Correctly Calculating the GST Portion of the Full Amount
Calculating GST correctly is an important element to stable cashflow in your business. Correct calculations will allow you to get some cash back from GST credits, while leaving no shocks about the GST you actually have to pay. Incorrect calculations can lead to bill shock, penalties, or worse. So, it is vital that all business owners understand GST and how to calculate it.
To help you, we have created this quick guide into calculating GST so you can get it right every time.
What is the usual GST amount?
GST, or Goods and Services Tax, is a 10% tax placed on most goods and services sold within Australia. A majority of businesses will add GST into the prices of their goods or services for a streamlined experience for customers. You should not include GST as a part of your business’ revenue. It is a tax you collect on behalf of the government and pass on to them via Business Activity Statement lodgements.
Not all goods and services require GST to be added onto their sale price. If you sell GST free items, it is important that you do not charge GST on the items. An example of this can be found on your supermarket receipt. Items to which GST has been applied usually have an asterisk or other type of mark next to it. An easy exercise to practice is to sum all the total on GST applicable items and calculate the GST applicable using our online GST calculator. You can then check if the total GST charged by the supermarket is correct.
To find out more about which items are GST free keep reading, more on that later.
Why you need to include GST on your tax invoice
Tax invoices are a part of every GST registered business’ obligations. They are designed to help other businesses looking to claim GST credits off the product or service they purchased from you. Before registering for GST, you should ensure that you are prepared to begin issuing tax invoices after your registration date.
When you issue a tax invoice you should clearly label the amount of GST the customer has paid on the purchase. This will allow them to easily claim GST tax credits when they lodge their next BAS. There is a lot of different software platforms you can use to help create tax invoices easily and you can always check your GST calculations using our online GST calculator.
Some products and services are exempt from GST. These GST-free items generally include basic foods, certain education courses, healthcare or medical products, and more. It is important to know which goods or services that you are selling are GST free. Here are some goods and services that are exempt from GST:
- basic foods
- certain education courses, course materials and excursions or field trips that are related
- some medical, health and care services
- some menstrual products (from 1 January 2019)
- some medical aids and appliances
- certain medicines
- certain childcare services
- some religious services and charitable activities
- supplies of accommodation and meals to residents of retirement villages by some operators
- cars for disabled people to use, as long as requirements are met
- water, sewerage and drainage
- international transport and related matters
- precious metals
- sales through duty-free shops
- grants of land by government
- international mail
- sales of businesses as going concerns
- some telecommunications supplies
- eligible emissions units.
If you are unsure whether the goods or services you sell fall under these categories you should talk to your accountant. They will have the information you need to help you determine when and when you should not charge GST.
How to calculate your GST
Calculating GST is easy when you have the right tools. For accurate calculations every time, check out our GST calculator. With its simple and easy to use layout you can calculate how much GST you need to charge or how much GST you were charged with ease. Check it out today!