The Goods and Services Tax (GST) rate is 10% of the base cost. If you have paid for any product or service in Australia, you’ve likely paid GST.
For businesses, it is essential to get GST right, as failing to calculate GST properly can have a wide range of consequences.
How is GST calculated?
There are two ways to determine the GST amount for a good or service. If you are trying to find the total price including GST amount, you multiply the figure by 1.1.
GST Formula (inclusive)
GST INCLUSIVE =
100 x 1.1 =
110 (GST inclusive price)
GST Formula (exclusive)
If you are looking for the total price excluding GST, then you divide the price including GST by 11 and subtract:
GST EXCLUSIVE =
100 / 11 =
90.90 (GST exclusive amount)
9.09 GST amount
GST and running a business
Handling GST is part of running a business. Under the Australian Tax Office (ATO)’s mandate, businesses that generate $75,000, or $150,000 for non-profits, meet the threshold for compulsory GST registration. Those that earn below the threshold (GST turnover) aren’t required to charge GST on invoices they send out, and can also request bills they receive to exclude the GST component. However, GST-registered businesses will often request GST be added to transactions for tax reasons, like when they file their business activity statement.
For instance, if you are registered for GST and charge it on your goods or services, your invoice must reflect this by including ‘Tax invoice’ at the top of the document, as it is a taxable sale.
What are GST credits?
GST credits are part of a tax compliance system that falls under business activity statements (BAS). Essentially, during operation, a business collects and pays GST on various transactions. When a business’s BAS is due, the company calculates the GST it paid and collected during the financial period. Depending on how much GST is involved, you can either get a refund (GST credits) from the ATO or owe them (GST payable) if you collect more GST than you paid.
How to claim GST credits?
To claim GST credits, you first need to complete your BAS and send it to the ATO for review. Once reviewed, if it is found that you paid more GST than you collected in your BAS, the ATO will refund you the amount.
GST calculations and your business
GST is an important tax that small business owners need to understand, as it has far-reaching effects on how you operate, how you charge, and how you file your taxes (Business Activity Statement). To make sure that you calculate GST correctly, here is our GST Calculator. If you want to eliminate manual entry admin time from your accounts and bookkeeping, Reckon software can help you automatically calculate GST.
