How to calculate GST: why you divide by 11, not 10

GST is 10% of the price before GST – not 10% of the price your customer pays. That distinction sounds like hair-splitting and it is not. Getting it backwards is the most common arithmetic mistake in Australian small business, and it quietly costs you money on every invoice.

Going up: adding GST to your price

You want $500 for the job. GST is 10% of that:

• Your price: $500

• GST: $500 × 10% = $50

• What you invoice: $550

Straightforward, and this is the direction everyone gets right.

Coming down: finding the GST inside a total

Now reverse it. You have a $550 invoice and need to know how much belongs to the ATO. It is not 10% of $550:

• GST: $550 ÷ 11 = $50

• Yours to keep: $500

The divisor is 11, not 10, because $550 is 110% of your price. The GST is one part in eleven of the total – 9.09% of it, not 10%.

The mistake, and what it costs

Take 10% off the total instead: $550 less 10% is $495. That makes the GST look like $55.

But the GST is $50. So you would:

• hand the ATO $5 more than you owe

• record $5 less income than you actually earned

Note which way that runs. It is an error that costs you, not the ATO – which is exactly why nobody comes to correct it. An underpayment gets a letter; an overpayment sits there quietly forever.

Across a quarter of invoices it is roughly 0.9% of everything you invoice, given away for nothing.

Why it matters beyond the arithmetic

The same one-eleventh explains a question every business near the threshold asks: if you register for GST and hold your prices, you do not lose 10% of your revenue – you lose 9.09%, because you are giving up one-eleventh of what you already charge rather than adding 10% on top.

Two different numbers describing the same change from opposite ends. It is also why a backdated GST registration hurts so much: you owe one-eleventh of everything you invoiced before registering, out of your own pocket, because you never charged it.

Not every sale carries GST

Before any of the arithmetic applies, the supply has to be taxable in the first place. Two categories are commonly confused, and getting them the wrong way round distorts every statement:

• GST-free – most basic food, most medical and health services, most education. You charge no GST, and you still claim credits on related purchases.

• Input-taxed – residential rent and most financial supplies. You charge no GST, and you cannot claim credits on the related expenses.

The difference is entirely in that second half. Both look identical on an invoice; only one lets you recover what you spent.

Exports are GST-free too, and that is the good category to be in. You charge your overseas customer no GST and still claim back the GST on everything you bought to make the sale – so an exporter is often in a refund position rather than a paying one, quarter after quarter.

The conditions matter. Exported goods generally have to leave Australia within 60 days of the earlier of payment or invoice, and services supplied to overseas customers have their own tests. Get it wrong and a sale you treated as GST-free becomes a taxable one you never charged for.

On your expenses, check before you divide

The same ÷ 11 gives you the GST credit on what you buy – but only if there was GST there to begin with, and often there is not. Dividing every expense by 11 invents credits you are not entitled to.

Two reasons an invoice may carry no GST:

• The supplier is not registered. Below $75,000 turnover registration is optional, so plenty of sole traders, contractors and small suppliers are not registered. Their invoice has no GST in it, whatever the amount looks like.

• The supply itself is GST-free or input-taxed. Bank fees and interest, residential rent, most basic food, many medical and health services. No GST is charged, so none can be claimed.

So read the invoice. A valid tax invoice states the GST amount, or says the total includes GST, and shows the supplier's ABN. If it says neither – or there is no ABN – treat it as carrying no GST rather than assuming. ABN Lookup will confirm whether a supplier is registered.

For anything over $82.50 including GST, you need a valid tax invoice to claim the credit at all.

Where this usually goes wrong in practice

Rarely in a single calculation. It goes wrong in the systems around it:

• Invoice templates set up to add a "10% GST" line to a total that already includes GST

• Spreadsheets that strip GST with ×0.9 instead of ÷1.1

• Cash sales entered as gross in one place and net in another, so the two never reconcile

Software gets this right when it is set up right. The errors we see are almost always configuration, not arithmetic – which is why they persist for quarters at a time rather than being caught on the next invoice.

If your BAS never quite reconciles to your accounts, this is the first thing worth checking. It is also the sort of thing that stops happening once someone else is doing the bookkeeping on a proper cycle.

The short version

• Add GST: × 1.1

• GST inside a total: ÷ 11

• Price before GST: ÷ 1.1

• Never take 10% off a GST-inclusive total