An invoice is a transactional document that sellers send to buyers for the sale of goods or services provided. Basically, it tells your customers how much they owe and how to pay.
But you can’t just send a piece of paper with an amount and your bank details; there are certain requirements regarding structure, tax, and the very nature of the invoice itself that need to be addressed before you send.
Tax invoice requirements
There are non-negotiable requirements for creating a valid tax invoice. These are what you must include when you send a customer a tax invoice:
- The words ‘tax invoice’ if registered for goods and services tax (GST)
- Seller’s Australian Business Number (ABN)
- Seller’s identity/business name
- Invoice issue date
- A short description of the item/service sold, including quantity and amount/unit price
- GST payable (if applicable)
Tax invoice rules
There are a couple of rules around invoicing:
When to send an invoice:
A business registered for GST must provide tax invoices for sales of $82.50 (including GST) or more when a customer requests one. It must be sent within 28 days when requested.
When to put ‘tax invoice’ on your invoices
You have to put ‘tax invoice’ on your invoice if the sale includes GST, and you are registered for GST. It denotes a GST sale, which the Australian Taxation Office (ATO) uses when businesses undertake their Business Activity Statements (BAS) to claim GST credits.
When a sale is $1,000 or above
When an invoice exceeds $1,000, you need to add the buyer’s details/identity (customer details) or their ABN. The purpose is to ensure proper documentation for GST claims in BAS submissions. You also need to indicate GST included on taxable sales. For instance, in the wording of your invoice, theย totalย needs to include a statement indicating that “Total price includes GST”.
Tax invoice vs regular invoice
Invoices come under two types: a “tax invoice” and a “regular invoice”. The difference between the two comes down to whether you charge GST. For GST-registered businesses, you must issue a ‘tax invoice’ when selling GST-taxable items or services.
On the other hand, a business owner must use regular invoices when:
- They fall below the $75,000 annual GST threshold (for for-profit businesses) and are not registered for GST.
- They are selling only GST-free items/services. (Most basic goods, like fruit and veggies, are GST-free items).
- They are making private sales, i.e. sales between individuals, such as house or car sales.
Recipient created tax invoices
Recipient-created tax invoices (RCTIs)ย areย issued by theย buyerย to the seller. This ‘reverse engineering’ of an invoice is only acceptable under certain scenarios for specific industries and is heavily scrutinised by the ATO.
Invoice template
Here is an example of what a tax invoice looks like:
Importance of record keeping
Having your invoices filed away, whether on paper (file cabinet) or electronically in your accounting software, is important for documentation and tax obligations. Under Australian tax laws, the ATO-mandated standard requirement for businesses is to keep a running record of their business activity for at least 5 years, including their tax invoices.
Outside of compliance, records help you run a tight ship. For instance, say you’re in a payment dispute over items or services you’ve sold. In the case of overcharging, undercharging, or unpaid invoices, you can directly consult what you’ve sent. Invoices are legal proof of transactions that help identify these issues and detail your payment terms for how and when customers pay.
Hot tip: Use unique invoice numbers. These help with tracking and reduce manual entry.
Compliant tax invoice requirements in a nutshell
Issuing tax invoices is essential for businesses registered for GST. Meeting the requirements is the difference between sending a compliant tax invoice and not. By using dedicated accounting and invoicing software, you can cover your invoice compliance needs while also getting paid faster through electronic invoicing. Other benefits of using software are:
- Maintain cash flow with recurring invoicing and automated reminders for overdue payments.
- Attach branding and personalise your invoice to represent your business.
- Easily manage invoices with automated documentation for proof of transactions.
- Include ‘pay now’ buttons that link to your accepted payment methods.
