Busy business owners’ guide to BAS-excluded vs GST-free

If you're a business owner in Australia, we're sure you've heard of the acronyms, GST and BAS.

The first one stands for Goods and Services Tax, a general tax of 10% applied to the price of most products and services sold or consumed in Australia.

The second one stands for business activity statement, a form that GST-registered businesses need to lodge with the Australian Taxation Office (ATO) 1-12 times a year, depending on the size of their business.

There’s a lot to know about both, and it’s easy to get overwhelmed. One of the most common points of confusion? The difference between BAS-excluded and GST-free items.

But don’t worry—we’ve got you covered. In this article, we'll explain how to tell BAS-excluded and GST-free apart and why getting it right can make managing your BAS and cash flow much easier.

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What does BAS-excluded mean?

BAS-excluded items, or BAS exclusions, are exactly what they sound like: transactions (income or expenses) that don't need to be reported in your business activity statement.

Unlike GST-free items, which we'll dive into next, BAS exclusions don’t appear on your BAS at all. They fall outside the scope of GST reporting and don’t affect how much GST you collect, pay, or claim back.

Examples of BAS exclusions

• Private expenses unrelated to your business
• Depreciation
• Dividends received
• Interest paid
• Wages (excluding PAYG withholding)
• Principal payments on finance
• Stamp duty
• Employee super contributions [1]

What does GST-free mean?

GST-free items don't have GST added to their price, but still have to be reported on your BAS.

In other words, even though you’re not charging the 10% tax to your customers, these sales are part of your BAS reporting, helping you avoid ATO penalties and ensure your GST credits are calculated correctly.

Examples of GST-free items

• Basic foods—think bread, milk, fresh fruit, and vegetables
• Certain medical supplies and services
• Some education courses and materials
• Exports of goods and services outside Australia [2]

Common confusions and mistakes

Besides mixing up BAS-excluded with GST-free, here are some other mistakes to watch out for:

• Failing to report GST-free items on the BAS: Even though no GST is charged, these sales still need to be included.
• Including personal expenses in BAS reporting: A big no-no that could trigger an unwelcome ATO audit.
• Misclassifying capital or asset purchases: Some purchases may look BAS-excluded but still have GST implications.
• Inconsistent record-keeping: Not separating BAS-excluded, GST-free, and GST-inclusive items in your accounting software can make reconciling accounts a headache.
• Going it alone without professional guidance: Trying to “figure it out” rather than speaking to an accountant or bookkeeper often means more effort and stress on your end.

Why it matters for cash flow

Getting your BAS reporting wrong can have a real impact on your cash flow.

Take GST-free sales: you don’t add the 10% to your price, but they still count on your BAS. Miscalculate or overlook them, and you could underestimate your obligations. You could get hit with a bigger ATO bill than expected and end up scrambling for cash. No good.

Understanding the difference between BAS-excluded and GST-free items isn’t just about avoiding mistakes. It also helps you plan for short-term finance and manage cash flow more effectively.

When your BAS is accurate, you’ve got a much clearer view of your finances, making it easier to make smarter borrowing decisions and improving your chances of loan approval.

Thinking about a business loan?

At Valiant, we help Australian SMEs access fast, flexible financing. We compare loans from 90+ lenders to match you with the best fit and handle the application from start to finish—so you focus on growing your business. Reach out today to get started.

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Tips for staying on top of BAS excluded and GST-free items

Staying on top of BAS-excluded and GST-free items doesn’t have to be complicated—and these practical tips are proof:

• Record-keeping and categorisation: Use your accounting software to separate BAS-excluded, GST-free, and GST-inclusive transactions; and make sure to create clear naming conventions so items are easy to identify later.
• Regular reviews: Set a weekly or monthly check-in to reconcile transactions and ensure items are correctly classified, so you can spot errors early before they actually affect your BAS lodgement or cash flow.
• Leverage accounting software features: Automate GST calculations and BAS reporting where possible, and use dashboards to highlight BAS-excluded vs GST-free entries.
• Work with professionals: Engage an accountant or bookkeeper to double-check classifications, provide guidance on edge cases, and prevent costly mistakes.
• Understand the cash flow implications: Keep track of GST-free sales and BAS obligations so you know what funds are tied up for BAS payments, and use this to plan short-term financing or manage working capital.
• Prepare for audits or loan applications: Keep clear, accessible records for BAS-excluded and GST-free items—it’ll not only help with ATO audits, but can also speed up loan approvals by showing lenders you’ve got your finances under control.