How to Calculate GST for an Australian Business
Navigate Australian GST: Learn how businesses identify transactions, perform net calculations, and report Goods and Services Tax to the ATO.
Australia’s Goods and Services Tax (GST) operates as a broad-based consumption tax applied to most goods, services, and other items sold or consumed within the country. This taxation system requires businesses to collect GST on their sales and allows them to claim credits for the GST included in their business purchases. Understanding the mechanics of this tax, from identifying applicable transactions to performing calculations and reporting to the Australian Taxation Office (ATO), is fundamental for business compliance.
Identifying Transactions Subject to GST
Businesses must first discern which of their sales are subject to GST. A “taxable sale” involves goods or services supplied in Australia for payment, in the course of an enterprise, and includes GST in the price. Most business sales fall into this category, requiring the business to charge an additional 10% on the GST-exclusive price.
Certain transactions, however, are treated differently. “GST-free sales” do not include GST in their price, such as most basic food items, some educational courses, and specific medical and healthcare services. Despite not charging GST on these sales, businesses can generally still claim “Input Tax Credits” (ITCs) for the GST paid on purchases directly related to making these GST-free supplies. Conversely, “input-taxed sales,” like financial supplies (e.g., lending money, shares) and residential rent, also do not include GST in their price. Businesses generally cannot claim ITCs for purchases related to making these input-taxed supplies.
Businesses also need to identify “creditable acquisitions,” which are purchases made for business use where ITCs can be claimed. To be creditable, the acquisition must be for a business purpose, the supply to the business must have been a taxable supply, consideration must have been provided, and the business must be registered for GST. This process involves reviewing purchases to determine if they meet these criteria and if a valid tax invoice supports the claim.
Performing the Net GST Calculation
The core of GST calculation involves netting off the GST collected from sales against the GST paid on business purchases. This formula is: GST on sales (Output GST) minus Input Tax Credits (ITCs) equals Net GST payable or refundable.
Output GST is the 10% tax charged on taxable sales. If a product sells for $100 before GST, the GST component is $10, making the total price $110. Alternatively, if a price is already GST-inclusive, the GST component can be found by dividing the total price by 11. For example, a $110 item includes $10 in GST ($110 / 11 = $10).
Input Tax Credits are the GST amounts paid on creditable business purchases. These credits reduce the total GST a business must remit to the ATO. For instance, if a business purchases office supplies for $220, which includes $20 GST, that $20 can be claimed as an ITC. The net GST calculation then combines these figures; if a business collected $500 in Output GST and paid $200 in ITCs, the net GST payable would be $300 ($500 – $200). If ITCs exceed Output GST, the business is due a refund.
Reporting Your Calculated GST
Once the net GST amount is calculated, businesses report this figure to the ATO using a Business Activity Statement (BAS). The BAS is a form businesses use to report and pay various tax obligations, with GST being a primary component. The net GST amount, whether payable or refundable, is entered onto the BAS for the relevant reporting period.
Businesses are assigned a GST reporting frequency based on their annual turnover. Those with a GST turnover of $20 million or more generally report monthly, while businesses with a turnover below $20 million typically report quarterly. Businesses voluntarily registered for GST with a turnover under $75,000 (or $150,000 for non-profit organizations) may opt for annual reporting. Monthly BAS are generally due on the 21st day of the following month, while quarterly BAS have specific due dates on the 28th of October, February, April, and July.
The BAS submission process can be completed online through the ATO’s online services, via tax or BAS agents, or by mail. After lodging the BAS, businesses either make a payment to the ATO for any net GST owing or await a refund if their ITCs exceeded their collected GST.