Concepts

Tax-inclusive

Tax-inclusive describes a price that already has GST built in, so the total shown is the amount the customer pays, with one-eleventh of it being GST.

A tax-inclusive price is one where GST is already included in the amount shown. If a product is advertised at $110 and the price is GST-inclusive, the customer pays $110 in total, of which $10 is GST and $100 is the GST-exclusive price. The opposite is a tax-exclusive price, where GST is added on top. For most consumer sales in Australia, businesses must show or quote the total price, including GST.

The calculation is straightforward. The GST in a GST-inclusive price is one-eleventh of the total, often called dividing by 11. To find the GST-exclusive price, divide the inclusive price by 1.1, or subtract the GST amount. Do not take 10% of the inclusive price, because that gives the wrong answer. Ten per cent of $110 is $11, but the actual GST in a $110 price is $10.

Tax-inclusive pricing affects invoices and records. A tax invoice must show the GST amount or state that the total price includes GST, depending on the type of invoice and the circumstances. For purchases over $82.50 including GST, a valid tax invoice is needed to claim a credit. In your accounting software, you can usually enter amounts as tax-inclusive or tax-exclusive, and the software does the maths based on the code you select.

The term is also used in practical business decisions. When setting prices, a business needs to decide whether to build GST into the sticker price or add it at the checkout. Businesses that sell to consumers typically use tax-inclusive pricing. Businesses that sell to other businesses commonly quote tax-exclusive prices, because the buyer can usually claim the GST back. Clarity in quotes avoids disputes about whether GST has been included.

Mistakes occur when the two are confused. If you quote $5,000 for a job intending it to be tax-exclusive, but the customer assumes it is tax-inclusive, you could end up receiving $4,545.45 excluding GST instead of $5,000, with $454.55 of the money owed to the ATO. A quote should state clearly whether GST is included, or show the GST as a separate line.

A common misunderstanding is believing that GST is simply 10% of the price shown on a receipt. In a tax-inclusive price it is one-eleventh. Another is assuming that all prices include GST. Some quotes, contractor rates and trade prices are quoted excluding GST. Always check. This is general information only, so confirm how this applies to you with the ATO or a registered tax professional.

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