The GST Calculation Mistake That Even Lawyers Make

How do you work out GST in a price?

Earlier this month, I was in court assisting a family court judge in Auckland with a relationship property dispute.

During cross-examination, the opposing lawyer presented their own five-page financial calculation from bank statements — one that I was seeing for the first time.

As I scanned the numbers, something immediately felt off.

And sure enough, buried within the numbers was a basic mistake in how GST was calculated.

The Problem?

The opposing lawyer had simply applied 15% to the bank transaction total to calculate GST.

But here’s the issue.

The bank transaction amount already included GST, which meant their entire argument was built on incorrect figures.

The Common GST Mistake

Let’s break it down:

Imagine that, as a business, you receive $100 in your bank account from a customer, and that amount already includes GST.

A common mistake is to simply take 15% of $100 and assume that the GST portion is $15.

This is wrong.

If $100 is GST-inclusive, it means the full amount already contains the 15% GST component.

To correctly extract the GST portion, you need to use the right formula:

Right formula: Divide the total by 1.15 to determine the GST-exclusive amount:

$100 ÷ 1.15 = $86.96

So the GST amount is actually $13.04, not $15.

This mistake happens more often than you’d think—even in court.

How to Calculate GST the Right Way

Depending on whether you’re dealing with GST-inclusive or exclusive amounts, there’s a simple formula get it right.

1. If you have a GST-inclusive price (amount already includes GST).

To extract the GST portion, use this formula:

GST portion = Total amount × 3 \ 23

For example, if you receive $100 including GST from a customer:

$100 × 3 ÷ 23 = $13.04

So the GST portion is $13.04, and the GST-exclusive amount is $86.96

GST-inclusive total: $100 ($86.96+$13.04)

2. If you have a GST-exclusive price (amount before GST is added):

To calculate the GST amount, multiply by 15% (0.15).

For example, if an item costs $100 excluding GST, and you want to add GST on top of that:

$100 × 0.15 = $15

So the GST-inclusive price is $115 ($100+$15)

So What Happened in Court?

It took an entire day before the judge acknowledged that my calculation was correct.

Honestly, I was a bit surprised. Most accountants know this formula by heart, so I assumed it was common knowledge.

But this case was a reminder that even experienced professionals – lawyers, judges, business owners, can get it wrong.

And when you’re dealing with financial disputes, getting it wrong can have serious consequences.

Final Thoughts

GST calculations can trip up anyone, whether you’re an accountant, a business owner, or even a lawyer in court.

But if you know the right formulas, it doesn’t have to be complicated.

– Baqir Hussain, FCCA

Director, Finex Chartered Certified Accountants