Most businesses in Australia are subject to goods and services tax, which is 10% on the value of goods or services provided.
It’s important for small business owners to understand how the GST calculation works so they can accurately charge their customers and lodge tax.
This blog post will outline what you need to know about the way that GST calculations work, including some simple formulas that can be used without having to use an online calculator.
GST calculation using quick methods
For each scenario involving the GST, we’ll provide three simple formulas to apply.
1. Let’s say you’re charging a service of $100 plus GST, formula for GST inclusive amount would be
$100 x 1.1 = $110
2. Other times you’d like to know how to calculate GST from a GST inclusive amount. A simplified formula to calculate GST is the total amount of goods or services divided by 11.
For example, if your bill for a tool was $110, then the GST portion would be $10.
$110/11 = $10
$110 – $10 (GST) = $100 is the GST exclusive amount
3. Partial GST e.g vehicle registrations and insurance premiums have GST and GST free components in the bills.
Below is an example of the fee breakdown of a vehicle registration
Say, we don’t know which components are GST and which are GST Free. We need these two amounts in order to enter the bill correctly into the accounting system.
GST inclusive amount
$44.09 x 11 = $484.99
GST free amount
$835.9 – $484.99 = $350.91
Does GST apply to your business?
Are your sales subject to GST or GST exempt?
The types of GST sales for goods and services generally fall into one of the categories below.
Taxable sales: GST applies to most goods and services. Include 10% in the sale price and pay to ATO at the end of the reporting period.
GST free sales: these are included in a lengthy list of goods and services e.g. certain types of – food, medicines, health care and childcare services etc The definition of GST free food is very specific and can be confusing. The GST status of a food item is dependent on how the item is prepared, packaged and sold. E.g. Bread rolls without sweet coating are GST-free. But if they are sold in premises such as restaurants, cafes and most venues, they are NOT GST-free.
It is the business owner’s responsibility to find out whether to charge GST or not.
Input taxed sales: these are GST free sales and you can not claim GST credits on the inputs used to make the sale. E.g. selling or renting existing (non-new) residential premises, buying or selling securities, lending or borrowing money.
Register for GST
If you’ve had a GST turnover of $75,000 or more in the last 12 months (150k for non-profit organisations) then it is mandatory to register for GST. Report sales and business purchases via BAS returns.
If you’re not registered for GST you must monitor your GST turnover. When it goes over the threshold you’ve 21 days to register.
Choosing a right BAS agent to take care of your tax obligations is essential for your business. You may think that you don’t need one, but the truth is that choosing an experienced professional could save you time and money in the long run. A BAS agent will be able to help you comply with your obligations as well as provide support for other responsibilities like reconciliations, accounts, payroll, super and more.
Why not contact us? We’re Melbourne BAS agents who can help you with your tax obligations.