Does taxable income include GST (goods and services tax)? This is one of the most common questions faced by many new business.

You should calculate your taxes accurately to avoid legal issues and minimize financial losses. When calculating taxes, it is crucial to calculate your taxable income.

Therefore you should know precisely whether to include GST in your taxable income. This article will give you a brief insight into taxable income and whether you should include GST in the taxable income.

What is taxable income?

Taxable income is the income of your business that would be considered for tax purposes. The taxable income is the final figure derived after deducting allowable expenses from the assessable income.

Taxable income = Assessable income – Allowable deductions

Assessable income is the income earned from day-to-day operations and sales of the business. These incomes can be investments, commissions, and compensation payments that are received as a part of your business activities.

Further, you should include income related to the business but not earned as a part of daily business activities. These incomes can be the disposal of a non-trading stock asset, business prizes and awards, payments from insurance claims, etc.

Therefore most of the business-related incomes should be declared as assessable income. However, the accounting method you follow (accrual or cash basis) will determine which amounts are to be included under assessable income.

You can deduct certain expenses from this assessable income to calculate the taxable income. These expenses should be directly related to earning your assessable income.

Read more: Assessable income (ATO), Allowable deductions (ATO), Taxable income (ATO)

What is GST

As you already know, GST is the abbreviation for goods and services tax. Currently, the GST is at 10% on most goods and services in Australia.

So how does GST affect the income and expenses of a business? If the business is registered for GST and sells a good or a service, then the business would have to charge GST from the customers. Therefore the sales value would include the GST too.

On the other hand, if the business obtains goods and services that already have a GST, these expenses would include the tax. Thereby increasing the face value of that particular expense.

The business has to pay the government the GST collected from its customers. The business can also claim the GST paid to obtain goods and services

Does taxable income include GST?

Now that you have a brief understanding of GST and taxable income let’s find out whether taxable income includes GST.

GST will increase the face value of incomes and expenses of your business. The tax regulations specify that if an income or expense of a business contains a GST portion, it should be omitted when calculating the taxable income.

Therefore taxable income should not contain GST.

Why is GST not included in the taxable income

As said before, GST will increase the face value of your income and expenditure. However, that increased portion doesn’t belong to your business. It belongs to the government.

Further, if the GST is included in your taxable income, the GST component will be taxed again for income taxes.

That is why the general tax law specify that GST should not be included in taxable income.

Wrapping up

Taxable income is the net income of a business on which you will calculate the tax liability. Therefore you should declare it accurately as possible to avoid legal issues and minimize financial losses.

When declaring the taxable income, don’t include the GST components. It could overstate or understate your actual tax liability.

Calculating the actual tax liability can be quite a complicated process. You should maintain your books properly and take maximum advantage of business tax deductions. If you need help with your taxes, then hiring a qualified tax agent is better.

SPS Consultants are professional tax agents in Narre Warren, and Melbourne. Over the years, we have helped hundreds of clients to manage their taxes and get the maximum out of tax deductions. We know that we can help you.

Contact us today to get a consultation session and learn about our range of packages that suit your business needs.