GST core
GST-exclusive price
A GST-exclusive price is the price before GST is added, so you multiply it by 1.1 to find what the customer will pay, with GST being 10 per cent of the exclusive amount.
A GST-exclusive price is the price of a good or service before any GST is added. If a service is quoted at $100 plus GST, the exclusive price is $100, the GST is $10, and the total payable is $110. Business-to-business transactions are often quoted this way, because registered businesses can claim back the GST and focus on the underlying cost.
To work out GST on an exclusive price, multiply by 10 per cent, or by 0.1. To find the total price, multiply by 1.1. The exclusive price is also what you use when comparing costs between suppliers, since GST is claimed back by registered businesses and the comparison should therefore ignore it, provided that the purchase is fully creditable.
Using the exclusive price is also useful in accounting. Most accounting software records the exclusive amount as income or expense and records the GST separately in the GST control account. Your profit and loss statement is generally shown without GST for a registered business, while your cash flow includes the GST that has been collected and paid.
Be careful when quoting. If a quote does not say whether it includes GST, a customer may assume it is inclusive, and the business may be left to pay the GST out of the quoted amount. Consumer-facing prices must be inclusive of GST. A quote to a business can show an exclusive price, but the GST should be clearly shown, so that the total is not misleading.
Common misunderstandings include thinking the exclusive price is cheaper than the inclusive one in a real sense for a non-registered buyer. For an individual or unregistered business that cannot claim credits, the GST is a real cost. Another is working out GST by multiplying the inclusive price by 10 per cent, which gives too much. The correct approach depends on which price you start with.
When setting up price lists, include columns for exclusive price, GST and inclusive price, so staff and customers can see how the price is made up. This content is general information only, so confirm your approach with the ATO or a registered tax professional.
Worked example
A registered web designer quotes a client $2,500 plus GST. The GST is $2,500 x 10% = $250, so the total on the tax invoice is $2,500 + $250 = $2,750. Checking: $2,750 / 11 = $250. The designer reports $250 as GST on sales, and the client, if registered, can claim $250 as a credit.
Practical tips
- Say plus GST on quotes to businesses and show the GST amount and total, so there is no confusion.
- To add GST to an exclusive price, multiply by 1.1, or take 10 per cent and add it.
- Use exclusive prices when comparing business suppliers, but remember that non-registered buyers cannot claim the GST back.