The Subcontractor Is Not GST Registered. How Do You Code the Payment in Xero?
Their GST registration status has already been checked. They have not charged GST. Now you are looking at Xero’s tax-rate list: GST Free Expenses or BAS Excluded?
No GST was charged. Do not claim a GST credit.
This article is not about deciding whether the subcontractor should be registered. We are starting with a confirmed fact: the subcontractor is not registered for GST and is not charging GST on the invoice.
The bookkeeping question is which Xero tax rate records that payment without treating it like a genuinely GST-free supply or claiming GST that was never charged.
Record the full expense, claim no GST, and make sure the contractor remains correctly set up for the Taxable Payments Annual Report where applicable.
A $2,200 invoice does not contain $200 of hidden GST.
A subcontractor sends your business an invoice for $2,200. Their ABN is valid, their GST registration has been checked and they are not registered. The invoice does not charge GST.
What you record
The full $2,200 is recorded to the appropriate subcontractor or cost account, subject to the nature of the work.
What you do not record
You do not divide the payment by 11 and claim $200 at 1B. No GST was charged, so there is no GST credit to claim.
Section 9-5 requires the supplier to be registered—or required to be registered.
A taxable supply requires the supplier to be registered, or required to be registered, for GST.
If the subcontractor is confirmed as not registered and not required to register, that registration condition is not met. They do not add GST to the invoice, and the customer does not receive a GST credit merely because the payment is a business expense.
The important bookkeeping result is simple: do not treat the invoice as containing GST.
Read the current wording of section 9-5 of the GST Act.
“No GST” and “GST Free Expenses” do not mean the same thing.
GST Free Expenses
- Use this for purchases that are GST-free under the GST law
- Common examples can include qualifying food, health, education and exports
- Do not choose it merely because a supplier did not add GST
BAS Excluded
- This is the Xero tax rate we use for a confirmed non-GST-registered subcontractor
- The full payment remains recorded to the selected expense account
- No GST is calculated or claimed from the invoice
The shortcut to avoid: selecting “GST Free Expenses” only because the invoice contains no GST. Here, the reason for no GST is already known: the subcontractor is not registered.
Four steps from invoice to clean reporting.
Keep evidence of the GST check
Confirm the supplier’s ABN and GST status through ABN Lookup and retain the invoice or supporting record.
Record the full expense in Xero
Code the full invoice amount to the correct subcontractor, direct-cost or expense account. Do not extract GST.
Select BAS Excluded
Choose Xero’s BAS Excluded tax rate for the confirmed non-GST-registered subcontractor payment.
Check TPAR separately
GST registration and TPAR reporting are different questions. Keep the Xero contact included for TPAR when the payment is reportable.
BAS Excluded does not mean TPAR excluded.
A subcontractor can be outside the GST calculation and still be included in the Taxable Payments Annual Report. These are separate reporting questions inside Xero.
In our experience, using BAS Excluded in Xero has not prevented a reportable subcontractor payment from being captured for TPAR when the contact and transaction are set up correctly.
- Full expense recorded
- No GST credit claimed
- Correct Xero contact attached
- ABN and GST status checked
- TPAR inclusion reviewed
- BAS report reviewed
The BAS may lodge while the Xero file quietly becomes harder to trust.
When every “no GST” invoice is automatically coded as GST Free Expenses, Xero reports can blur together purchases that are legally GST-free and subcontractor payments where the supplier simply is not registered.
That can make BAS reviews slower, create inconsistent coding between bookkeepers and increase the clean-up required at year-end. A documented Xero rule gives the whole bookkeeping team the same answer.
Non-GST-registered subcontractor FAQs
The subcontractor is not GST registered. Which Xero tax rate do you use?+🐰
We select BAS Excluded in Xero, record the full payment to the correct expense account and claim no GST. We also review whether the contractor must be included in TPAR.
Do I divide the invoice total by 11?+🐰
No. If the subcontractor did not charge GST, there is no GST amount to extract from the invoice and no related GST credit to claim.
Why not automatically select GST-free?+🐰
GST-free is a legal classification for supplies covered by GST-free provisions. It should not be used as a universal label merely because an invoice does not contain GST.
Does BAS Excluded make the expense disappear from Xero?+🐰
No. The payment remains recorded in the selected expense or cost account. BAS Excluded controls the tax treatment; it does not remove the bookkeeping transaction.
Can the payment still be included in TPAR?+🐰
Yes. GST registration and TPAR are separate. A non-GST-registered contractor may still need to be reported in the Taxable Payments Annual Report when the relevant rules apply.
How do I check the subcontractor’s GST registration?+🐰
Use the Australian Business Register’s ABN Lookup and check the GST registration history for the invoice date. Keep appropriate evidence with the bookkeeping records.
What if the subcontractor later registers for GST?+🐰
Use their registration effective date and review the invoice issued for each transaction. Do not assume that every historical invoice changes because their current status has changed.
Will BAS Excluded stop the payment appearing in Xero’s TPAR?+🐰
In our experience, it has not prevented TPAR reporting when the Xero contact and transaction are set up correctly. Always review the TPAR report before finalising it.
Get the Xero coding checked before the next BAS.
If your Xero file contains a mixture of GST Free Expenses and BAS Excluded subcontractor payments, we can review the coding and help establish one consistent process.
🥕 Speak Directly to a BAS Agent