GST sounds simple. It is 10%, after all. So how hard can it be? Well, the maths is easy. It is knowing which amount to apply the GST to that can sometimes cause trouble. You have probably seen invoices with prices that say “plus GST”. Others say “GST inclusive”.
Then there are GST-free sales, GST credits and BAS reporting. Suddenly, that simple 10% does not look quite so simple. So let’s break it down.
What is GST?
GST stands for Goods and Services Tax. It is a 10% tax on most goods and services sold or consumed in Australia. If your business is registered for GST, you generally collect GST from your customers. You then report the GST to the ATO through your BAS.
But you may also be able to claim GST credits for eligible business purchases. That means you are not simply paying over everything you collect. You generally account for the difference between GST collected and eligible GST credits.
How do you calculate 10% GST?
Let’s start with the easiest example.
Suppose you provide a service for $1,000 excluding GST. GST is 10%. So, $1,000 × 10% = $100 GST. The customer pays $1,000 + $100 = $1,100. So the final price is $1,100 including GST. Simple enough. But what happens when the price already includes GST? That is where people often make mistakes.
How to calculate GST from a GST-inclusive price
Let’s say your invoice is $1,100 including GST. You cannot simply take 10% of $1,100. That would give you $110. And that is not the GST amount. When a price includes GST, the GST component is calculated using the 1/11th rule. So, $1,100 ÷ 11 = $100 GST. The amount excluding GST is: $1,100 − $100 = $1,000.
So you have : Price excluding GST: $1,000, GST: $100, Total including GST: $1,100. This little 1/11 calculation is one you will use quite often if you deal with GST-inclusive amounts.
Adding GST to a price
Let’s say you sell a product for $500 before GST. You need to add 10% GST. $500 × 10% = $50. Therefore, $500 + $50 = $550. The customer pays $550. It is often useful to show the GST separately on the invoice. That way, there is no confusion about what the customer is actually paying.
Removing GST from a price
Now let’s do the reverse. You receive a payment of $550 including GST. To find the GST: $550 ÷ 11 = $50. To find the amount excluding GST: $550 − $50 = $500. So the original price was $500 and the GST was $50. Once you remember “divide by 11”, GST-inclusive calculations become much easier.
What if the price is not a round number?
Don’t worry. The same method applies. Suppose the GST-inclusive price is $2,750. GST: $2,750 ÷ 11 = $250. Amount excluding GST: $2,750 − $250 = $2,500. So: $2,500 + $250 GST = $2,750. The calculation works exactly the same way.
GST on business purchases
GST is not only about what you charge customers. It also matters when your business buys things. Suppose your business buys equipment for $2,200 including GST. The GST component is: $2,200 ÷ 11 = $200. If the purchase is for your business and meets the requirements for a GST credit, you may be able to claim the $200 GST credit.
This is one of the main reasons proper bookkeeping matters. If you don’t keep the right records, you may not be able to support your GST claims.
GST collected vs GST credits
Here is where GST starts becoming important for your BAS. Imagine that during the quarter: GST collected from customers: $8,000. Eligible GST credits on purchases: $3,000. Your net GST position would be: $8,000 − $3,000 = $5,000
So, in this simple example, you would have $5,000 of net GST to account for. Your actual BAS calculation can involve other amounts and adjustments. But this gives you a basic idea of how the numbers work.
Not everything has GST
This is an important point. Don’t assume that every sale automatically has 10% GST. Some supplies can be GST-free. Others can be input taxed.
GST-free supplies can include certain basic food, health and education services, subject to the relevant rules. Input-taxed supplies include certain financial supplies and residential rental activities.
The GST treatment depends on what you are selling. So before adding 10% to an invoice, make sure the sale is actually taxable.
A common GST mistake
One of the easiest mistakes is adding 10% to the wrong amount. For example, a business owner receives $11,000 including GST and calculates: $11,000 × 10% = $1,100. That is incorrect. The GST component is: $11,000 ÷ 11 = $1,000. The amount before GST is therefore: $10,000
Remember: 10% of a GST-exclusive amount is not the same as the GST component of a GST-inclusive amount. That distinction can save you from a lot of unnecessary corrections.
A quick GST calculation guide
Keep this little cheat sheet handy: To add GST to a price: Price × 10% = GST, Price + GST = GST-inclusive price. To find GST from a GST-inclusive price: GST-inclusive price ÷ 11 = GST. To find the price excluding GST: GST-inclusive price − GST = price excluding GST.
Once you get used to these three calculations, GST becomes much less intimidating.
Don’t let the 10% fool you
The actual GST calculation is usually easy. The tricky part is getting the GST treatment right. Is the sale taxable? Is it GST-free? Is the price GST-inclusive? Are you entitled to claim the GST on that purchase? These are the questions that matter.
So, if you are running a GST-registered business, don’t just rely on a calculator. Make sure your accounting software is set up correctly. Keep your tax invoices and records. And check unusual transactions before they make their way into your BAS. Because when it comes to GST, getting the calculation right is only half the job.
