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Materials GST explainer
The customer thinks they are paying GST twice on the same materials. They are not, and this page is the two-minute version you can hand them.
How GST moves from the supplier to you#
The supplier sells the materials to the tradie
| Materials, ex GST | $100.00 |
|---|---|
| GST the supplier charges | $10.00 |
| Tradie pays | $110.00 |
The tradie installs the materials for the customer
| Materials, ex GST | $100.00 |
|---|---|
| GST the tradie charges | $10.00 |
| Customer pays | $110.00 |
The tradie's BAS reconciles the two
| GST collected from the customer | $10.00 |
|---|---|
| GST credit on the supplier purchase | -$10.00 |
| Net GST to the ATO on the materials | $0.00 |
The two cancel out. The tradie remits GST on their own margin, not on the materials.
Contents
Key takeaways
- The customer pays GST once, on the final installed price.
- The tradie also pays GST to the supplier, and claims it straight back as a credit.
- On materials bought and on-sold at cost, the two cancel out and the ATO receives nothing.
- What the tradie actually remits GST on is the margin, not the materials.
- The flow below is a diagram you can show on a phone, or send as a link before you quote.
The question, and the short answer#
It usually comes out as "hang on, you already paid GST on that timber, why am I paying it again?" It is a reasonable question and the answer is short: you are not. GST is collected once on the value that reaches you, and the diagram above is where that happens.
The same thing as arithmetic#
Materials at $100, bought and on-sold at cost, with the tradie's own labour priced separately at $400:
| Materials, ex GST | $100.00 |
|---|---|
| Labour, ex GST | $400.00 |
| GST at 10% on the job | $50.00 |
| GST credit the tradie claims back on the materials | -$10.00 |
| Net GST the ATO actually receives | $40.00 |
The customer pays $550. The ATO receives $50 from the tradie less the $10 credit, which is 10% of the $400 the tradie added. Nobody is taxed twice.
What the tradie actually pays#
The GST a registered business remits is the difference between what it collected and what it paid. On materials passed through at cost, that difference is zero. The ATO sets out the conditions for the credit on its claiming GST credits page.
| GST collected | GST credit | Paid to the ATO | |
|---|---|---|---|
| Materials at cost | $10.00 | -$10.00 | $0.00 |
| Materials with a 20% markup | $12.00 | -$10.00 | $2.00 |
| Labour | $40.00 | None | $40.00 |
How to use this with a customer#
- In the driveway. Open this page on your phone and walk down the three steps. It takes about two minutes.
- Before you quote. Send the link with the quote to a customer you expect to ask. The question is easier to answer before the price than after it.
- On paper. Download the PDF for a customer who would rather have something to hold, or for the office.
- With your team. One explanation, given the same way by everyone, is worth more than four people improvising.
GST on materials: common questions#
Am I being charged GST twice on materials?
Why does the tradie charge GST on materials they already paid GST on?
Does the tradie make money on the GST?
What if the tradie is not registered for GST?
Can I get the materials cheaper by buying them myself?
Stop doing this in a spreadsheet
Chippie does the quoting, the invoicing and the GST maths for you.
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