice date, a brief description of the services sold, and the total amount payable. They can’t be used to claim GST credits.

What is the difference between a tax invoice and a regular invoice?

A tax invoice is needed when a business registered for GST charges GST. A regular invoice is used when no GST is charged on the sale.

The tax invoice must comply with ATO requirements, including the words “tax invoice” and the GST amount. A regular invoice has no specific legal requirements. Using the right invoice type will help ensure accurate tracking of GST collected and GST paid — both of which are necessary when preparing your BAS.

When must you issue a tax invoice?

If your business is registered for GST, you have to issue a tax invoice for any taxable sale over $82.50 (including GST) when a customer requests one. Once a request is received, you have 28 days to provide it.

If the sale is less than that amount, a full tax invoice isn’t legally required. But remember that for sales over $82.50, failing to provide a valid tax invoice within 28 days can delay the customer’s Business Activity Statement.

This is sometimes called the individual taxable sale rule. Lots of businesses issue tax invoices for every taxable sale just to keep their invoicing and record-keeping consistent.

What are the tax invoice requirements?

A valid tax invoice in Australia must show seven pieces of tax information. The ATO sets these tax invoice requirements as:

• The words “tax invoice” fully visible.
• The seller’s identity and business name.
• The seller’s Australian Business Number (ABN).
• The invoice date (date of issue) and a unique invoice number.
• A description of the goods or services, including quantity and price per line item.
• The GST amount payable — shown separately or as a statement that the total price includes GST.
• The extent to which each sale is taxable (whether GST is included or GST-exclusive).

For sales of $1,000 or more, you also have to include the buyer’s identity or ABN (their full address or ABN will do). Under GST rules, missing details can invalidate the invoice entirely, meaning the customer can’t claim GST credits and may face compliance issues.

What does a correct tax invoice example look like?

Let’s say, for example, you need to create an invoice for $82.50 including GST. It would show the GST-exclusive value of $75.00, plus $7.50 GST, for a total price of $82.50.

You can show the GST amount separately, or state “total price includes GST” if the GST is exactly one-eleventh of the total. Whether your prices are GST-inclusive or GST-exclusive, the invoice must make the GST information clear.

How do you calculate GST and rounding on a tax invoice?

On a fully taxable sale, the GST is one-eleventh of the GST-inclusive total price. Special rounding rules apply when the GST includes a fraction of a cent.

Where there’s only one taxable sale, round the GST to the nearest cent. Where there’s more than one line item, the same rounding rules apply under the total invoice rule or the taxable sale rule.

The good news? Invoicing software applies these calculations automatically, every time.

What is a recipient-created tax invoice?

A recipient-created tax invoice (RCTI) is a less common type of tax invoice that the buyer sends to the seller. As such, it reverses the usual roles of the transaction.

RCTIs, however, are only allowed in certain industries and business setups, and they require a written agreement between both parties before they can be produced. The ATO heavily scrutinises them, so always get tax advice from a professional before using one.

How do you manage tax invoices in your business?

Use an invoice template or invoicing software that meets ATO requirements. Good accounting software will add the words “tax invoice”, your ABN, contact details, the correct GST amount, and more — all automatically.

Set solid payment terms on every invoice. If a customer asks for a tax invoice, you can issue it in seconds rather than rebuilding it for each sale. You’ll find this very handy for managing invoices and lowering the chances of unpaid invoices, all while keeping your records audit-ready.

For a complete breakdown of what you’re legally required to do, we’ve got a helpful guide on the invoice requirements in Australia.

Remember, getting the tax invoice vs invoice distinction right will keep your small business on the right side of the ATO and your customers able to claim GST.