You run a business. You make a sale. You prepare the invoice. Then you ask yourself: “Do I add 10% GST?” You check the rules. The answer is no.
But then another question comes up: “If I’m not charging GST, can I still claim the GST on my business expenses?” This is where input-taxed sales come in. They can be confusing at first. But once you understand the basic idea, it becomes much easier.
Let’s break it down.
What Is an Input-Taxed Sale?
An input-taxed sale is a sale where you generally don’t charge GST to your customer. But there is an important catch. You generally cannot claim GST credits for purchases that relate to making those input-taxed sales.
So there are two sides: No GST charged on the sale. No GST credit for related purchases. That is what makes input-taxed sales different from GST-free sales.
What Are Some Common Input-Taxed Sales?
The most common examples include certain:
- Residential rental properties
- Financial supplies
There are specific rules for each type of supply. So you should always check whether your particular sale is actually input taxed. Don’t assume something is input taxed just because you don’t charge GST.
Residential Rent Is a Common Example
Imagine you own a residential investment property. You receive: Monthly rent: $2,000. You generally don’t add another $200 GST.
The tenant pays: $2,000.
So: Rent: $2,000.
GST: $0
This is generally an input-taxed supply. But there is another side to the transaction. You may have expenses related to the property.
For example: Property management fees, Repairs, Maintenance, Professional fees. If these expenses relate to making the input-taxed residential rental supply, you generally cannot claim the GST included in those expenses. This is the part that often surprises property owners.
Let’s Look at a Simple Example
You own a residential rental property. Your property manager charges: $550 including GST. The GST component is: $50. You might think: “The property manager charged me $50 GST. I’ll claim it on my BAS.”
But if the expense relates to your input-taxed residential rental activity, you generally cannot claim that $50 as a GST credit. So the GST remains part of your cost. This is why understanding input-taxed supplies is important.
Input-Taxed vs GST-Free
This is probably the biggest area of confusion. Both types of sales generally have: No GST charged to the customer. But the treatment of business purchases is different.
GST-Free Sale
You generally don’t charge GST. But you may still be able to claim GST credits on eligible purchases related to the sale.
Input-Taxed Sale
You generally don’t charge GST. And you generally cannot claim GST credits for purchases that relate to making the input-taxed sale. So remember:
GST-free = No GST charged, but GST credits may be available.
Input-taxed = No GST charged, and related GST credits are generally not available.
What About Financial Supplies?
Certain financial supplies can also be input taxed. Examples can include certain transactions involving:
- Loans.
- Credit.
- Bank accounts.
- Shares.
- Securities.
The GST treatment can depend on the exact transaction. So don’t assume every financial transaction is automatically input taxed. There are specific rules that need to be considered.
What If Your Business Has Both Taxable and Input-Taxed Sales?
This is where things can become more complicated. Imagine you run a business that has two different activities.
You make: Taxable sales: $100,000. Input-taxed sales: $50,000. Now you have expenses. Some expenses relate only to the taxable activity. Some relate only to the input-taxed activity. Others may relate to both.
You generally need to work out which expenses relate to which activities. You may be able to claim GST credits for expenses connected with your taxable supplies. But GST credits relating to input-taxed supplies are generally not available.
What If an Expense Relates to Both Activities?
This happens in real businesses. You might have one accounting system. One office. One telephone. One accountant. But your business makes both taxable and input-taxed supplies. You cannot simply claim 100% of the GST on every shared expense. You may need to apportion the GST credit between the different activities.
For example: GST on shared expense: $1,000.
Business use relating to taxable supplies: 70%
Business use relating to input-taxed supplies: 30%
The potentially creditable portion could be: $1,000 × 70% = $700.
The remaining $300 would generally not be claimable as a GST credit.
The actual apportionment method depends on the circumstances.
Input-Taxed Sales Do Not Mean You Are Not Registered for GST
This is another common misunderstanding. You can be registered for GST and still make input-taxed sales.
For example, a business can be GST registered because it makes taxable sales. It may also have some input-taxed activities. So don’t think: “There is no GST on this sale, so I’m not registered for GST.” That’s not necessarily true. GST registration and the GST treatment of individual sales are two different things.
Do Input-Taxed Sales Count Towards GST Turnover?
This is an important point. Not every amount received by a business is included in GST turnover. Input-taxed supplies are generally treated differently when calculating GST turnover. So you should not simply add every sale, rent receipt or financial transaction together and assume that the total is your GST turnover.
This can become particularly important when determining whether a business needs to register for GST.
What About the Sale of a Residential Property?
This is another area where people can get confused. You own a residential rental property. You have rented it out for several years. You decide to sell it. You might assume: “The rent was input taxed, so the sale must also be input taxed.” Not necessarily.
The GST treatment of the sale depends on the property and the circumstances. For example, the sale of existing residential premises can have different GST treatment from the sale of new residential premises. If you are selling property, it is worth checking the GST treatment before signing the contract.
A Common Mistake
A common mistake is: “I didn’t charge GST, so I’ll claim the GST on my expenses.” That is not how input-taxed supplies work. If the expense relates to making input-taxed supplies, the GST credit is generally not available.
So don’t look only at the invoice. Look at what the expense is connected to. That connection matters.
Another Common Mistake
Another mistake is treating GST-free and input-taxed sales as the same thing. They aren’t. Both can have $0 GST charged to the customer. But the GST credit treatment can be very different. That is why your accounting software needs to use the correct GST tax code. A wrong GST code can affect your BAS.
Let’s Put It All Together
Imagine you own a residential rental property. During the year, you receive: Rental income: $30,000. You don’t generally charge GST on the residential rent.
During the year, you also pay: Property management fees: $2,200 including GST.
Repairs: $1,100 including GST.
The GST included in these expenses is: Property management: $200.
Repairs: $100.
Total GST: $300.
Because the expenses relate to the input-taxed residential rental activity, you generally
cannot claim that $300 as a GST credit.
This is the key point: No GST on the rent. No GST credit on related expenses.
A Simple Way to Remember It
Think of input-taxed sales like this: You don’t charge GST. You generally can’t claim GST credits on related purchases. That is the basic rule. If you remember those two points, you will already understand most of the concept.
The Bottom Line
Input-taxed sales can seem confusing. But the basic idea is simple. You generally don’t charge GST on an input-taxed sale. At the same time, you generally can’t claim GST credits for purchases that relate to making those sales.
Residential rental activities and certain financial supplies are common examples. So the next time you see a transaction with no GST, don’t immediately assume it is GST-free.
Ask yourself: “Is this GST-free, or is it input taxed?” That small question can make a big difference. Because with GST, no GST on the sale doesn’t always mean you can claim the GST on the expense.