How to Correctly Work Out the GST Content from a GST Inclusive Figure
We receive many questions asking why the result from our GST calculators is different than simply subtracting 15% off the total GST inclusive figure. Here's a step by step tutorial which hopefully helps explain how to calculate the amounts correctly and why subtracting 15% from a GST inclusive amount is wrong.
First some basic calculations. Let's calculate 15% GST for a GST exclusive figure of $100...
$100 x 15% = $15 GST
To get the total GST inclusive figure simply add the GST to the GST exclusive amount...
$100 + $15 GST = $115 GST Inclusive.
Now let's work backwards to find the GST and GST exclusive amount from the total GST inclusive figure. We'll use Inland Revenue's recommended formula of multiplying the inclusive amount by 3 then dividing by 23. Doing this we get...
$115 X 3 ÷ 23 = $15 GST
We now know the GST amount from the GST inclusive figure. Don't worry about how the multiply by 3 then divide by 23 works, it just does! To work out the GST exclusive amount simply subtract the GST from the GST inclusive amount to get the original GST exclusive figure so...
$115 - $15 GST = $100
We're now back to the start with a GST exclusive figure. As you can see the $15 GST amount stays the same when adding GST on and finding the GST amount from the inclusive figure - when using the correct formula.
Here's why subtracting 15% from the GST inclusive figure is incorrect.
Let's calculate and subtract 15% from our $115 GST inclusive figure from above...
15% of $115 = $17.25 (not $15)
$115 - 15% = $97.75 (not $100)
What's happened is we've calculated 15% of the GST inclusive, not 15% of the GST exclusive! The result is quite different and incorrect. From the correct method above we know the exclusive figure is $100 and the GST should be $15...
15% of $100 = $15 GST
$115 - $15 GST = $100
We hope this shows exactly why subtracting 15% off the GST inclusive amount is the wrong way to work out the GST content. If you're still unsure or would like help with your GST returns please ask us!
To make working out GST super easy use the Kiwitax GST Calculator!
Posted 18/05/2012 – Updated 23/10/2014
Like to make your accounting and tax super easy and affordable? We'd love to work for you! Say hello today!