You may have heard of GST credits. But did you know when can you claim GST? When are you ineligible for a GST credit? To answer all these questions, continue reading this blog.
What is a GST Credit?
You are allowed to claim a credit for any GST included in the cost of any goods and services you purchase for your business. This is known as a GST credit (or an input tax credit, a credit for the tax that is included in the cost of your business inputs. Many of you may be unaware of GST credits, so it’s a good idea to ask taxation accountants to help you claim GST credits.
When Are You Eligible for Claiming a GST Credit?
You are eligible to claim a credit for any GST included in the cost you pay for items 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 for claiming GST credits if:
- You are likely to use your purchase only or partly for your business, and the purchase is not related to making input-taxed supplies.
- The purchase price included GST.
- You offer or are required to provide payment for things you bought
- You have a tax invoice from your supplier (for purchases over A$82.50).
When applying for a claim for GST credits, make sure your suppliers are registered for GST. A 4-year time limit is applied for claiming GST credits. Many business owners get confused when understanding rules for claiming GST, which is why they prefer engaging an accountant. You can also search for a ‘tax accountant near me’ to hire an accountant in your area.
When Are You Ineligible for a GST Credit?
You cannot claim a Goods and Services Tax (GST) credit under the following circumstances:
- If you are not registered for GST.
- For purchases that do not include GST in the price, such as:
- GST-free sales (e.g., basic food items)
- Input-taxed sales (e.g., residential accommodation, bank fees, and loan interest)
- From suppliers who are not registered or required to be registered for GST, and therefore cannot charge GST.
- For salaries or wages you pay to staff (no GST on wages)
- If you don’t have the right tax invoice for purchases you made that cost over $82.50 (including GST) when you file BAS, however, there are certain circumstances where GST credits can be claimed with no tax invoice.
You are also ineligible to claim GST credits for some purchases (even if GST is included in the price), including:
- To the extent that a purchase is made for a domestic or private purpose
- To the extent that a purchase is made for making an input-taxed supply (such as those related to offering residential accommodation)
- For real property bought under the margin scheme
- For some purchases that you are not allowed to claim as an income tax deduction, like entertainment expenses
- For the part of the purchase price of a vehicle, like a car, that is above the car limit amount for a specific financial year.
- Where the 4-year credit time limit has ended for claiming a GST credit for the purchase.
Make sure you have the right records to claim GST credit, that’s why it’s suggested to have a small business bookkeeper to ensure accuracy in records.
What are the Rules for GST Credit Claims?
Pre-establishment cost: If you are setting up a company, the company is allowed to claim GST credits for the GST included in the cost of purchases you make before starting a company, such as business registration, set-up fees, trading stock and business premises.
Second-hand goods: You are eligible to claim a GST credit for any second-hand goods you purchase from unregistered suppliers for exchange or sale, but not for manufacture, provided you meet some conditions.
Other special rules: Other special rules include:
- progressive or periodic supplies, such as service contracts or lease payments
- purchases made with corporate credit cards and purchases of land under standard land contracts
- supplies of electricity and gas by public utility providers
- lay-by purchases.
Conclusion
If you are looking to claim GST credit, you must be aware of certain rules to know when you are eligible to claim and when you are not eligible to claim GST credits. For more information, you can get in touch with Reliable Melbourne Accountants.