You buy something for your business. Maybe it is a new laptop. Maybe it is office furniture. Maybe it is stock for resale. You look at the invoice and see GST included in the price. Then you wonder: “Can I claim this GST back?”
This is where the term creditable acquisition becomes important. It sounds like complicated tax language. But the basic idea is quite simple. A creditable acquisition is a business purchase that allows you to claim a GST credit on your BAS, provided the relevant GST requirements are met.
Let’s break it down.
What is a creditable acquisition?
Under the GST rules, a purchase is generally a creditable acquisition when you meet certain conditions. The main conditions are:
- You acquire something for your business.
- GST is included in the price.
- You provide, or are liable to provide, consideration for the purchase.
- You are registered, or required to be registered, for GST.
- The purchase is not for making input-taxed supplies.
If these conditions are satisfied, you may be entitled to claim the GST included in the purchase as a GST credit. It is basically the GST system saying: “You paid GST on a business purchase. You may be able to claim that GST as a credit.”
Let’s look at a simple example
Imagine you run a small consulting business.
You buy a laptop for: $2,200 including GST.
The GST included in the price is: $2,200 ÷ 11 = $200.
If the laptop is used for your business and the other requirements are satisfied, you may be able to claim the $200 GST credit.
So, when you prepare your BAS, that $200 can reduce the amount of GST you need to pay. That is the basic idea behind a creditable acquisition.
The purchase must be for your business
This is an important requirement. You cannot claim GST simply because you bought something. The purchase needs to be connected with your business activities. For example, you run a landscaping business and buy a lawn mower for $1,100 including GST. The mower is used for your business. Assuming the other requirements are met, the $100 GST may be creditable.
But if you buy a television purely for your home, that is a different story. You cannot simply claim the GST because you own a business. The purpose of the purchase matters.
What if something is used for both business and private purposes?
This happens quite often. You might use your mobile phone for both business and personal calls. Or you might use your car for both work and private trips. In these situations, you generally cannot claim the entire GST amount. You may need to work out the business-use portion.
Here’s an example
You buy a phone for: $1,100 including GST.
GST included: $100.
You use the phone: 70% for business and 30% privately.
The business portion of the GST would generally be: $100 × 70% = $70.
So, subject to the relevant requirements, you may be able to claim a $70 GST credit rather than the full $100.
This is why keeping track of business and private use is important.
You need to actually pay or owe the amount
Another requirement is consideration. In simple terms, you need to have provided, or be liable to provide, something in return for the purchase. Most of the time, that means money.
For example, you purchase office furniture for $3,300 and agree to pay the supplier. You have acquired the furniture for consideration. The fact that you have not paid the invoice yet does not necessarily mean there is no acquisition for GST purposes. The timing can depend on the accounting method you use and the GST rules that apply to your business.
You need to be registered for GST
This one is straightforward. You generally need to be registered for GST to claim GST credits. If you are not registered and are not required to be registered, you generally cannot claim the GST included in your business purchases. This is one reason why GST registration can make a difference to your business.
But remember, GST registration also comes with responsibilities. You may need to charge GST on taxable sales and lodge BASs.
What if the supplier didn’t charge GST?
This is another common situation. You buy something for your business. You receive an invoice. But there is no GST on it. Can you still claim a GST credit? Generally, no.
There needs to be GST included in the supply for there to be a GST credit to claim. For example, if you buy a service from a supplier who is not registered for GST, they generally won’t charge GST. There is therefore no GST component for you to claim.
So don’t assume: “It is a business expense, so I can claim GST.” The expense being business-related is only one part of the calculation.
What about GST-free purchases?
Some goods and services are GST-free. If a purchase is GST-free, there is generally no GST included in the price. So there is generally no GST credit relating to that GST-free purchase. Again, this is why you need to look at the GST treatment of the actual transaction.
What about input-taxed supplies?
This is another important exception. If your purchase relates to making input-taxed supplies, you may not be entitled to claim the GST credit.
For example, businesses involved in certain residential rental activities may have input-taxed supplies. The GST treatment of related expenses can therefore be different. This is an area where it is worth getting professional advice if you are unsure.
You need the right records
This part is easy to overlook. You cannot just tell your accountant: “I spent $5,000 on business expenses.” You need records to support your GST claim.
For many purchases, you will need a valid tax invoice to claim a GST credit. There are also specific record-keeping rules depending on the amount and type of purchase. So keep your invoices. Keep your receipts. Keep your accounting records. It makes your BAS much easier to prepare.
A creditable acquisition affects your BAS
Let's put everything together. Suppose during the quarter your business has:
GST collected from customers: $6,000.
GST credits from creditable acquisitions: $2,000.
Your simple net GST position would be: $6,000 − $2,000 = $4,000.
So the GST credits from your business purchases reduce the amount of GST you need to account for.
This is why it is important not to miss eligible GST credits. If you don’t record your purchases correctly, you could end up paying more GST than necessary.
Not every business expense is a creditable acquisition
This is probably the biggest point to remember. A business expense and a creditable acquisition are not automatically the same thing.
For example: Business expense: Yes.
GST included: Maybe.
Business use: Maybe.
GST registered: Maybe.
Only after checking these factors can you determine whether a GST credit is available. So don’t just look at the expense account in your accounting software. Look at the GST treatment too.
A simple checklist
Before claiming GST on a purchase, ask:
1. Did my business acquire something?
2. Was it acquired for business purposes?
3. Was GST included in the purchase?
4. Am I registered for GST?
5. Is the purchase connected with making taxable or GST-free supplies?
6. Do I have the required records?
If the relevant requirements are satisfied, you may have a creditable acquisition and may be able to claim the GST credit.
The bottom line
A creditable acquisition is basically a business purchase that meets the GST requirements for claiming a GST credit. It is not simply about spending money.
You need to look at: What you bought. Why you bought it. Whether GST was included. How you use it. And whether you have the right records.
Once you understand that, the concept becomes much easier. So the next time you receive a business invoice with GST on it, don’t just file it away. Take a quick look. You may have a GST credit sitting there that can reduce your BAS liability. And if you are unsure whether a particular purchase is a creditable acquisition, check it before claiming it.
Getting the GST credit right is just as important as getting the GST you collect right.