GST on NDIS Services: Compliance Guide & Exemptions (FY 2027)

A common misconception in the disability sector is that all NDIS services are automatically GST-free. In reality, the Australian Taxation Office (ATO) has strict criteria that must be satisfied for a service to be exempt from GST. As NDIS providers scale and navigate the 2026–27 financial year (FY 2027), getting your GST settings wrong in Xero can trigger major liabilities during a BAS review. This guide breaks down s.38-38 of the GST Act and explains how to keep your billing compliant.

1. The Legal Framework: Section 38-38

Under Section 38-38 of the A New Tax System (Goods and Services Tax) Act 1999, a supply of disability support is GST-free if it meets the following three conditions:

1. The participant has a current NDIS plan: The client must be a registered NDIS participant with a plan in place under the NDIS Act.
2. The support is reasonable and necessary: The services delivered must fall within the participant’s plan goals and support allocations (Core, Capacity Building, or Capital).
3. There is a written agreement in place: The provider and the participant (or their representative) must have a written agreement that identifies the participant, references their NDIS plan, and states that the support is a supply under the NDIS.

If any of these conditions are not met, the supply is technically taxable, and you must charge GST.

2. Mismatched Invoices and Agreements

The most common compliance failure is the absence of a signed written agreement. If you provide supports to a participant without a signed service agreement, the ATO does not recognize the GST-free exemption. Even if the service is paid for by a plan manager, the ATO can audit your books, declare those sales as taxable supplies, and demand you pay 1/11th of the historical income as GST. This can wipe out a small provider's margins overnight.

3. What is Taxable vs. GST-Free?

While standard disability support work, occupational therapy, and plan management fees are GST-free (assuming the written agreement condition is met), certain secondary services are taxable:

• Non-NDIS Supports: If a client’s NDIS funding runs out and they choose to pay for services privately, these services generally attract GST unless they qualify under other health-related exemptions (s.38-7 or s.38-10).
• Sub-contracted Services: If you subcontract support work to another provider, the transaction between you and the subcontractor may attract GST, even though your invoice to the participant is GST-free. Consult a tax agent to structure these arrangements correctly.
• Mainstream Commercial Goods: Purchasing standard consumer items (like generic iPads or gym memberships) using NDIS funding is generally subject to GST at the point of purchase.

4. Configuring GST in Xero

To avoid manual errors, configure your invoicing template and contact settings in Xero:

1. Set Contact Tax Defaults: For all NDIS participants or plan managers, edit their contact profile and set the default sales tax rate to GST Free Income.
2. Audit Your BAS Settings: In your chart of accounts, ensure your NDIS revenue account is flagged as "GST Free Income". When you run your activity statements, these sales will map directly to box G3 (GST-free sales) rather than G1 (Taxable sales).