Why is my GST wrong?

Why is my GST wrong?


When it comes to GST, the ability to tear your hair out with frustration can be large. It's certainly that way for us at FreightTracker.

On the face of it, GST is easy. You take the subtotal of the invoice $1012.57 and apply 10% to it to get 101.26 (after rounding 101.257 to 2 decimal places).

The problem occurs when we have to send out invoices to a financial system (damn accountants!).

The financial systems like XERO and MYOB need to calculate the GST at the line item level and sum it up to get the total. This in itself is not a huge problem, but they also round the GST at the line item level which means that if you have several line items with non round numbers (eg. 50.57 as opposed to 50.50) then the rounding at line item level will accumulate and you will end up with a GST amount that is more or less that 10% of your subtotal.

Let's look at an example:


Line Item
Amount
GST Unrounded
GST 2 decimals
Freight Charges
150.00
15.0000
15.00
Addon Charge 1
 50.27
 5.0270
 5.03
Addon Charge 2
 55.55
 5.5550
 5.56
Addon Charge 3
 22.58
 2.2580
 2.26
Addon Charge 4
 25.77
 2.5770
 2.58
TOTAL
304.17
30.4170
30.43

So if we were calculating the GST the 'easy' way, we would say that the subtotal of the invoice is 304.19, and so the GST is 30.417 which rounds to 30.42.
If we are calculating at the line item level and NOT rounding and then totalling the GST we will get 30.417 which rounds to 30.42. 
However if we are rounding to 2 decimal places, the total GST is 30.43 which is 1c more than the other method.

You find this issue happening mostly in large invoices with lots of jobs - each with a fuel levy line as they tend to have prices down to the cent.

Well that's great, but what does it mean for me?

Well it depends on the finance system that you are using.
MYOB rounds to 5 decimal places and XERO rounds 2 decimal places when calculating GST at the line item level.

This means that the parameter  invoice_gst_rounding_decimals needs to be set to the SAME value as your accounting package so that FreightTrackers calculation of GST is the same as the finance system.

Is there a catch?

Yep. What it means is that you can potentially send an invoice to your client like the one above (especially if you use XERO) that has a GST amount that is out by a cent or perhaps 25cents (in the case of a 25K invoice with lots of separate jobs each with their own fuel levy lines). The client may contact you to let you know that your GST is 'wrong'. The reality is that yes its wrong, but its also exactly what your finance package would do if you sent the invoice directly from there.
 

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