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GST and income tax are different taxes with different bases and collection paths. GST is charged on most goods and services consumed in Australia: consumers generally bear the cost through prices, while registered businesses report the tax and remit the net amount to the Australian Taxation Office (ATO). Income tax is charged on individuals’ taxable income and enterprises’ taxable profits, with liabilities commonly collected through withholding, instalments or tax returns.
Neither tax is legally tied to one named service. GST revenue enters a Commonwealth pool that is granted to states and territories, while income-tax receipts support the Commonwealth budget. Governments then combine those receipts with other revenue and borrowing to pay for public services.
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The difference in one table
| Question | GST | Income tax |
|---|---|---|
| What is taxed? | Consumption: most goods and services sold or consumed in Australia. | Income earned by individuals and profits earned by companies and other enterprises. |
| Who generally bears the cost? | Consumers, because GST is generally included in the prices of taxable supplies. | Individuals with taxable income and enterprises with taxable profits. |
| Who reports and collects it? | The ATO administers GST. Registered businesses account for GST collected and claim eligible credits on business purchases. | The Commonwealth collects individual, non-resident and enterprise income taxes. PAYG withholding and instalments are common collection mechanisms, but arrangements differ by taxpayer. |
| Where does the revenue go? | The Commonwealth grants GST revenue to states and territories. The untied GST pool is distributed under arrangements that assess states’ spending needs and revenue-raising capacity. | Receipts enter Commonwealth revenue and are allocated through budget and appropriations processes. |
| Main qualification | GST applies to most, not every, supply. Exceptions, GST-free or input-taxed treatment and registration rules can change the result. | Tax depends on taxable income or profit and the rules that apply to the taxpayer. Not every dollar of gross income is taxed at one universal rate. |
This comparison uses “GST” in its Australian sense. Rules and names differ in other countries.
What GST is and who pays it
GST taxes consumption
Goods and services tax is a consumption tax. It applies to most goods and services sold or consumed in Australia, subject to the categories and registration rules in the GST law. The tax is encountered at the point of sale: a taxable supply is priced with GST, so the final customer generally pays it as part of the transaction.
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That economic burden is different from the legal reporting duty. A GST-registered business normally adds GST to taxable sales, keeps records of GST collected and GST paid on eligible business purchases, and reports the net amount to the ATO. The business is the reporting and remitting party; the consumer is generally the person who bears the cost because the tax is embedded in the price.
Most does not mean all
The ATO describes GST as applying to most goods and services, not every transaction. Whether a sale carries GST can depend on the nature of the supply and the supplier’s circumstances. Some supplies can be GST-free or input-taxed, and a business that is not required or entitled to register may have different obligations. A general explanation cannot determine the treatment of a particular product, service or business.
Input credits prevent tax cascading for registered businesses
A registered business can generally claim eligible credits for GST included in the price of business purchases. It then compares those credits with GST charged on its taxable sales. If sales GST is higher, the net amount is generally payable; if credits exceed the amount collected, the business may be entitled to a refund, subject to the normal rules and records. The credit mechanism is why the consumer-facing charge and the business’s net remittance are not the same number.
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- A customer buys a taxable supply. The advertised or invoiced price generally includes GST where the supply is taxable and the seller is accounting for GST.
- The registered seller records the transaction. Its bookkeeping separates GST collected on sales from the underlying sale value.
- The seller records eligible business GST credits. GST paid on qualifying business inputs can reduce the amount ultimately payable, provided the business meets the relevant requirements.
- The business reports to the ATO. It lodges the required activity statement or other report and pays the net GST, or receives a credit or refund where the rules produce one.
- The Commonwealth accounts for the revenue. The ATO administers and collects GST, but the GST Act provides that the Commonwealth grants GST revenue to the states and territories.
- The GST pool is distributed. The Commonwealth Grants Commission describes the pool as untied: states can use their allocation for their responsibilities, with distribution reflecting assessed differences in spending needs and revenue-raising capacity.
This chain explains why “the shop pays GST” is incomplete. The shop usually handles the return and remittance, while the person buying the item generally bears the tax in the price.
What income tax is and who pays it
Individuals pay on taxable income
Individual income tax is based on taxable income under the rules applying to the person. Taxable income is not simply every dollar that enters a bank account: the calculation can depend on assessable income, allowable deductions, residency and other circumstances. The applicable rates, thresholds and offsets are set by law and can change. The sources for this comparison do not determine an individual’s liability.
Employees often see income tax collected before they receive their full wages. Under the pay-as-you-go (PAYG) system, an employer withholds amounts as income is earned and sends them to the ATO. Those amounts are credited against the employee’s annual liability, which is reconciled through the tax-return process. PAYG withholding is a collection method, not a separate tax.
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Companies and other enterprises pay on profits
The Commonwealth also collects income tax on company income and the profits of other enterprises under the rules that apply to each entity. A company’s tax base is its taxable profit, not its gross sales. Revenue, deductible expenses, depreciation, losses and other provisions can affect the result. The precise calculation depends on the entity and the relevant tax law.
The Parliamentary Budget Office separates individual income tax, non-resident income tax, company income tax and other categories in its Australian government tax table. That distinction matters: “income tax” is a family of tax receipts from different taxpayer groups, not a single bill paid in the same way by everyone.
Collection can happen during or after the year
Income tax may be collected through PAYG withholding from wages, PAYG instalments for some business and investment taxpayers, and payments made when a return is assessed. These mechanisms help meet an annual liability as income is earned, but taxpayers do not all have identical arrangements. A final assessment can produce an amount payable or a refund.
What each tax funds
Taxes enter public budgets rather than named envelopes
Australian government education material explains that taxes pay for government services. Examples at the Australian Government level include the defence force, national parks and pension payments; it also identifies interstate railways among publicly funded infrastructure and services. Those examples illustrate the role of taxation revenue, not an accounting promise that a particular tax dollar is spent on a particular item.
The reviewed government sources do not establish a one-to-one match such as “this GST dollar pays for a hospital bed” or “that income-tax dollar pays a pension.” Governments budget from total revenue and other financing, then appropriate funds to programs. A defensible description is that tax revenue helps fund services.
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States and territories are responsible for major services including hospitals, schools, justice, public housing and transport. They use their GST allocation alongside their own taxes, charges, grants and other Commonwealth payments. Because GST is untied, a state is not required to spend each dollar on a particular service category.
The GST distribution system is intended to account for differences between jurisdictions. The Commonwealth Grants Commission assesses relative spending needs and revenue-raising capacity before recommending how the pool should be allocated. A state with higher assessed costs or a weaker capacity to raise revenue can receive a different per-person share from another state. The allocation is therefore not a fixed equal payment to every jurisdiction.
Commonwealth services supported by income-tax receipts
Income tax is a major source of Commonwealth taxation revenue. It supports the Commonwealth’s overall budget, which finances federal responsibilities and payments to other levels of government. Spending decisions are made through the budget and appropriations system, so income-tax receipts are not earmarked exclusively for defence, pensions or any other single program.
Federal, state and local responsibilities overlap through grants and shared programs. For example, a Commonwealth payment can support a service delivered by a state. That makes it misleading to assign a service solely to the tax most visible in a particular transaction.
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The legal pathway
The A New Tax System (Goods and Services Tax) Act 1999, in the version dated 15 February 2025, provides that the Commonwealth grants GST revenue to the states and territories. The ATO’s role is administration and collection; it does not mean the ATO chooses a hospital, school or road for each amount collected.
The untied pool
The Commonwealth Grants Commission describes GST revenue as untied. Once distributed, the states can apply it to their broad responsibilities. The distribution formula considers assessed differences in the costs of providing services and in each state’s ability to raise revenue. The formula is designed to support comparable service capacity, not to reimburse a consumer’s purchase to the state where that purchase occurred.
What “state funding” does and does not mean
It is accurate to say GST revenue is granted to states and territories and helps support state services. It is inaccurate to say GST funds only state services, because states also receive other Commonwealth payments and raise their own revenue. It is equally inaccurate to say a specific GST payment is reserved for one service. The budget process determines how the untied funds are used.
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Where income-tax money goes
Income-tax receipts are Commonwealth revenue. They are combined with other receipts and financing, then allocated through the federal budget. The Parliamentary Education Office lists public services such as defence, pensions, national parks and national infrastructure among the areas governments fund from taxation and other public resources.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsThe Australian Taxation Office states: “The ATO collects tax so that government can deliver services for the Australian community.” That statement describes the purpose of collection without assigning income tax to a single program. The same caution applies when discussing individual and company income tax: both contribute to the Commonwealth’s general fiscal capacity, even though they are reported by different taxpayers under different rules.
Figures that put the distinction in context
Published totals can help show scale, but they must be read with their date and category. The following figures are not interchangeable annual measures.
| Figure | What it measures | Qualification |
|---|---|---|
| $87,908 million | GST revenue in 2022–23 | Parliamentary Budget Office appendix, published 2025; the table identifies consumers as payer and the ATO as collector. It is a historical GST amount, not a current forecast. |
| $153,158 million | Company income tax in 2022–23 | Parliamentary Budget Office appendix, published 2025; this is company income tax only, not all individual, non-resident and enterprise income tax. |
| $636.3 billion | Net tax collections in 2024–25 | ATO annual report, 2025; total net tax collections across categories, up 4.2% from the prior year. It is not GST alone or income tax alone. |
| $338.3 billion | Individual and other withholding tax collections in 2024–25 | ATO annual report category; it is not a complete measure of all income tax and should not be substituted for total individual income-tax liability. |
The different years and definitions prevent a like-for-like comparison. A 2022–23 GST figure cannot be compared with 2024–25 total tax collections to infer which tax is larger today.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Examples of who pays and who reports
A household buying a taxable service
The household pays the seller’s GST-inclusive price when the service is a taxable supply. It normally does not lodge a GST return for that purchase. The seller records the GST, claims any eligible business credits and accounts to the ATO.
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A GST-registered business buying equipment
The business pays the supplier’s price, including any GST charged. If the purchase is an eligible business input and the record requirements are met, the business can claim the corresponding credit. Its eventual GST remittance reflects GST collected on taxable sales less allowable credits, rather than simply the GST appearing on one invoice.
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An employee receiving wages
The employee’s employer may withhold PAYG amounts from wages as they are earned. The employee’s annual tax return determines the final position after considering the income and deductions relevant to that person. The withholding amount is a prepayment mechanism, not evidence that every employee has the same final tax rate.
A company selling products
The company can have two separate tax questions. GST concerns taxable supplies, GST collected, and eligible credits on business purchases. Income tax concerns the company’s taxable profit. A company may have GST reporting obligations even in a period when its income-tax outcome differs, because the two taxes use different bases.
A state government planning its budget
The state receives its GST allocation from the pool and combines it with state revenue and other payments. It then decides how to fund hospitals, schools, justice, housing, transport and other responsibilities through its budget. The GST allocation is not a voucher labelled for one department.
Common misunderstandings and how to avoid them
- “The business pays GST.” The business generally reports and remits it, but consumers usually bear the economic cost through prices. Keep the incidence and compliance roles separate.
- “Everything has GST.” The tax applies to most supplies, not all. The status of a particular supply and the supplier’s registration matter.
- “GST stays where it was collected.” GST revenue is placed in a pool and granted to states and territories under the distribution arrangements; it is not simply retained by the state in which a sale occurred.
- “GST pays for hospitals and income tax pays for pensions.” Services are funded through budgets. Neither source establishes an exclusive one-tax-to-one-service link.
- “Income tax is charged on every dollar earned.” Liability is based on taxable income or profit after the applicable rules, not a universal treatment of gross receipts.
- “A withholding figure is the final tax bill.” PAYG withholding helps meet an annual liability; the final result is determined through assessment.
- “The published totals are directly comparable.” Check the year, publisher and category. GST, company income tax, withholding tax and total net tax collections measure different things.
What this means for personal and business decisions
When you are budgeting as a consumer
Assume that a taxable purchase may include GST in its displayed or invoiced price, but do not assume every item is treated identically. If the tax treatment affects a large purchase, check the invoice and the supplier’s explanation rather than inferring it from the product name alone.
When you run a business
Keep sales and purchase records that distinguish GST amounts, determine whether registration and reporting rules apply, and retain the documents needed for any credits claimed. GST bookkeeping should be kept separate from calculations of taxable profit for income tax, because the two systems answer different questions.
When you receive wages or business income
Read PAYG withholding or instalment amounts as payments toward an annual income-tax position. Keep records of income and deductible expenses and consider residency and entity-specific rules. A general comparison cannot calculate your liability; professional advice may be appropriate for a complex or unusual situation.
Bottom line
GST taxes consumption and is generally borne by consumers, with registered businesses collecting and remitting the net amount. Income tax taxes individuals’ taxable income and enterprises’ taxable profits. GST revenue is granted to states and territories through an untied pool, while income-tax receipts support the Commonwealth budget. Both help fund public services through government budgeting, but neither is a dedicated payment for one named service.
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