GST-Inclusive vs GST-Exclusive Quotes

The short answer

In Australia the standard GST rate is 10%. To compare a GST-inclusive quote with a GST-exclusive one, convert one of them so both are on the same basis. Remove GST by dividing by 1.1; add GST by multiplying by 1.1. Never compare an inc-GST total directly against an ex-GST total. The exclusive quote will look about 9% cheaper even when the prices are identical.

Remove GST:   inc ÷ 1.1  = ex
              $1,250.00 ÷ 1.1  = $1,136.36 ex GST

GST component: inc ÷ 11  = GST
              $1,250.00 ÷ 11   = $113.64

Add GST:      ex × 1.1  = inc
              $1,200.00 × 1.1  = $1,320.00 inc GST

A common mistake is to remove GST by taking 10% off the inclusive price. $1,250 − 10% = $1,125, which is $11.36 too low. GST is 10% of the exclusive price, so it’s one-eleventh of the inclusive price, not one-tenth.

Which basis should you compare on?

If your business is registered for GST and can claim input tax credits on the purchase, your real cost is the ex-GST amount, so compare ex GST. If you can’t claim GST (for example, you’re not registered, or the purchase is private), the inc-GST amount is what you actually pay, so compare inc GST. The ranking of quotes doesn’t change between the two bases when every item is taxable. It can change when some items are GST-free, as explained below.

How to tell which basis a quote uses

Quotes signal their GST treatment in a few ways, from most to least reliable:

• An explicit statement, such as “All prices exclude GST” or “Prices include GST”.
• Totals that prove it. If the quote shows a subtotal of $200.00, GST of $20.00 and a total of $220.00, the line prices add to the subtotal and GST is added on top, so the line prices are ex GST.
• Column headings, such as “Rate (ex GST)” or “Amount inc GST”.

Guessing is the problem. A quote with a single “Total $3,014.00” and no GST statement could be either. If nothing on the document states or proves the treatment, record it as unknown and ask the supplier. Don’t assume.

Proof from totals:
  Line items      $100.00 + $100.00 = $200.00  (= stated subtotal)
  GST             $200.00 × 10%     =  $20.00  (= stated GST)
  Total           $200.00 + $20.00  = $220.00  (= stated total)
  ⇒ line prices are GST-exclusive

Conflicting GST information

Sometimes a quote says “prices include GST” but the totals add GST on top of the line items. Both can’t be true. A conflict like this should be flagged and resolved with the supplier before the quote is compared. Depending on which reading is right, the price differs by 10%.

Mixed quotes: taxable and GST-free items

Not every line attracts GST. When a quote mixes taxable and GST-free items, GST applies to the taxable part only. Check the GST line against the taxable subtotal:

Taxable goods           $100.00
GST-free item            $50.00
Subtotal                $150.00
GST  = $100.00 × 10%  =  $10.00   (not $15.00)
Total                   $160.00

Mixed quotes are also where converting a whole total with ÷ 1.1 goes wrong. Convert line by line, using each line’s own treatment.

A checklist for any quote

1. Find the stated GST treatment, or prove it from the totals.
2. Check the GST line is 10% of the taxable subtotal (allow for a cent of rounding).
3. Note any GST-free lines.
4. Convert each quote, line by line, to your chosen basis.
5. Flag anything that conflicts or can’t be proven, and ask before you rely on it.

How QuantDoc handles GST

QuantDoc applies or removes GST only where the document states the treatment or its totals prove it. Mixed and GST-free items are supported, conflicts are flagged, and every tax adjustment is recorded next to the figure it changed. If the treatment can’t be established, the ex-GST and inc-GST figures are shown as unknown rather than estimated. In the example below, the engine puts an inc-GST quote and an ex-GST quote on the same basis and finds they are identical.