You can claim a GST credit for any GST included in the price of goods and services you purchase for your business. This is also known as an input tax credit, which allows you to recover the tax paid on your business-related purchases.
When Can You Claim GST Credit?
You may be eligible to claim a GST credit for any GST included in the price you pay for goods you use in your business. This is known as an input tax credit or a GST credit. To claim GST credits in your BAS, your business must be registered for GST. You are eligible to claim GST credits if:
- You are likely to use your purchase solely or partly for your business, and the purchase is not related to making input-taxed supplies.
- The purchase cost included GST.
- You provide or are entitled to provide payment for goods you bought.
- You have a tax invoice from your supplier.
Your suppliers must be registered for GST if you want to claim GST credits.
GST and Purchases for Personal Use
If you buy goods or services for both personal and business use, you can only claim a GST credit for the portion of the purchase used for business. If you later find that your actual use is different from your intended use, you may have to adjust the amount of claimed GST credits. If you run a small business, you can potentially account for the private portion of your business expenses once a year instead of each time you lodge an activity statement. To do so, you’ll need to choose an annual private apportionment.
When Do You Need a Tax Invoice?
To claim a GST credit for purchases that cost more than A$82.50 (including GST), you must have a tax invoice. Your supplier usually has 28 days to give you a tax invoice after you request one.
If your invoice has incomplete or incorrect information, it will not be considered a valid tax invoice. You may be able to treat it as a tax invoice if it has missing information that can be received from other documents the supplier has provided you. Or, you can also ask your supplier to provide a complete and correct tax invoice to replace it.
When is GST not charged?
Generally, GST applies to:
- low-value imported goods
- imported services and digital products.
If you are registered for GST, you should not be charged GST on these sales. You must provide the supplier with your ABN and mention that you are registered for GST. The supplier does not need to provide tax invoices for these sales. If the supplier has mistakenly charged you GST on an imported service, a low-value imported good, or a digital product, you must seek a refund from the supplier.
How to Work Out a GST Credit?
If your tax invoice doesn’t include the GST amount included in the cost of goods by only specifying that the cost includes GST, you can work out the GST amount by dividing the price by 11. The answer is the GST credit amount you can claim. For purchases that you use both for personal and business purposes, you are eligible to claim a GST credit for the part you use for your business. For example, if 50% of your purchases are for business, you can claim a GST credit of 50% of the GST you paid.
If you account on a cash basis and have not paid for a purchase fully, you can claim a GST credit only for the GST included in the amount you have paid. Once you have worked out your total GST credits, you can offset them against the GST amount you need to pay. If your GST credits are more than the amount you need to pay, you are eligible for a refund.
Conclusion
You need to meet certain conditions to be eligible to claim a GST credit. In some situations, you may not be able to claim GST credits. Therefore, make sure to meet the requirements before applying for the GST credit claim. If you are unfamiliar with the process, you can reach out to Trusted Tax Associates.
