Contents
- Claiming input tax credits
- Apportioning input tax credits for business and private use
- Tax invoice requirements for claiming input tax credits
- Situations where input tax credits cannot be claimed
- Special rules for specific input tax credit claims
Claiming input tax credits
You can claim credits for the Goods and Services Tax (GST) included in the prices of goods and services you purchase for your business. This GST credit, also known as an input tax credit, allows you to reduce your GST liability.
To make these claims on a Business Activity Statement (BAS), it is essential for your business to first be registered for GST. The regulations regarding GST and input tax credits are detailed in the GST Act.
Business Use Intent
Ensure that your purchases are intended for use, either wholly or partially, in your business operations. Note that purchases related to GST exempt supplies are not eligible for GST credits.
GST Inclusive Purchase Price
Make sure that the purchase price includes the GST amount. You can claim GST credits only on the GST component of the purchase price.
Calculating the Input Tax Credits on an invoice
When a tax invoice only mentions that the price includes GST without specifying the amount, you can calculate the GST credit. Divide the price by 11, and this result represents the GST credit you can claim, provided the item is used wholly for business purposes.
For purchases used for both business and private purposes, you can claim a GST credit only for the portion used for business. For instance, if 50% of the usage is for business purposes, you should claim a GST credit for 50% of the GST paid.
Cash Basis Accounting and Partial Payments
If you employ the cash basis accounting method and have not yet made full payment for a purchase, you are eligible to claim a GST credit solely for the portion of GST included in the amount you have already paid. This applies until the full payment is made. See our GST Accounting Methods article for more information on choosing a GST accounting method.
Once you have calculated your total GST credits, you can use them to offset the amount of GST you are required to pay. If your GST credits exceed your GST liability, you are entitled to a refund of the difference.
Time limits for claiming Input Tax Credits
Your entitlement to claim a GST credit expires four years from the due date of the earliest activity statement in which you could have claimed it, irrespective of any tax invoice requirements. Within this four year period, you can claim the credit in any BAS that you lodge.
Apportioning input tax credits for business and private use
When you purchase goods or services that are used for both business and private purposes, the following considerations apply:
Apportionment of Input Tax Credits
You can only claim a GST credit for the part of the purchase that is used for your business operations. It is necessary to calculate and claim credits only for the business-related portion of the purchase, excluding the private use component.
Adjustments for Actual Use
If you later find that your actual use of the purchased items differs from your initial intended use, adjustments to the claimed GST credits may be required. It is crucial to ensure that the claimed credits accurately reflect the business-related portion of the purchase.
Annual Private Apportionment Election for Small Businesses
Small businesses have the option to simplify the process of accounting for the private portion of their business purchases. Instead of making adjustments each time they lodge an activity statement, they can choose to make an annual private apportionment election. By doing so, they can account for the private use aspect of their business purchases once a year.
Tax invoice requirements for claiming input tax credits
For purchases that cost more than A$82.50 (including GST), you must have a tax invoice. When you request one, your supplier has 28 days to provide it to you.
Remember to wait until you receive the tax invoice before claiming the GST credit, even if it falls in a later reporting period.
Obtaining a Complete Tax Invoice
To ensure a tax invoice is valid, it must contain accurate and complete information. If you receive an invoice that is incomplete or contains incorrect details, it won’t qualify as a valid tax invoice.
However, you can still treat it as one if you can get the missing information from other documents the supplier has given you. In case you can’t obtain the necessary details, ask your supplier to provide a complete and correct tax invoice.
Missing Tax Invoice from Supplier
If your supplier doesn’t respond to your request for a valid tax invoice within the 28-day period, and you can’t find the missing information from other supplier-issued documents, you have the option to seek permission to treat a different document as a valid tax invoice.
Input Tax Credits for Small Purchases
For purchases that cost A$82.50 or less (including GST), you have several options for claiming GST credits. You can use any of the following documents:
- Tax invoice
- Cash register docket
- Receipt
- Invoice
If you can’t obtain any of these documents, keep a record of the purchase. Record the supplier’s name and Australian Business Number (ABN), date of purchase, a description of the items purchased, and the amount paid.
Situations where input tax credits cannot be claimed
Not Registered for GST: If your business is not registered for GST, you cannot claim input tax credits on your purchases. Registering for GST is a prerequisite for claiming these credits.
Purchases without GST: You cannot claim an input tax credit for purchases that do not include GST in their price. This includes purchases where the sale is GST free, such as basic foods, and purchases where the sale is input taxed, such as residential accommodation, bank fees, and loan interest.
Purchases from Unregistered Suppliers: Input tax credits cannot be claimed for purchases from suppliers who are not registered or not required to be registered for GST. Unregistered suppliers cannot charge GST on their sales.
Wages Paid to Staff: Input tax credits cannot be claimed on wages paid to staff. Wages are exempt from GST, so no credits can be applied to these expenses.
Absence of a Valid Tax Invoice: For purchases exceeding A$82.50 (including GST), you must have a valid tax invoice to claim a input tax credit when lodging your activity statement. Without a tax invoice, you cannot claim input tax credits for these purchases. However, there are specific circumstances where input tax credits may be claimed without a tax invoice.
Other purchases for which you cannot claim input tax credits, even if the GST is included in the purchase price, include:
- You cannot claim input tax credits for purchases made for private or domestic purposes. input tax credits are only applicable to purchases used for business related activities.
- Purchases associated with making input-taxed supplies, such as those linked to providing residential accommodation, are not eligible for input tax credits.
- For real property purchased under the margin scheme, you cannot claim input tax credits.
- input tax credits cannot be claimed on certain expenses that are not allowable as income tax deductions. Examples include entertainment expenses, which are subject to specific tax regulations.
- If the purchase of a car results in the cost exceeding the car limit amount specified for the relevant financial year, you cannot claim input tax credits on the excess amount.
- Input tax credits cannot be claimed if the time limit for claiming them has expired. Ensure timely submission of input tax credit claims to avoid missing out on eligible credits.
Special rules for specific input tax credit claims
company Pre establishment Costs
When setting up a company, the company is eligible to claim input tax credits for the GST included in certain purchases made before the company’s official establishment. These pre establishment costs may include expenses like setup fees, trading stock, business premises and business registration. In order to claim GST credits for pre establishment costs, it is necessary to meet the following criteria:
Purchase Purpose: The purchase must be made to bring the company into existence or to support its business activities after its formation.
Timely Company Registration: The company must come into existence and be registered for GST within six months after the purchase.
Membership, Officer, or Employee Status: You must become a member, officer, or employee of the company.
Full Reimbursement: The company must fully reimburse you for the cost of the purchase.
Non Input Taxed Sales or Private Use: The purchase must not be used for making input-taxed sales or for private purposes.
No Double GST Credit Claim: The company should not be entitled to claim an input tax credit for the purchase if it subsequently acquires the same item from you.
No Double GST Credit Claim for You: You should not be entitled to claim an input tax credit for the same purchase.
Second hand goods
When purchasing second hand goods from unregistered suppliers for the purposes of sale or exchange (excluding manufacture), you can claim an input tax credit, even if GST was not included in the price.
However, specific conditions must be met to be eligible for this credit. These include:
- The goods must be bought with the intention of reselling or exchanging them.
- The purchase should be made from an unregistered supplier, meaning they are not registered for GST.
- The second-hand goods must not be intended for use in the process of manufacture.
Other special rules
It is advisable to consult with an appropriately qualifed adviser if you have any questions regarding these situations:
- Periodic or Progressive Supplies
- Purchases with Corporate Credit Cards
- Land Purchases under Standard Land Contracts
- Supplies of Gas and Electricity
- Lay by Purchases
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.