GST is 10%, so it sounds like the easiest tax calculation there is. Adding it is. Taking it back out is where most mistakes happen. Here are the three calculations you will actually use, and the reason the “divide by 11” rule works.
1. Adding GST to a price
A $250 service becomes $250 × 1.1 = $275. The GST is $25.
2. Removing GST from a price
A $275 total becomes $275 ÷ 1.1 = $250.
3. Finding the GST inside a total
$275 ÷ 11 = $25.
Why divide by 11 and not 10?
A GST-inclusive price is 110% of the original price: 100% for the goods and 10% for the GST. Think of it as 11 equal parts. Ten parts are the price and one part is the GST, so the GST is one eleventh of the total.
This is why taking 10% off a GST-inclusive price gives the wrong answer. 10% of $275 is $27.50, not $25.
A worked invoice
| Item | Ex GST | GST | Inc GST |
|---|---|---|---|
| Labour, 4 hours at $85 | $340.00 | $34.00 | $374.00 |
| Materials | $120.00 | $12.00 | $132.00 |
| Total | $460.00 | $46.00 | $506.00 |
Check: $506 ÷ 11 = $46.
Do you need to charge GST at all?
Only if you are registered. Registration is compulsory once your GST turnover reaches $75,000 ($150,000 for non-profit organisations), and for taxi and ride-share drivers from the first dollar. Below the threshold it is optional.
Not everything has GST on it. Most basic food, and some health and education services, are GST-free. If you sell a mix, calculate GST only on the taxable items.
Quick tips
- Quotes to other businesses are usually given “plus GST”. Prices shown to consumers must include it.
- Round GST to the nearest cent on the invoice total.
- Keep tax invoices for purchases over $82.50 including GST so you can claim the credit.
Try it with your own numbers: open the GST calculator.