Divide by 11 – 7 common questions about GST including food and contractors

Below are some common questions I have been asked about GST.

 

How do I get back to the GST from the total including GST?

Note people often assume you divide by 10 which is incorrect. Instead, you divide by 11.

 

Calculation: $100 + $10 GST = $110 total divided by 11 = $10 GST

Words: The GST rate is 10%. So if the original amount is $100 (lets call this the GST exclusive amount) the company would add 10% GST ($10) on top to become $110 including GST.

So dividing the total including GST by 11 will get you the GST amount. E.g. $110 divided by 11 = $10

 

How do I get the amount excluding GST from the total including GST?

Calculation: $110 x 10/11 = $100 (excluding GST)

Words: Multiplying a GST inclusive amount by 10/11 will bring you back to the GST exclusive amount. E.g. $110 including GST x 10/11 = $100 excluding GST.

 

Is GST charged on everything?

No, some items are GST free. Other items don’t include GST. GST free items include basic food, some medical and registered education. Items that don’t include GST include residential rent, bank interest, salaries, and most penalties. (Whether something is GST free or doesn’t include GST is the same for the consumer, but GST free sales mean the business owner can claim back the GST that they have paid).

 

Basic food doesn’t include GST?

The GST food guide provided by the ATO for food retailers runs for 16 pages.

A few comparisons between GST free and taxable foods are:

GST free/Taxable (includes GST)

Bread & bread rolls with no filling/sweet coating (GST free)/ Bakery products such as cakes or pies (Taxable)

Bottled Water & Fruit & Vegetable juice (if 90%+ volume)/ Soft drinks, flavoured water & sports drinks

Cooking ingredients like flour, sugar and cake mixes/ Biscuits & crackers & wafers

 

I bought a water from the café –why did they charge GST?

Takeaway & restaurant food is always taxable (so a GST free bread roll or bottle of water bought from the supermarket and on-sold at a restaurant would attract GST when sold to restaurant customers).

 

If I buy GST free items how do I know how much GST is included in the total invoice?

A company should issue a valid tax invoice which would include (among other things) – the total amount of GST.

If you notice a Coles or Woolworths receipt – they have a separate symbol where GST applies (or is GST free). Then the total GST paid (which is included at the bottom of the invoice) is 1/11th of the total of the items which include GST.

 

My friend says he is not registered for GST

Businesses who expect to earn under $75,000 for the next 12 months do not have to register for GST. This means that some small businesses, contractors or those working part time are not registered for GST (and so won’t charge GST). Taxi drivers are an exception – taxi drivers have to register for GST (so that if you catch a taxi, you know the fee includes GST).

Given the $75,000 turnover threshold – nearly all business that have more than 2 workers will be registered for GST. Charities and not-for-profits have a $150,000 turnover before being required to register for GST.

 

How can I check if I have been charged GST if I don’t have the invoice (my contractor may not be registered)?

Check the ABN register at http://abr.business.gov.au/ to see whether your contractor has been registered for GST.

Another method I occasionally use to guess whether GST is included from an amount on a bank statement is dividing by 11 to find an integer (whole number).

If a contractor charges $390 /11 = $35.45 GST (or $354.55 excluding GST) – they may not be registered for GST as GST and GST exclusive total isn’t a round number. It is more likely they are not registered for GST.

But if a contractor charges $385/11 = $35.00 GST (or $350 total excluding GST) – it is more likely (but not 100%) that they are registered for GST.

Posted in GST, Tax

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