Understanding GST-Inclusive vs GST-Exclusive Pricing
Whether you display prices with or without GST can significantly impact your business, from legal compliance to customer perception. This guide explains the difference between GST-inclusive and GST-exclusive pricing, legal requirements, and best practices for both Australia and New Zealand.
What's the Difference?
GST-Inclusive
Definition: The displayed price already includes GST.
Example:
- Australia: $110 (includes $10 GST)
- New Zealand: $115 (includes $15 GST)
What customer pays: Exactly the displayed price
Common in: Retail, hospitality, consumer-facing businesses
GST-Exclusive
Definition: GST is added on top of the displayed price.
Example:
- Australia: $100 + GST ($10) = $110 total
- New Zealand: $100 + GST ($15) = $115 total
What customer pays: Displayed price + GST
Common in: B2B services, wholesale, professional services
Legal Requirements
🇦🇺 Australia (ATO Requirements)
Consumer-Facing Businesses (B2C):
- Prices must be GST-inclusive when advertising to consumers
- Applies to: Retail stores, restaurants, service providers, online shops
- Price tags, menus, advertisements must show GST-inclusive prices
- You can show "Inc. GST" or breakdown, but total must be clear
Business-to-Business (B2B):
- Can display prices GST-exclusive if customers are predominantly businesses
- Must clearly state "plus GST" or "excl. GST"
- Invoice must show GST amount and total separately
🇳🇿 New Zealand (IRD Requirements)
Consumer-Facing Businesses (B2C):
- Prices must be GST-inclusive for consumer transactions
- Applies to: Shops, restaurants, online retail, service providers
- Advertising, price tags, menus must show final GST-inclusive price
- Can optionally show GST breakdown
Business-to-Business (B2B):
- Can use GST-exclusive pricing for business customers
- Must clearly indicate "plus GST" or "excl. GST"
- Tax invoices must separately show GST
Pricing Comparison Examples
| Scenario | GST-Exclusive | GST Amount | GST-Inclusive |
|---|---|---|---|
| 🇦🇺 Australia (10%) | |||
| Coffee | $4.55 | $0.45 | $5.00 |
| Laptop | $909.09 | $90.91 | $1,000 |
| Consulting (hourly) | $150 | $15 | $165 |
| 🇳🇿 New Zealand (15%) | |||
| Coffee | $4.35 | $0.65 | $5.00 |
| Laptop | $869.57 | $130.43 | $1,000 |
| Consulting (hourly) | $150 | $22.50 | $172.50 |
Pros and Cons
GST-Inclusive Pricing
✅ Advantages:
- Legally required for most retail/consumer sales
- Price transparency: Customers know exact cost
- No surprises: Price on tag = price at checkout
- Simpler perception: "$10" is easier than "$9.09 + GST"
- Competitive comparison: Easy to compare with competitors
⚠️ Disadvantages:
- Hidden margins: Base price less obvious
- Awkward numbers: $4.55 looks less clean than $5.00
- Harder mental math: Calculating GST component requires division
- International confusion: Some markets expect excl. pricing
GST-Exclusive Pricing
✅ Advantages:
- B2B standard: Business customers expect it
- Clear margins: Shows actual product/service value
- Clean numbers: $100 vs $115 looks neater
- Easy GST calculation: Simple to add GST on invoices
- International standard: Common in B2B globally
⚠️ Disadvantages:
- Illegal for retail: Can't use for consumer sales
- Price shock: Final price higher than advertised
- Confusion: Consumers may misunderstand final cost
- Must be explicit: "plus GST" required on all materials
When to Use Each Method
| Use GST-Inclusive When: | Use GST-Exclusive When: |
|---|---|
| Selling to consumers (legally required) | Selling to other businesses (B2B) |
| Running a retail store | Providing professional services |
| Operating a restaurant/cafe | Wholesale/trade sales |
| E-commerce for consumers | Consulting or contract work |
| Service businesses (hairdresser, cleaner) | SaaS/software for businesses |
| Advertising to general public | Trade catalogs/price lists |
How to Display Prices Correctly
Retail/Consumer Examples:
✅ Correct:
- "$115" (GST-inclusive implied)
- "$115 (inc. GST)"
- "$115 total (includes $15 GST)"
❌ Incorrect (illegal for retail):
- "$100 + GST" (not allowed in retail advertising)
- "$100 (GST not included)" (illegal)
B2B/Wholesale Examples:
✅ Correct:
- "$100 plus GST"
- "$100 (excl. GST)"
- "$100 + 15% GST = $115 total"
⚠️ Must be clear:
- Always state "plus GST" or "excl. GST"
- Don't assume customers know GST is extra
Invoice Requirements
Regardless of how you advertise prices, GST-registered businesses must issue tax invoices for sales over:
- Australia: $82.50 (incl. GST)
- New Zealand: $50 (incl. GST)
Tax invoices must show:
- Your business name and GST/ABN number
- Date of supply
- Description of goods/services
- Either:
- Total price (if GST-inclusive) with "Total price includes GST", OR
- Subtotal + GST amount + Total (if GST-exclusive)
Common Mistakes to Avoid
❌ Avoid These Errors:
- Using excl. pricing in retail: Illegal in both AUS/NZ
- Not stating "plus GST": In B2B, always be explicit
- Inconsistent pricing: Website says one thing, invoice another
- Forgetting to update prices: When GST rate changes (rare but important)
- Mixing methods: Some products incl., others excl. (confusing)
- Assuming customers know: Always state whether GST is included
How to Convert Between Inclusive and Exclusive
Australia (10% GST):
- Exclusive → Inclusive: Price × 1.10
- Inclusive → Exclusive: Price ÷ 1.10
New Zealand (15% GST):
- Exclusive → Inclusive: Price × 1.15
- Inclusive → Exclusive: Price ÷ 1.15