You run a business. You buy stock. You pay for software. You purchase equipment. You pay for business expenses. And on many of those purchases, you pay GST.
Then you start wondering: “Can I claim that GST back?” This is where input tax credits come in.
If your business is registered for GST, you may be able to claim a credit for the GST included in eligible business purchases. It sounds technical. But the basic idea is actually quite simple. Let’s break it down.
1. What Is an Input Tax Credit?
An input tax credit is a credit for GST your business has paid on eligible purchases and expenses. You generally claim these credits when you lodge your BAS. The GST you paid on eligible business purchases can reduce the GST you need to pay on your business sales.
For example: GST collected from customers: $5,000.
GST paid on eligible business purchases: $2,000.
Your simple net GST position would be: $5,000 − $2,000 = $3,000.
So, in this example, the $2,000 GST credit reduces the amount of GST you need to pay.
That is the basic idea behind an input tax credit.
2. Let’s Look at a Simple Example
Imagine you run a small graphic design business.
You buy a new computer for: $2,200 including GST.
The GST component is: $2,200 ÷ 11 = $200.
If the computer is used for your business and the other requirements are met, you may be able to claim the $200 as an input tax credit.
That $200 can then be taken into account when you lodge your BAS.
3. You Need to Be Registered for GST
This is one of the first things to remember. You generally need to be registered for GST to claim input tax credits. If you are not registered for GST, you generally cannot claim the GST included in your business purchases. So GST registration and input tax credits go hand in hand.
4. The Purchase Must Be for Your Business
You cannot claim GST simply because you paid it. The purchase needs to be connected with your business.
For example, you run a plumbing business and buy tools for $1,100 including GST.
The tools are used for your business.
The GST included is: $1,100 ÷ 11 = $100.
If the purchase meets the requirements, you may be able to claim the $100 as an input tax credit.
But if you buy something purely for personal use, you generally cannot claim the GST as a business credit.
5. What If Something Is Used for Both Business and Personal Purposes?
This happens quite often. Maybe you use your phone for work and personal calls. Maybe you use your car for both business and private travel. In these cases, you generally need to work out the business-use portion.
For example, you buy a phone for: $1,100 including GST.
GST included: $100. You use it: 80% for business and 20% privately.
The business portion of the GST would generally be: $100 × 80% = $80.
So you may be able to claim $80 rather than the full $100, subject to the relevant requirements.
6. You Need to Have Paid GST
Another important point is that there must actually be GST included in the purchase. Suppose you buy a service from a supplier who is not registered for GST. They generally will not charge you GST. So there is no GST amount for you to claim as an input tax credit. This is why you should check your supplier’s invoice. Don’t assume every business expense includes GST.
7. Keep Your Tax Invoices
This is one of those small things that can save you a lot of trouble later. If you want to claim GST credits, you need to keep the appropriate records. For many purchases, this includes having a valid tax invoice.
For example, you buy equipment for $5,500 including GST.
You know that $500 is GST.
But you should also have the required documentation to support your claim.
So don’t throw away those invoices. Keep them organised. Your accounting software can help with this too.
8. Not Every Purchase Gives You an Input Tax Credit
This is important. Just because something is a business expense does not automatically mean you can claim the GST. Some purchases may be:
- GST-free
- Related to input-taxed supplies
- Private or domestic
- Only partly used for business
- Missing the required records
Each transaction needs to be looked at based on its GST treatment.
9. What About GST-Free Purchases?
If a purchase is GST-free, there is generally no GST included in the price. So there is generally no input tax credit to claim for that GST-free purchase.
For example, if you purchase something for $500 and there is no GST included, you cannot claim GST that you never paid. It sounds obvious. But it is easy to miss when you are processing a large number of transactions.
10. What About Input-Taxed Activities?
Input-taxed supplies have their own GST rules. If a purchase relates to making input-taxed supplies, you may not be entitled to claim the GST credit.
This can be particularly important for businesses involved in certain financial or residential rental activities. If your business makes input-taxed supplies, it is worth checking the GST treatment of related expenses carefully.
11. How Do Input Tax Credits Affect Your BAS?
This is where the credit becomes useful.
Imagine your business has: GST collected: $10,000.
Eligible input tax credits: $4,000.
Your simple net GST position is: $10,000 − $4,000 = $6,000.
The $4,000 of input tax credits reduces the GST you need to account for.
This is why accurate bookkeeping is so important. If eligible GST credits are missed, you may end up paying more GST than necessary.
12. A Common Mistake
One mistake I see often is treating every business expense as a GST claim. For example, your accounting records show: Business expenses: $20,000. You might think: “I’ll just claim 10% GST.”
But it does not work that way. Some expenses may not include GST. Some may be GST-free. Some may be partly private. Some may have other GST restrictions. You need to identify the actual GST amount in each eligible purchase.
13. Input Tax Credits vs GST Collected
It helps to think of GST as having two sides. GST collected is the GST you charge your customers on taxable sales. Input tax credits are the GST credits you may claim on eligible business purchases.
At BAS time, these amounts are taken into account to work out your net GST position. So if you collect more GST than you can claim as credits, you will generally have GST to pay. If your eligible credits are greater than the GST you collected, you may have a refund or credit position, subject to your overall BAS position.
14. A Simple Checklist
Before claiming an input tax credit, ask yourself:
1. Is my business registered for GST?
2. Did I actually pay GST on the purchase?
3. Was the purchase made for my business?
4. Is it used partly for private purposes?
5. Does the purchase relate to input-taxed activities?
6. Do I have the required records?
These questions can help you avoid claiming GST incorrectly.
The Bottom Line
Input tax credits are an important part of the GST system. They allow a GST-registered business to claim eligible GST paid on business purchases.
But remember: Not every business expense creates an input tax credit. You need to look at the GST included in the purchase. You also need to consider how the purchase is used and whether any restrictions apply.
So the next time you receive a business invoice with GST on it, don’t just record the total amount. Check the GST. Keep the invoice. Record it correctly. Because those small amounts of GST can add up quickly. And when BAS time comes around, every eligible input tax credit can make a difference.