How to Calculate GST on Purchases and Sales

Calculating GST on purchases and sales in New Zealand is easy with a few simple formulas. Here's how to do it.

Adding GST to a Sale

To add GST, multiply the base price by 1.15. For example, $100 becomes $115 with GST.

The formula is: Price including GST = Price excluding GST Ôö£├╣ 1.15

Let's look at some examples:

• A service priced at $200 (excluding GST): $200 Ôö£├╣ 1.15 = $230
• A product costing $50 (excluding GST): $50 Ôö£├╣ 1.15 = $57.50
• A consulting fee of $1,000 (excluding GST): $1,000 Ôö£├╣ 1.15 = $1,150

For businesses, when creating invoices, you'll typically show:

• The price excluding GST
• The GST amount
• The total price including GST

For example:

Professional Services:          $1,000.00
GST (15%):                      $150.00
Total (Including GST):          $1,150.00

Most accounting software will calculate these figures automatically when you enter the price excluding GST.

Removing GST from a Price

If you know the total price with GST, divide by 1.15 to find the original amount. For instance, $115 divided by 1.15 gives $100.

The formula is: Price excluding GST = Price including GST Ôö£├Ç 1.15

Examples:

• A purchase totaling $230 (including GST): $230 Ôö£├Ç 1.15 = $200
• A bill for $57.50 (including GST): $57.50 Ôö£├Ç 1.15 = $50
• An invoice for $1,150 (including GST): $1,150 Ôö£├Ç 1.15 = $1,000

This calculation is particularly useful for businesses that need to record expenses excluding GST in their accounting systems.

Knowing How Much GST You're Paying

You can also find the GST portion by taking 15% of the base price. This helps you understand how much GST is part of the total.

If you know the price excluding GST, the formula is: GST Amount = Price excluding GST Ôö£├╣ 0.15

If you only know the price including GST, the formula is: GST Amount = Price including GST Ôö£├╣ (15 Ôö£├Ç 115) or approximately Price including GST Ôö£├╣ 0.13043

Examples:

• A $100 item (excluding GST): The GST is $100 Ôö£├╣ 0.15 = $15
• A $115 purchase (including GST): The GST is $115 Ôö£├╣ (15 Ôö£├Ç 115) = $15

This calculation is useful for understanding how much tax you're paying on a purchase, or for businesses calculating how much GST to remit to Inland Revenue.

Calculating GST on Multiple Items

When calculating GST on multiple items, you have two options:

Option 1: Calculate GST on the Total

Add up all the prices excluding GST, then apply the GST formula once.

For example, if you have purchases of $50, $30, and $20 (all excluding GST):

1. Total excluding GST: $50 + $30 + $20 = $100
2. GST amount: $100 Ôö£├╣ 0.15 = $15
3. Total including GST: $100 + $15 = $115

Option 2: Calculate GST on Each Item

Calculate the GST-inclusive price for each item, then add them up.

Using the same example:

1. Item 1: $50 Ôö£├╣ 1.15 = $57.50
2. Item 2: $30 Ôö£├╣ 1.15 = $34.50
3. Item 3: $20 Ôö£├╣ 1.15 = $23.00
4. Total including GST: $57.50 + $34.50 + $23.00 = $115.00

Both methods give the same result, but Option 1 is usually faster for manual calculations.

Dealing with Odd Numbers and Rounding

Sometimes when calculating GST, you'll end up with amounts that have more than two decimal places. The standard practice in New Zealand is to round to the nearest cent.

For example, if calculating GST on $9.99:

• GST amount: $9.99 Ôö£├╣ 0.15 = $1.4985
• Rounded to two decimal places: $1.50
• Total including GST: $9.99 + $1.50 = $11.49

For business accounting purposes, you might need to be aware of the cumulative effect of rounding, especially when dealing with large volumes of transactions. Most accounting software handles this appropriately.

GST Calculations for Different Business Types

Retailers and Service Providers

If you run a retail business or provide services directly to consumers, you'll typically display prices including GST, as this is what customers expect to see.

However, for your accounting records, you'll need to separate the GST component. For example, if you sell an item for $115 (including GST):

• Price excluding GST: $115 Ôö£├Ç 1.15 = $100
• GST collected: $15

You'll report $100 as income and $15 as GST collected on your GST return.

Business-to-Business Providers

If you primarily sell to other businesses, you might find it more convenient to display prices excluding GST, with the GST added at the invoice level. This makes it clearer for your business customers who can claim back the GST.

For example, you might quote a service at $1,000 plus GST, which totals $1,150 including GST.

Mixed Businesses

Some businesses deal with both consumers and other businesses. In these cases, you might use different pricing displays depending on the context. For example, retail prices displayed in a shop would include GST, while quotes for business clients might show prices both excluding and including GST.

GST Calculations for Special Cases

Zero-Rated Supplies

For zero-rated supplies (like exports), the GST rate is 0%. This means:

• Price including GST = Price excluding GST
• GST amount = $0

Even though no GST is collected, these supplies still need to be reported in your GST return.

Mixed Supplies

Sometimes a transaction might include both standard-rated and zero-rated elements. In these cases, you need to apportion the value and calculate GST on the standard-rated portion only.

For example, if you provide a service worth $1,000, of which $800 is for the domestic market (standard-rated) and $200 is for export (zero-rated):

• GST on domestic portion: $800 Ôö£├╣ 0.15 = $120
• GST on export portion: $200 Ôö£├╣ 0 = $0
• Total GST: $120
• Total price including GST: $1,000 + $120 = $1,120

Using Technology to Calculate GST

Accounting Software

Most accounting software used in New Zealand (like Xero, Moniaro Books, MYOB, and QuickBooks) automatically handles GST calculations. You can typically:

• Set up products or services with their GST status
• Generate invoices that correctly display GST
• Record expenses with the GST component separated
• Generate GST returns with all the necessary figures

GST Calculators

There are many online GST calculators available that can quickly perform GST calculations. These are useful for one-off calculations or for double-checking your figures.

Spreadsheet Formulas

If you use spreadsheets for your business, you can set up formulas to automatically calculate GST. For example:

• To add GST: =A1*1.15 (where A1 contains the price excluding GST)
• To remove GST: =A1/1.15 (where A1 contains the price including GST)
• To find the GST amount from an exclusive price: =A1*0.15
• To find the GST amount from an inclusive price: =A1*15/115

Common GST Calculation Mistakes

Using the Wrong Formula

A common mistake is using Price Ôö£├╣ 0.15 to calculate GST from a GST-inclusive price. This gives an incorrect result because the 15% should be calculated on the base price, not the total price.

Remember: If the price already includes GST, use Price Ôö£├╣ (15 Ôö£├Ç 115) to find the GST component.

Forgetting to Check GST Registration

Before adding GST to an invoice, always ensure that you're registered for GST. If you're not registered, you cannot charge GST.

Not Keeping Track of GST on Expenses

Many businesses focus on calculating GST on sales but forget to accurately record GST paid on purchases. This is important for claiming back input tax credits.

Conclusion

Calculating GST in New Zealand is straightforward once you understand the basic formulas. Whether you're adding GST to a price, removing it, or determining how much GST is included in a total, the calculations follow simple mathematical principles.

For businesses, accurate GST calculations are essential for correct invoicing, proper record-keeping, and compliant GST returns. Utilizing accounting software can simplify these calculations and reduce the risk of errors.

For consumers, understanding GST calculations helps you know exactly how much tax you're paying on your purchases and ensures transparency in pricing.

Remember the key formulas:

• To add GST: Price excluding GST Ôö£├╣ 1.15
• To remove GST: Price including GST Ôö£├Ç 1.15
• To find GST amount from exclusive price: Price excluding GST Ôö£├╣ 0.15
• To find GST amount from inclusive price: Price including GST Ôö£├╣ (15 Ôö£├Ç 115)

With these formulas at hand, you'll be well-equipped to handle GST calculations in your business or personal finances.