How is GST Calculated for Small Businesses in Australia?

 Goods and Services Tax (GST) is a key consideration for small businesses operating in Australia. Whether you are just starting out or running an established small business, understanding how GST works, how it is calculated, and how to manage it efficiently can save you money, keep you compliant, and streamline your financial operations.

This blog will walk you through the fundamentals of GST, how to calculate it, record it, report it, and common pitfalls to avoid — all tailored specifically for Australian small businesses.

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What is GST? A Quick Overview

GST stands for Goods and Services Tax. It is a broad-based tax of 10% on most goods, services, and other items sold or consumed in Australia.

• When is GST applied? It applies to taxable supplies made by registered businesses.

• Who collects GST? Businesses registered for GST collect GST from customers and pay it to the Australian Taxation Office (ATO).

• GST registration threshold: Businesses with an annual turnover of $75,000 or more (or $150,000+ for non-profits) must register for GST. Businesses below this threshold can register voluntarily.

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Why Does GST Matter to Small Businesses?

• It affects your pricing and invoicing. If you are registered for GST, your prices usually need to include GST unless otherwise stated.

• Cash flow management. You collect GST from customers and remit it to the ATO, but you can also claim credits for GST paid on business purchases.

• Legal compliance. Failure to register or report GST properly can result in fines and penalties.

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Basic Principles of GST Calculation for Small Businesses

1. GST Inclusive vs GST Exclusive Pricing

• GST Exclusive Price is the price before GST is added.

• GST Inclusive Price includes the 10% GST.

Example:
If your GST exclusive price is $100, the GST amount is $10 (which is 10% of $100), and the GST inclusive price is $110.

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2. Calculating GST Amount on Sales

To calculate GST to charge customers:
GST Amount = Sale Price (GST exclusive) × 10%

For example:

• Sale Price (ex GST): $500

• GST Amount = $500 × 10% = $50

• Price charged to customer (inc GST) = $550

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3. Calculating GST Included in a Price (Reverse Calculation)

If you have a GST-inclusive price and want to find out how much GST is included:
GST Amount = GST Inclusive Price × 10 ÷ 110

For example:

• Price charged (inc GST): $110

• GST Amount = $110 × 10 ÷ 110 = $10

• GST exclusive price = $110 − $10 = $100

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How Small Businesses Handle GST on Purchases and Sales

Input Tax Credits (GST Credits)

• You can claim credits on the GST you pay for business expenses if you are registered for GST.

• This reduces your GST liability.

Example:

• You sell a product for $550 (including $50 GST).

• You purchased materials for $220 (including $20 GST).

• You must pay $50 GST collected on sales to the ATO, but can claim $20 GST credits from purchases.

• Your net GST payable = $50 − $20 = $30.

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When to Pay GST to the ATO

GST is reported and paid through your Business Activity Statement (BAS):

• Most small businesses report GST quarterly.

• Some report monthly or annually, depending on turnover or preference.

You remit:
GST Collected on Sales − GST Paid on Purchases = GST Owed to ATO (or refund due).

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Step-by-Step Guide: Calculating GST for Small Business Transactions

Step 1: Determine if you must register for GST

• Turnover threshold: $75,000+ per year.

• If below, voluntary registration is possible.

Step 2: Decide your pricing approach

• Prices shown to customers can be GST inclusive or exclusive.

• For B2C sales, GST inclusive pricing is common.

• For B2B, prices are often quoted excluding GST.

Step 3: Calculate GST on sales

• For GST exclusive prices, add 10% GST.

• For GST inclusive prices, calculate the GST portion using the formula above.

Step 4: Record GST on purchases

• Keep tax invoices from suppliers showing GST paid.

• Claim input tax credits on your BAS.

Step 5: Complete and lodge your BAS

• Calculate net GST payable or refundable.

• Lodge online or through an accountant.

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Examples of GST Calculations for Different Business Scenarios

Example 1: Product Sale

You sell 50 units of a product at $100 each (GST exclusive).

• Total sales = 50 × $100 = $5,000

• GST collected = $5,000 × 10% = $500

• Total amount charged to customers = $5,000 + $500 = $5,500

Example 2: Service Provided

You provide consulting services and charge a GST-inclusive fee of $1,100.

• GST included = $1,100 × 10 ÷ 110 = $100

• Fee excluding GST = $1,100 − $100 = $1,000

Example 3: Business Purchases

You purchase office supplies costing $220 (GST inclusive).

• GST paid = $220 × 10 ÷ 110 = $20

• You claim $20 as input tax credit on your BAS.

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Important GST Record-Keeping Requirements

• Keep tax invoices for all sales and purchases over $82.50 (incl GST).

• Maintain accurate records of GST collected and paid.

• Records must be kept for five years.

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Common GST Mistakes Small Businesses Make

• Not registering for GST when turnover exceeds threshold.

• Forgetting to include GST in prices or invoices.

• Not keeping proper tax invoices or records.

• Failing to claim eligible input tax credits.

• Late BAS lodgment and payment leading to penalties.

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Using Software to Simplify GST Calculations

Many small businesses use accounting software like Xero, MYOB, or QuickBooks which automate GST calculation, record keeping, and BAS preparation.

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What if Your Business is Not Registered for GST?

• You do not charge GST on sales.

• You cannot claim GST credits on purchases.

• You must include a statement on invoices indicating GST is not included.

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GST and Special Cases

Export Sales

Exports are generally GST-free, meaning you do not charge GST on exported goods or services.

Non-Taxable Sales

Some goods/services (like financial supplies, residential rents) are input taxed or GST-free.

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Summary: Key GST Calculation Formulas for Small Businesses

Scenario	Formula	Example
Calculate GST on GST-exclusive price	GST = Price × 10%	$100 × 10% = $10
Calculate GST included in GST-inclusive price	GST = Price × 10 ÷ 110	$110 × 10 ÷ 110 = $10
Calculate GST-exclusive price from GST-inclusive price	Price excl GST = Price incl GST − GST	$110 − $10 = $100
Calculate Net GST Payable to ATO	GST collected − GST credits	$500 − $200 = $300

Final Thoughts

GST is a fundamental part of running a small business in Australia. Knowing how to calculate it correctly ensures compliance with the ATO and smooth financial management. Small businesses should consider:

• Registering for GST if eligible.

• Keeping detailed and accurate records.

• Using accounting software or professional advice.

• Being aware of GST rules on exports and exemptions.

By mastering GST calculations and reporting, your small business will be well-placed to grow and succeed in the competitive Australian market.