Tax Invoice

What is a Tax Invoice?

A Tax Invoice is for use by a business (whether a sole trader, company, or something else), when charging a client or customer for goods or services.

A Tax Invoice is a particular kind of invoice which shows the amount of tax payable in relation to the goods or services that are being sold. If a business charges tax on the goods and services it sells, then the business should provide a tax invoice to show the tax that is being charged.

What is the difference between a Tax Invoice and a Simple Invoice?

Most businesses in Australia use Tax Invoices. If a business is registered for Goods and Services Tax (GST) then the business is usually required to provide a Tax Invoice, which includes any applicable taxes.

If a business is not registered for GST, then its invoices will not include a tax component and should not include the words "Tax Invoice". Instead, the business will provide a simple invoice or regular invoice.

Tax law in Australia is complicated but in most cases, if businesses earn more than a specified amount per year, then they need to register for GST and use Tax Invoices. Businesses that earn less than that amount may not need to register for GST, but could choose to. Further information about registering for GST and issuing Tax Invoices is available at business.gov.au.

Is it mandatory to have a Tax Invoice?

Yes. If the business is registered for GST then it must provide tax invoices to its customers/clients.

What is not allowed in a Tax Invoice?

A Tax Invoice should not be used by businesses that are not registered for GST. Instead, those business should use a simple invoice and should not collect GST from their customers.

What are the prerequisites of a Tax Invoice?

Before preparing a Tax Invoice, the business should make sure to be registered for GST.

A Tax Invoice can be provided before or after the goods or services have been delivered to the customer. Some businesses like to receive payment in advance, while others (especially service based businesses) may invoice the customer afterwards.

What has to be done once a Tax Invoice is ready?

Most businesses choose to send this invoice together with a copy of a Cover Letter for Invoice. The Cover Letter for Invoice presents a professional and polite message to customers, as well as the option to include further explanation about the purpose of the invoice. Most businesses find that this increases the likelihood that customers will return to the business in future.

Once the invoice (and if applicable, the Cover Letter for Invoice) have been prepared, they may be sent to the client or customer. If they are being sent in hard copy, they may be printed, the letter may be signed and attached to the front of the invoice. If the invoice is being sent by email, the letter may be attached to the email along with the invoice.

Both parties should keep a copy of the invoice for their own records. If either party is ever audited by the Australian Taxation Office, then they may need to provide a copy of the invoice.

Which documents should be attached to a Tax Invoice?

It is not mandatory to attach anything to the Tax Invoice. However, many businesses choose to attach a copy of a Cover Letter for Invoice.

What must a Tax Invoice contain?

For sales under $1,000, a Tax Invoice must include enough information to clearly identify:

• that the document is a tax invoice
• the seller's identity and Australian Business Number (ABN)
• the date the invoice was issued
• a brief description of the items sold including the price and quantity (if applicable)
• the amount of GST
• the extent to which each sale on the invoice is a taxable sale

For sales over $1,000, a Tax Invoice must also include the customer's identity.

Which laws are applicable to Tax Invoices?

Tax law in Australia is complex. The rules regarding Tax Invoices primarily fall under the A New Tax System (Goods and Services Tax) Act 1999 (Cth). The Taxation Administration Act 1953 (Cth) is also relevant to the administration and enforcement of tax laws.

Further information is available from the Australian Taxation Office and from business.gov.au.

If in doubt seek legal and/or taxation advice.

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