Absorbing GST

To maintain competitiveness and customer goodwill, you may choose to absorb the GST payable by your customer. In doing so, you have to treat the sum of money received from your customer as inclusive of GST.

Invoicing Requirements

The tax invoice should still show the GST as a separate amount. If you issue receipts or simplified tax invoices, you can state the GST-inclusive prices and indicate with the words "Price payable is inclusive of GST".

Example: Calculating GST Payable

Assume that you wish to sell a good at $10,000. If you choose to absorb GST, the GST payable also known as the output tax is $654.21 ($10,000 x 7/107).

The value of standard-rated supplies to declare in your GST return is $9,345.79 ($10,000 - $654.21).

If you do not absorb the GST, you will charge your customer $10,700 ($10,000 + GST $700).

If you choose to absorb the GST, $10,000 is treated as inclusive of GST. You need to derive the GST amount by multiplying the selling price with the tax fraction 7/107.

GST = $10,000 x 7/107 = $654.21

Amount payable excluding GST = $10,000 - $654.21 = $9,345.79

Reporting the sale in your GST returns:

  • Box 1 (Total value of standard-rated supplies): $9,345.79
  • Box 6 (Output tax due): $654.21

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