Overseas software subscriptions look like the simplest transaction in the file. A card payment to a US company for a SaaS tool, no GST on the invoice, code it and move on. But this is one of the areas accountants most reliably get wrong, because the intuitive answer is often the wrong one. The instinct is "no GST charged, so no GST to worry about," or the opposite, "imported service, so I must self-assess GST under reverse charge." For most GST-registered business clients, neither is quite right, and the correct treatment depends on the client's registration status and how the subscription is actually used. Getting it wrong does not usually break the reconciliation, so it sits in the file until a review surfaces it.
What actually happens when a registered business buys overseas software
Here is the part that surprises people. If your client is registered for GST and buying the subscription entirely for their business, the ATO's position is that the overseas supplier should not charge them Australian GST in the first place. The mechanism is that the client provides their ABN and confirms they are GST-registered, which tells the supplier this is a business-to-business supply, and the supplier leaves GST off the invoice. In that common case there is no GST on the purchase and nothing to claim, because there was never any GST to begin with. The whole system is designed to keep a registered business in the same net position as if they had bought locally, without dragging the overseas supplier into the Australian GST net. So the first practical step is not calculating reverse charge, it is checking whether the client has actually given the supplier their ABN, because many businesses never do, and that changes what shows up on the invoice.
The reverse charge, which everyone reaches for first, is actually the narrower rule. It applies when a GST-registered business imports a service or digital product and would not have been entitled to a full GST credit, most commonly because the subscription is partly or wholly for private use, or relates to making input-taxed supplies. In that situation the client self-assesses 10% GST on the purchase, reports it as GST on purchases in the BAS, and claims back only the portion they are entitled to. For a subscription used fully for taxable business purposes, even where reverse charge technically applies, the GST payable and the input tax credit offset each other for a net-zero effect. The error to avoid is treating every overseas subscription as a reverse-charge event by reflex, when for a fully-business, ABN-provided purchase there is often simply no GST in play at all.
Where it goes wrong in the file
The most common mistake is claiming a GST credit on a subscription that never had GST on it. If the overseas supplier did not charge GST, and no reverse charge applies, there is no credit to claim, but a bank rule or a rushed coding decision that applies a standard GST-on-purchases rate will manufacture a credit out of nothing and overstate the BAS. The second mistake is the mirror image: a client is not GST-registered but is buying imported digital services, in which case they generally do bear GST and cannot claim it back, and treating it as a simple GST-free expense understates their position. The third is the tax invoice problem. Overseas suppliers in the ATO's simplified system are not issued an ABN, they get an ATO Reference Number instead, and without a valid tax invoice a GST credit can be denied even where one would otherwise exist. So "the invoice from the US vendor doesn't have an ABN" is not a paperwork nicety, it can decide whether a credit stands.
How to get overseas subscriptions right
Treat every overseas software subscription as a small decision tree rather than a default code. First, is the client GST-registered? If not, they generally bear the GST and cannot claim it, so it is a cost, not a credit. If they are registered, has the supplier charged GST, and did the client provide their ABN? A registered business buying for full business use should usually see no GST on the invoice, meaning nothing to claim. Where GST does appear or reverse charge genuinely applies, confirm the business-use extent, because that determines how much of the credit is available, and check that a valid tax invoice or acceptable equivalent exists before claiming anything. None of this is exotic once the logic is clear, but it is exactly the kind of small, repeated transaction that a bank rule will code wrong at scale, quietly inflating or understating GST across an entire quarter. Confirm the treatment once, set the client up correctly, and the subscription stops being a recurring source of BAS error.
