Guide: How to get started with tax invoices (2024)

Starting a business in Australia is an exciting adventure. Along the way, you'll need to learn how to make tax invoices that meets the rules set by the Australian Taxation Office (ATO).

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- 8 min read

Starting a business in Australia is an exciting adventure. Along the way, you’ll need to learn how to make tax invoices that meets the rules set by the Australian Taxation Office (ATO).

What is a tax invoice?

Tax invoices is more than just an ordinary bill; it’s an official request for payment that also serves as an important record for GST purposes. Any business registered for GST must provide tax invoices for sales of more than $82.50 (including GST). These invoices allow both you and your clients to claim GST credits for business purchases.

The basic components of tax invoices

To ensure your tax invoice is ATO-compliant, it’s crucial to include the following elements:

  • Your business name and Australian Business Number (ABN)
  • The date the it was issued
  • A brief description of the goods or services provided
  • The extent of GST applied to each item or a statement that GST is included if 1/11th of the total price
  • The total amount payable
  • The buyer’s identity or ABN (for sales over $1,000)

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What are the tax invoice requirements in Australia?

In Australia, meeting the tax invoice requirements is fundamental for businesses managing the Goods and Services Tax (GST). A tax invoice is more than just a request for payment—it’s a crucial document for tax reporting and ensures that businesses can appropriately claim or charge GST credits. The Australian Taxation Office (ATO) has established clear guidelines for what constitutes a valid tax invoice. Here we’ll explore these requirements that businesses must adhere to.

General requirements for tax invoices

The effectiveness of a tax invoice hinges on fulfilling specific criteria set out by the ATO:

1. Thresholds

For sales of $82.50 (including GST) or more, businesses must provide a tax invoice to the buyer. For sales under this threshold, a tax invoice is not mandatory but can be provided upon request.

2. Clarity

The tax invoice must be legible, allowing all parties to clearly interpret the details of the sale and its associated GST.

3. Tax invoice layout

The document should be laid out in a way that is logical and easily understood, with key information prominently displayed.

Detailed requirements for tax invoices

Diving deeper into the ATO’s stipulations, tax invoices must include certain details:

1. Identity of the seller

The name or trading name of the business and its ABN should be visible.

2. Invoice classification

The phrase ‘Tax Invoice’ must be clear and conspicuous.

3. Date of Issue

The date the invoice was created and provided to the buyer.

4. Items sold

A detailed description of the items sold or services provided, including any quantities.

5. Price

The price must include the total amount payable and a clear indication if GST has been included within this price. For invoices where the GST is not exactly one-eleventh of the total price, the amount of GST must be specified either per item or at the bottom of the invoice.

6. Seller’s commitment

A statement that outlines the seller’s commitment or obligation should accompany the tax invoice if it involves a taxable sale.

Special circumstances

There are instances where additional details must be incorporated:

1. Sales over $1,000

For transactions exceeding $1,000, tax invoices must provide the buyer’s name or ABN and a breakdown of the GST amount for each item.

2. Recipient Created Tax Invoices (RCTI)

In cases where the buyer creates the tax invoice (agreed upon by both parties), the document must clearly state it is an «RCTI» and that the seller is registered for GST.

Electronic tax invoices

Electronic tax invoices are equally valid as their paper counterparts provided they meet all the mandatory requirements. They must be in a format that can be saved and accessed later, ensuring they are readily available for any future audits or queries.

Maintaining proper records

Lastly, it’s imperative for businesses to keep records of all tax invoices issued and received for at least five years, to comply with the ATO’s record-keeping obligations.

Tax invoices are pivotal in the effective operation of a GST-registered business in Australia. They serve as the foundation for ATO compliance and accurate tax submissions. Adhering to the tax invoice requirements is a testament to a business’s commitment to transparency and responsibility in its financial practices. 

What is the difference between tax invoices and receipts?

A tax invoice and a receipt are both document sales transactions, but they differ in purpose and timing. A tax invoice is issued by the seller prior to or at the time of sale and details the transaction, including the goods or services provided and the GST charged. It is necessary for accounting and claiming GST credits.

A receipt, on the other hand, is given post-payment as proof of the completed transaction, confirming that the payment has been received for the items listed on the tax invoice. While the tax invoice is integral for tax reporting, the receipt is primarily used for payment verification.

Read also: Invoice vs. receipt: What is the difference?

Is a tax invoice a receipt?

A tax invoice in Australia is not the same as a receipt, even though they are related to the same transaction. A tax invoice is a detailed document provided by the seller to the buyer, listing goods or services sold, including the GST amount, and it’s necessary for a buyer to claim GST credits. It’s typically issued at the time of sale, before payment.

Conversely, a receipt is an acknowledgement that payment has been made for those goods or services. It’s given after the payment to confirm the transaction has been settled. While tax invoices are used in the accounting process and for tax reporting, receipts serve as proof of payment and ensure that the accounts are reconciled correctly. Both documents are crucial for accurate record-keeping but they serve different purposes in the financial administration of a business.

What needs to be on a tax invoice?

Mastering the intricate details of a tax invoice is vital for ensuring compliance with Australian tax laws. As a cornerstone of financial documentation in any business that registers for GST, understanding and correctly applying the requisites of a tax invoice is non-negotiable. 

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Key elements of tax invoices

A valid tax invoice must include several crucial pieces of information which, collectively, facilitate a clear understanding of the transaction for both the supplier and purchaser, while also adhering to ATO regulations:

1. Identifier as a tax invoice

The document must be clearly labelled as a «Tax Invoice» at the top, making it immediately identifiable for what it is.

2. Seller’s details

The seller’s legal business name and Australian Business Number (ABN) must be displayed prominently.

3. Invoice date

The date when the tax invoice was issued should be near the top, ensuring a clear timeline for accounting and auditing purposes.

4. Descriptions of items or services

Each line item should have a detailed description of the goods or services provided. This provides clarity and fosters transparency in the transaction.

5. Quantities and prices

Along with the description, the quantity of the goods or services and the cost per unit should be listed. This breakdown is crucial for accurate financial tracking and inventory control.

6. GST amount

If GST applies, the total amount of GST charged needs to be shown. If the GST amount is exactly one-eleventh of the total price, you may simply include a statement that says ‘Total price includes GST’. Be explicit about each item if GST does not apply uniformly across all items.

7. Total amount payable

The sum total of all items and services including GST must be displayed. This is the figure that the client is legally obliged to pay.

8. Buyer’s identity

For sales exceeding $1,000, or if the buyer requests it for purchases under that amount, the invoice must contain the buyer’s name or their ABN.

9. Sequential numbering

Tax invoices should ideally follow a unique and sequential numbering system to assist in record-keeping and avoid duplication.

10. Payment information

Optional, but often included, are the payment terms (such as ‘Payment due within 30 days’) and methods of payment accepted. Some businesses also include bank details for direct transfers or a link to an online payment gateway.

A tax invoice serves several purposes. It represents a formal request for payment, enables accurate record-keeping for both parties, and acts as crucial evidence for tax and audit purposes. For the seller, it’s the basis to report income and claim GST collected, while the buyer relies on a tax invoice to claim GST credits on their business purchases.

Understanding and adhering to the requirements of a tax invoice underscore its importance in the integrity of financial transactions. It serves not merely as an administrative duty, but as a testament to a business’s commitment to legal and fiscal responsibility. It allows authorities to verify the accuracy of income and tax reported, ensuring public trust in the financial ecosystem.

Read also: How to write an invoice

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