GST inclusive vs exclusive — and the $6 flat white problem.

Almost every margin conversation we have with a first-time COG customer includes the same misread. Their menu says a flat white is $6, their POS says a flat white is $6, and — quietly — their margin report is also using $6 as the sale figure.

It isn't. In Australia, that $6 flat white is a $5.4545 net sale and a $0.5455 GST liability. Quick rule: to strip GST out of a GST-inclusive price, divide by 11, not 1.1 — the divide-by-11 is the GST portion, what you'll owe the ATO on your next BAS. If your margin arithmetic uses the wrong top-line, everything below it is wrong too.

The core rule

The Australian GST is 10% and it's a value-added tax. When you display a price to a consumer, the price is required to be GST-inclusive. That means:

Net sale = Price ÷ 1.10 · GST portion = Price − Net sale

So a $6.00 flat white:

• Net sale (yours to margin against) = $6.00 ÷ 1.10 = $5.4545
• GST (to remit to the ATO) = $6.00 − $5.4545 = $0.5455

Miss this and you'll think a $1.62 unit cost is a 73% margin — when it's actually 70.3%. Painful? Not on one drink. But across 180 drinks a day for a year, that misread is roughly $17,900 you thought you had and don't.

Why the miss is so common

Three reasons keep it common in the Australian small-business world:

1. Menu boards are GST-inclusive. That's the price the customer sees. It's easy for that number to sneak into your cost-of-goods spreadsheet as if it were revenue.
2. Wholesale invoices are usually GST-exclusive. If your inputs are ex-GST and your outputs are inc-GST, you're comparing apples to bigger apples.
3. POS margin reports vary. Square's default is net-of-GST. Lightspeed's is toggleable. Vend's older reports were inc-GST. Trust the report vendor's terminology — but check.

Working an example

A specialty café in Marrickville sells the following on a typical morning:

If you'd used the menu price straight, you'd have seen 73% / 67.7% / 81.2% / 74.2% and been feeling roughly 3 percentage points richer than reality. Not disastrous — but on a low-single-digit net margin business like a café, three points is real money. On 180 drinks a day, six days a week, with an average pour cost around $1.70, that's the difference between paying yourself for the Sunday and not.

When to use which figure

Practically, that means:

• Menu boards, price tags, checkout screens → inclusive.
• Cost-of-goods spreadsheets, margin reports, price change reviews → exclusive.
• Wholesale invoices to other GST-registered businesses → exclusive, with GST line shown.
• Your BAS → the ATO wants the collected GST portion, separately.

Two edge cases worth naming

1. GST-free items

Some products (many staple foods, fresh produce, water) are GST-free. The mistake here is running one clean formula across a menu that mixes taxable and GST-free lines. If your café sells a bottle of still water (GST-free) and a soft drink (taxable) both at $4.50, the water is a $4.50 sale and the soft drink is a $4.09 sale.

2. You're not registered for GST

If you're under the $75,000 turnover threshold and haven't registered, you don't add GST and you don't remit it. But the moment you register (or reach the threshold), retroactively unwinding "I was doing my margins on inclusive prices" gets expensive — your bookkeeper will need to go back and adjust every tax invoice, and your quarterly BAS will look wobbly for a period. Do it right from day one — even if the 10% adjustment lives in a single toggle in your sheet.

How COG handles this

The calculator toggles between inclusive and exclusive at the sale-price row. Under the hood every downstream figure — gross profit, gross margin, markup on cost, per-cost-category breakdown — is calculated against the net sale. The GST is shown separately, in dollars, so you can sanity-check what's going to the ATO.

Set the toggle once at the top and stop thinking about it.