How GST works in Australia

The rate, and the two directions people confuse

Australia has had a goods and services tax of 10% since 1 July 2000, introduced by the A New Tax System (Goods and Services Tax) Act 1999. The rate has not changed since. What does change is which direction you are calculating in, and that is where most of the errors come from.

Adding GST is the easy direction. A tradesperson quoting $600 for a job plus GST is charging $660, because $600 × 1.1 = $660. Removing GST is where the intuition breaks. Given a $660 invoice, the GST inside it is $60, not $66.

Adding GST:        total    = ex-GST price × 1.1
GST inside a total: GST      = total ÷ 11
Removing GST:       ex-GST   = total ÷ 1.1

If you only remember one thing, remember that the two directions use different numbers. Multiply by 1.1 going up; divide by 11 coming back down.

Why the GST inside a price is one eleventh

GST is defined as 10% of the GST-exclusive price. Once the tax has been added, the total is bigger than the base it was calculated on, so the tax is a smaller fraction of that total. Writing it out makes the reason obvious.

Take an ex-GST price of $100. The tax is $10 and the total is $110. The tax is 10% of the $100 base, but it is $10 out of $110 of the total — which is one eleventh, or about 9.09%. Taking 10% of the $110 total would give $11, overstating the tax by a dollar and understating the sale price by the same amount.

What is GST-free, and what is input-taxed

Not every sale carries GST, and the two categories of exception behave differently. A GST-free sale has no GST added, but the seller can still claim GST credits on the things it bought to make that sale. An input-taxed sale also has no GST added, but the seller cannot claim those credits.

The food rules are the ones shoppers notice. Fresh fruit and vegetables, meat, plain milk, bread and most basic groceries are GST-free. Prepared and restaurant meals, takeaway, confectionery, snack foods, and most drinks other than milk and water are taxable. That is why a supermarket receipt often shows GST on only some lines.

Who has to register

Charging GST is not optional once you cross a threshold, and it is not permitted before you register. The tests are based on GST turnover, which is your gross business income excluding GST itself, not your profit.

• Businesses must register once GST turnover reaches $75,000 a year, or once they expect to reach it.
• Not-for-profit organisations have a higher threshold of $150,000.
• Taxi, limousine and ride-sourcing drivers must register from the first dollar, regardless of turnover.
• Below the threshold, registration is voluntary. Registering lets you claim GST credits on purchases, but it also means charging GST and lodging activity statements.

Once registered, you charge GST on taxable sales, claim credits for the GST in your business purchases, and report both on a business activity statement. What you send the ATO is the difference between the two, not the GST you collected.

Invoices, records and rounding

A tax invoice is the document that lets a registered buyer claim the GST back. For a purchase over $82.50 including GST, you need one before you claim the credit.

What a tax invoice has to show

• That the document is intended to be a tax invoice
• The seller's identity and ABN
• The date it was issued
• A description of what was sold, including quantity where relevant
• The GST amount, or a statement that the total price includes GST
• The buyer's identity or ABN, for sales of $1,000 or more

Rounding is the last trap. Because a third of a cent of GST cannot be charged, invoices with many lines can differ by a cent or two depending on whether GST is rounded per line or on the invoice total. Both approaches are accepted; the important thing is that the invoice is internally consistent so the GST-exclusive amount, the GST and the total still add up.

How the OzCalc GST calculator handles this

The GST calculator works in both directions from a single amount, so you do not have to remember which divisor applies. It models the standard 10% rate only, which means it does not know whether the particular item you are pricing is GST-free or input-taxed. That judgement is still yours, and the ATO’s GST-free sales guidance is the place to settle it.

For a margin or a discount on top of a GST-inclusive figure, do the GST step separately. Applying a discount to a GST-inclusive total and then extracting GST gives the same answer as discounting the ex-GST price first, but mixing the order with rounding in between is how small discrepancies appear in a quote.

Common questions