Goods and services tax (GST) can be challenging for businesses to get right. The end consumer pays GST, but who's legally required to collect it, what counts as exempt, and how B2B transactions flow through the credit system can all be areas of confusion along the way.

Below, we discuss what you need to know about GST, including who pays GST tax, who collects it, where exemptions apply, and what can go wrong.

Highlights

• Consumers are responsible for the final cost of GST, while registered businesses collect it and can reclaim what they pay on inputs through the tax credit system.

• Supplies and entities can be exempt. Misclassifying a supply in either direction can create liability or overcharging issues that are difficult to fix retroactively.

• Getting GST compliance correct is primarily about infrastructure. Correct tax codes, contemporaneous documentation, and automated calculation reduce common sources of error.

What is GST?

GST is a consumption tax applied to the sale of many goods and services. It's structured like value-added tax (VAT), which means it's collected in stages across the supply chain rather than as a single amount at the point of sale. The countries that use it, including Australia, Canada, India, New Zealand, and Singapore, each run their own version with the same logic: tax is applied to the value added at each stage of production and distribution, and the final consumer absorbs the full cost. A GST calculator can help you find the right GST rate by country.

Who pays GST?

End consumers bear the full economic burden of GST. Registered businesses pay GST on their inputs but reclaim it through the input tax credit system. Claiming input tax credits immediately after buying equipment or inventory reduces their effective input costs.

The difference between what a business collected on its sales and what it paid on its purchases is settled with the tax authority each filing period. If a business paid more GST on inputs than it collected on outputs, the tax authority owes them a refund. A manufacturer with high raw material costs might regularly find itself in this position.

Businesses that sell digital services into Australia, New Zealand, or other GST jurisdictions from outside the country must still collect and remit GST once they cross the local registration threshold, even if they have no physical presence there.

Who collects GST?

Businesses, including nonresident businesses, that sell taxable goods or services collect GST. They charge it on taxable sales, receive it from customers, and remit the net amount to the relevant tax authority.

Registration thresholds vary by country. For example:

• In Australia, it's $75,000 Australian dollars (AUD) in annual taxable turnover ($150,000 AUD for nonprofits)
  
• In New Zealand, it’s $60,000 New Zealand dollars (NZD) in turnover per year
  
• In Canada, it’s $30,000 Canadian dollars (CAD) in turnover over four consecutive quarters
  

Businesses below these thresholds can register voluntarily but are not required to do so.

Once registered for GST, you're required to charge the correct GST rate on taxable supplies, issue compliant tax invoices, file returns on the schedule set by the tax authority (monthly, quarterly, or annually, depending on turnover and country), and remit net GST collected or claim a refund if you’re owed one.

Who is exempt from GST?

Exemptions operate at two levels: exempt supplies and exempt entities. Here’s how it works.

Exempt supplies

Exempt supplies carry no GST and generate no input tax credit entitlements. Common categories include residential rent, many financial services, and medical services.

Zero-rated supplies are slightly different. These are taxable at a 0% rate. The business charges no GST but retains the right to claim input tax credits on costs related to producing them. Exports are a common example. A business selling goods overseas charges 0% GST but can still recover the GST it paid on inputs.

Many GST jurisdictions zero-rate or exempt essentials such as fresh food, but the line between what qualifies and what doesn't is specific. In Australia, hot foods and beverages prepared for consumption on premises are taxable, while fresh fruits and vegetables are GST-free. If food is any part of what you sell, then these distinctions matter.

Exempt entities

The definition is narrower than many people assume. Some nonprofits and charitable organizations get specific treatment, but those that make taxable supplies above the threshold still often need to register and collect. Don't assume nonprofit status means GST doesn't apply.

How does GST work in B2B transactions?

In a B2B transaction, GST is effectively a pass-through. Business A charges GST to business B; business B pays it, then claims it back as an input tax credit.

To claim an input tax credit, the purchasing business needs a valid tax invoice from the supplier that shows the supplier's GST registration number, the GST amount charged, a description of the supply, and the date. If a business makes both taxable and exempt supplies, it can only claim input tax credits on the portion of costs relating to taxable supplies.

When a nonresident supplier sells services to a registered local business, the local business might be required to account for the GST itself. This is called a reverse charge mechanism. Australia and several other jurisdictions use this for cross-border services. The registered recipient self-assesses GST and immediately claims the same amount as an input tax credit. The net position is zero, but the filing obligation still exists.

The invoice-based credit system is what prevents GST from compounding through the supply chain. Without it, each stage of production would bear the full tax cost of every prior stage, and the final price would reflect all of it.

What are the risks of getting GST wrong?

Errors tend to cluster around a handful of recurring problems. Here’s how to avoid them.

Incorrect tax coding

When a business sells across multiple categories or jurisdictions, it’s common to apply the wrong rate or treat a taxable supply as exempt. An ecommerce business selling into Australia, New Zealand, and Canada is simultaneously dealing with three different rate structures and three different exemption lists.

Late or incomplete filing

GST returns have strict due dates. Late filings attract penalties, and late payments attract interest. The Australian Tax Office (ATO), for example, charges a general interest charge (GIC) on overdue amounts, and it compounds daily.

Missing or invalid tax invoices

Claiming input tax credits without adequate documentation is a common mistake, and reconstructing documentation years later under audit pressure is very disruptive.

Under-registering

Businesses that cross the registration threshold but don't register are still liable for the GST they should have collected, plus penalties. The threshold is based on turnover, so be mindful of your growth.

Nexus errors for nonresidents

A nonresident digital services business that underestimates its exposure in a given market might not be registered or remitting as it should be. As the digital services industry grows, government tax authorities will likely scrutinize these returns more closely.

How can your business effectively manage paying GST?

Getting GST compliance right is usually an infrastructure problem. Here are some best practices.

Choose the right product tax codes from day one

Each product or service you sell needs a clear tax classification before it goes on sale. If you're operating in a GST system with multiple rates, this is an important internal process: choosing the right product tax code determines the GST rate and the price consumers will pay.

Automate where volume justifies it

At low transaction volumes, manual accounting reconciliation is manageable. But as volume grows, the error rate in manual processes increases. Tools such as Stripe Tax automatically handle tax calculation and provide detailed reports that simplify reconciliation.

Reconcile your GST accounts monthly

Leaving reconciliation until the week a return is due is how errors survive long enough to become audit problems. Monthly reconciliation against your accounting system catches discrepancies while they're still traceable.

Keep documentation contemporaneously

Tax invoices, contracts, and export evidence for zero-rated sales should be obtained at the time of the transaction. This is the evidentiary standard on audits. Tax authorities won’t accept reconstructions.

Get specialist advice for cross-border operations

The rules on reverse charges, mixed supplies, and intercompany transactions within a GST framework are areas where generic advice often fails. It’s worth engaging an accountant who knows your specific jurisdictions.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT, and GST on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.