You run a business. You buy a laptop. You pay for advertising. You purchase stock. You pay for software and other business expenses. And somewhere on those invoices, you see GST. Then comes the obvious question: “Can I claim this GST back?”
The answer is often yes. But not every purchase gives you a GST credit. There are rules to follow. So let’s look at when your business can claim GST credits.
What Is a GST Credit?
A GST credit is a credit for GST your business has paid on eligible purchases. You generally claim it when you lodge your Business Activity Statement, or BAS.
For example, you buy office equipment for: $2,200 including GST.
The GST component is: $2,200 ÷ 11 = $200.
If the purchase is eligible, you may be able to claim the $200 as a GST credit.
That credit can reduce the amount of GST your business needs to pay.
Your Business Must Be Registered for GST
This is the first thing to check. You generally need to be registered for GST to claim GST credits. If you are not registered for GST, you generally cannot claim the GST included in your business purchases. So before looking at the individual expense, check your GST registration status.
The Purchase Must Be for Your Business
This sounds obvious. But it is important. You cannot claim GST simply because you bought something. The purchase needs to be connected with your business activities.
For example, you run a plumbing business.
You buy tools for $1,100 including GST. The tools are used for your business.
The GST included is: $1,100 ÷ 11 = $100.
If the other requirements are satisfied, you may be able to claim the $100 GST credit.
But if you buy something purely for personal use, you generally cannot claim the GST.
You Must Actually Pay GST
There must be GST included in the purchase. Suppose you buy a service for $1,000. The supplier is not registered for GST. They do not charge GST. So there is no GST amount for you to claim.
This is why you should look at the invoice. Don’t assume every business expense includes GST. Some purchases have GST. Some are GST-free. Some may have different GST treatment.
What If the Purchase Is Both Business and Private?
This is where things can get a little more interesting. You might buy something that you use partly for your business and partly for yourself.
A mobile phone is a good example.
Suppose you buy a phone for: $1,100 including GST.
The GST is: $100.
You use the phone: 80% for business and 20% privately.
You would generally only claim the business portion.
So: $100 × 80% = $80.
The potential GST credit is therefore $80, subject to the relevant requirements.
The important point is simple: Don’t claim the private portion as a business GST credit.
You Need the Right Records
This is one of those things that is easy to ignore. Until someone asks for the invoice. To claim GST credits, you need to keep the appropriate records.
For many purchases, this includes a valid tax invoice. For example, you purchase equipment for $5,500 including GST. You know the GST is $500. But you should also have the required documentation to support the claim.
So keep your invoices. Keep your receipts. Keep your records organised. It makes BAS time much easier.
When Can You Claim the GST Credit?
The timing of your GST credit can depend on your accounting method and when you hold the required records. If you account for GST on a cash basis, the timing generally relates to when you make the payment.
If you account for GST on a non-cash basis, different timing rules can apply. So don’t simply assume that every invoice goes into the same BAS period. Your accounting method matters.
What About GST-Free Purchases?
Some purchases are GST-free. This means there is generally no GST included in the price. So there is generally no GST credit to claim.
For example: Purchase price: $500.
GST: $0.
GST credit: $0.
You cannot claim GST that you never paid.
It sounds simple. But when you are processing hundreds of transactions, it is easy to overlook.
What About Input-Taxed Supplies?
This is another area where you need to be careful. If your business makes input-taxed supplies, you may not be entitled to GST credits for purchases that relate to those supplies. Certain financial supplies and residential rental activities can be input taxed, subject to the GST rules.
So if your business has input-taxed activities, check the GST treatment of related expenses carefully.
What About Employee Reimbursements?
Your business may reimburse an employee for a business expense. For example, an employee buys business equipment and your business reimburses them.
There can be situations where the business is entitled to claim a GST credit for the reimbursement. But the usual GST requirements still matter. You need to consider the nature of the expense and the records available. So don’t simply assume that a reimbursement can or cannot be claimed. Check the GST treatment.
What About Business Assets?
GST credits can also apply to business assets.
For example, your business buys a piece of equipment for $11,000 including GST.
The GST component is: $11,000 ÷ 11 = $1,000.
If the asset is used for a creditable business purpose and the other requirements are satisfied,
you may be able to claim the $1,000 GST credit.
For larger purchases, it is particularly important to get the GST treatment right.
A Common Mistake
One of the most common mistakes is assuming: “It’s a business expense, so I can claim the GST.” Not necessarily.
You need to check:
1. Is the business registered for GST?
2. Was GST actually charged?
3. Is the purchase for business use?
4. Is there any private use?
5. Does the purchase relate to input-taxed activities?
6. Do you have the required records?
Only then can you work out whether a GST credit is available.
Let’s Put It All Together
Imagine your business has the following purchases during the quarter:
Computer: $2,200 including $200 GST.
Advertising: $1,100 including $100 GST.
Office supplies: $550 including $50 GST.
Personal purchase: $1,100 including $100 GST.
Assuming the first three purchases are eligible, your GST credits would be: Computer: $200.
Advertising: $100.
Office supplies: $50.
Personal purchase: $0.
Total GST credits: $200 + $100 + $50 = $350.
You don’t simply claim the GST on every transaction. You claim the GST on the eligible purchases.
How Do GST Credits Affect Your BAS?
Let's say your business collected: GST from customers: $8,000.
Your eligible GST credits are: $2,500.
Your simple net GST position would be: $8,000 − $2,500 = $5,500.
So the GST credits reduce the amount of GST you need to account for.
This is why keeping track of your eligible purchases is important. A missed GST credit can mean paying more GST than necessary.
A Simple GST Credit Checklist
Before claiming GST on a purchase, ask yourself:
1. Is my business registered for GST?
2. Did the supplier actually charge GST?
3. Is the purchase for my business?
4. Is there any private use?
5. Does the purchase relate to input-taxed activities?
6. Do I have the required records?
7. Am I claiming it in the correct BAS period?
If the answers are right, you may have a GST credit to claim.
The Bottom Line
GST credits can make a real difference to your business. But they are not automatic. You need to look at each purchase. Check whether GST was actually included. Make sure the purchase is connected with your business.
Separate business use from private use. And keep the right records. So the next time you receive an invoice with GST on it, don’t just file it away. Take a quick look. There may be a GST credit sitting there that can reduce your BAS liability. Because when you are running a business, small GST credits can add up to a significant amount over time.