If you own a business in Australia, collecting and paying Goods and Services Tax (GST) is one of your most important obligations. Do you know how to calculate GST?
How to Calculate GST in Australia
Before you include GST in one of your business headaches, ensure you meet the conditions that make you eligible to impose GST on your products and services.
If you meet the following conditions, you need to add GST to your products and services:
- You have an annual turnover of $75,000 or more, or $150,000 or more for non-profit organisations or a taxi travel or ride-sourcing provider.
- Products and services are taxable or not classified as GST-free or input-taxed sales. Examples are sales of basic food and residential accommodation.
Adding GST to Products and Services
The computation is straightforward if you add GST to the products and services.
Here’s the formula:
GST = (Price of the item x 0.10)
Example: If the exact price of your product or service is $100, using the formula, the GST is $10.
You can quote your product and services as GST inclusive or Plus GST.
GST inclusive refers to the quoted price for a product or service that already includes the 10% GST. Customers don’t need to pay additional GST when they buy the item.
Example: If your quoted price is $100 (GST inclusive), the customer will pay $100 and no more.
Meanwhile, Plus GST is a quoted price for a product or service that doesn’t include the 10% GST. Customers must pay the additional 10% GST when they buy your item.
Example: If your quoted price is $100 (plus GST), the customer will pay $100 plus an additional $10 GST, for a total of $110.
How to Calculate GST From the Total (Reverse Charge)?
This is the part where it gets tricky.
You might say subtracting GST from the total shouldn’t be your problem, as it is a good and services tax imposed on the customers, not the sellers. It can be true unless you are the buyer yourself. If you are a business owner who needs supplies or raw materials to come up with your goods, you must be a buyer yourself.
According to ATO, your purchase can be subjected to GST if your transaction is done outside Australia or through a business carried on by a seller outside the country. And it falls under these conditions:
- You purchase a thing solely or partly for the purpose of a business that you carry on in Australia
- Your purchase is partly of a private or domestic nature or relates partly or solely to making input-taxed supplies
- The sale to you is for payment
- You are registered or required to be registered for GST.
If you meet these conditions, you should know how to calculate your GST in reverse.
To know the reverse charge GST from the total price, follow this formula:
GST= Total price/11
Example: If the total price is $100, then $100 is divided by 11. The reverse charge GST is $9.09
But if you want to know the price (without the GST) and you also don’t know the GST, here is the formula:
Price (without the GST)= total price/1.1
Example: If the total price is $100, divide it by 1.1, and then the price without the GST is $90.91
Tips for staying compliant with GST laws
- Keep records of all your sales and purchases.
- Issue invoices.
- Remit GST collected to the Australian Taxation Office (ATO) regularly.
- Review your GST calculations periodically.
- Seek the advice of an accountant or tax professional.
What Is GST?
GST is a 10% value-added tax imposed on most goods and services. It is added to the product or service price.
Running a business can be profitable, but it also comes with an obligation to give back. An example is paying your dues and fulfilling your responsibility as a business owner in Australia.
GST can have an impact on the profitability of your business. Hence, business owners should understand how GST works and the laws and regulations, as the ATO may audit your business from time to time.
There are tons of free software on the internet that automatically calculates GST for you. But as a business owner, every penny counts. It’s important to understand what you are paying for and if you are paying the right amount.
For business coaching and more guidance, contact us today!