GST for Professional Services
Professional services — consulting, legal, accounting, IT, marketing, and similar businesses — are almost entirely taxable for GST purposes. The GST obligations are straightforward compared to industries with mixed GST classifications, but there are important rules around invoicing, timing, and input credits that professional service firms need to follow.
Overview
All professional services are taxable supplies. If you provide consulting, legal, accounting, engineering, IT, marketing, recruitment, or similar services and your GST turnover exceeds $75,000, you must register for GST, charge 10% on all services, and lodge a BAS. There are no GST-free categories for these services (unlike health or education).
The simplicity of GST for professional services is also its advantage: because all your supplies are taxable, you can claim full input tax credits on all business purchases (with some exceptions for entertainment and motor vehicles). There is no need to apportion credits between taxable and GST-free or input-taxed supplies.
The main compliance considerations for professional service firms are correct invoicing (issuing valid tax invoices within 28 days of the supply), correct timing of GST (cash vs accrual basis), and managing GST on disbursements and reimbursements. A disbursement paid as agent of the client is not your supply — you don't add GST. A cost you incur and pass on to the client as part of your service is a reimbursement — GST applies.
For professionals working as sole traders or through a company, the $75,000 GST registration threshold applies to gross turnover — not profit. Contractors and freelancers often reach this threshold faster than they expect, especially when working full-time for one client.
Common items & GST status
The table below shows the GST treatment of common items and transactions in the professional services sector.
| Item | GST Status | Notes |
|---|---|---|
| Consulting and advisory fees | Taxable | All professional advisory services are taxable |
| Legal services | Taxable | All legal work — litigation, conveyancing, commercial advice |
| Accounting and bookkeeping | Taxable | Tax preparation, audit, advisory, BAS preparation |
| IT services and software development | Taxable | All IT consulting, development, support, and managed services |
| Marketing and advertising services | Taxable | Creative services, media buying, SEO, social media management |
| Engineering and design fees | Taxable | Civil, structural, mechanical, architectural design services |
| Training and workshop fees | Mixed | Professional training is taxable; accredited education courses may be GST-free |
| Disbursements (paid as agent) | GST-free | Costs paid as agent on client's behalf — the original supplier's GST status applies |
| Reimbursements (costs passed on) | Taxable | Costs incurred by you and recharged to the client — part of your taxable supply |
| Interest on overdue invoices | Input-taxed | Interest is a financial supply — no GST |
Common mistakes & traps
These are the most frequent GST errors the ATO sees in the professional services industry. Avoiding them can save your business from penalties and back-payments.
1Confusing disbursements with reimbursements
If you pay a cost as agent for your client (e.g. a lawyer paying court filing fees on behalf of the client), it is a disbursement — you do not add GST. If you incur a cost yourself and pass it on (e.g. travel expenses for a consulting engagement), it is a reimbursement and GST applies to the recharged amount.
How to fix it
The test is: were you acting as agent for the client when the expense was incurred? If yes, it is a disbursement (no GST from you). If no, it is a reimbursement (add GST when you recharge it).
2Not issuing tax invoices within 28 days
The GST Act requires you to issue a tax invoice within 28 days of a request from the buyer. Many professional service firms delay invoicing or issue invoices without the required tax invoice elements.
How to fix it
Every tax invoice must include: your ABN, the date, a description of the supply, the GST amount (or a statement that the price includes GST), and the buyer's identity for invoices over $1,000.
3Incorrect GST timing on retainer arrangements
On accrual basis, GST on a retainer is reportable when the invoice is issued — even if work hasn't started. On cash basis, it is reportable when the retainer payment is received.
How to fix it
Match your GST reporting to your accounting method. For fixed-fee retainers on accrual, report GST when you raise the invoice. For hourly billing on accrual, report when you issue the bill — not when the work is done.
4Forgetting GST on non-monetary consideration
Barter and contra arrangements between professional service providers are subject to GST. If you provide legal advice in exchange for accounting services, both sides must account for GST on the market value of the supply.
How to fix it
If you enter a barter or contra deal, treat it as two separate taxable supplies. Each party issues a tax invoice for the market value of their service and reports GST accordingly.
Input tax credit guide
Which business purchases can you claim GST credits on? This table covers the most common purchases for professional services businesses.
| Purchase | Credit? | Notes |
|---|---|---|
| Office rent (commercial) | Yes | Commercial lease payments include GST |
| Office equipment and furniture | Yes | Desks, chairs, monitors, printers |
| Computer hardware and software | Yes | Laptops, software licences, cloud subscriptions |
| Professional indemnity insurance | Yes | Business insurance premiums include GST |
| Professional memberships and subscriptions | Yes | Law Society, CPA, professional body fees |
| Travel (flights, accommodation) | Yes | Domestic flights and commercial accommodation include GST |
| Client entertainment | No | Entertainment expenses — no GST credit (subject to FBT rules) |
| Bank fees and interest | No | Financial supplies — input-taxed, no GST credit |
| Wages and salaries | No | Not a taxable supply — no GST on wages |
| Motor vehicle (passenger car) | Yes | GST credit capped at the car limit ($68,108 for 2025-26 — GST credit max ~$6,191) |
BAS tips for professional services
Cash or accrual — choose strategically
Professional service firms with turnover under $10 million can choose cash or accrual GST accounting. Cash basis can help cashflow — you only report GST when paid, not when invoiced. This is useful if clients pay on 30-60 day terms.
Reconcile trust accounts (lawyers)
Law firms holding client money in trust accounts must ensure GST is only reported on the firm's own fees — not on trust movements. Disbursements from trust are not your supply.
Claim GST credits on working-from-home expenses
If you work from home and claim a portion of home office expenses for income tax, the GST component of those expenses (internet, phone, electricity) can also be claimed as input tax credits — proportioned to business use.
Frequently asked questions
ATO sources & references
All information in this guide is based on the following ATO publications and rulings.