GST core
One-eleventh rule
The one-eleventh rule is the shortcut for finding the GST inside a GST-inclusive price: divide the total by 11, and the result is the GST component of that price.
The one-eleventh rule exists because Australian GST is charged at 10% on top of the price of a taxable supply. If something sells for $100 before GST, the customer pays $110. The GST is $10, and $10 is exactly one-eleventh of $110. So whenever you hold a GST-inclusive total and need to know how much of it is GST, you divide that total by 11. Dividing by 11 is the same as multiplying by the GST fraction.
Many business owners go wrong by taking 10% off the total instead. Ten per cent of $110 is $11, which overstates the GST by a dollar and understates the real price. The reason is simple: the 10% is calculated on the GST-exclusive amount, not on the amount after GST has been added. Working backwards therefore needs the one-eleventh calculation, not a straight 10% reduction.
In day-to-day practice the rule is used constantly. A shop that records takings from a cash register has a GST-inclusive total for the day, and the GST collected is that total divided by 11. A sole trader who pays a $220 supplier bill can see that $20 is GST and $200 is the price excluding GST. Accounting software does the same sum automatically when a transaction is coded as GST-inclusive, so understanding the rule helps you check that the software is coded correctly.
The rule matters for the Business Activity Statement because the GST you collect on sales is reported at label 1A and the credits you claim on purchases at label 1B. If you have only GST-inclusive figures from receipts or bank records, the one-eleventh rule lets you split out the correct amounts. It also applies when a price is quoted to consumers, because prices shown to the public for most goods and services must include GST.
The rule only works when the whole amount is subject to GST. If part of a sale is GST-free, such as certain food or health items on the same invoice, or part is input-taxed, then you cannot divide the whole total by 11. You first separate the taxable portion and apply the rule to that portion only. Likewise, where a supply is not taxable at all, there is no GST to find, however you do the arithmetic.
The rule also helps with the margin scheme and some special cases, where GST is worked out as one-eleventh of a margin or a sale price rather than the full invoice value. In those cases the principle is the same, but the amount you divide is different, so the rules for the specific scheme need to be followed carefully.
Common mistakes include applying the rule to a GST-exclusive figure, forgetting to round correctly, and using it on amounts that include GST-free items. This page is general information only, so confirm how it applies to your circumstances with the ATO or a registered tax professional.
Worked example
A cafe records $4,620 in taxable sales for the week, and the register total includes GST. The GST collected is $4,620 divided by 11, which is $420. The sales excluding GST are $4,620 minus $420, which equals $4,200. Taking 10% of $4,620 would wrongly give $462, an overstatement of $42 that would flow through to the BAS and leave the cafe overpaying GST.
Practical tips
- Never take 10% off a GST-inclusive total. Divide by 11 to get the GST and subtract that to get the GST-exclusive price.
- Separate any GST-free or input-taxed items before applying the rule, because the rule only works on the taxable portion of an amount.
- Check that your accounting software codes each transaction as GST-inclusive or GST-exclusive correctly, since a wrong setting will make every calculated figure incorrect.