In today’s blog, we’re demystifying GST credits and exploring when you are allowed to claim GST credits and when you can’t claim them. Claiming GST credits isn’t always straightforward. To know what conditions you need to meet to claim GST credits and when you are not allowed to claim GST credits, read this blog.
When You Can’t Claim a GST Credit?
You cannot claim a GST credit:
- if you’re not registered for GST.
- also, if your supplier isn’t registered for GST
- you can’t claim the credit wages paid to staff (no GST on wages)
- having no valid tax invoice for purchases that cost over $82.50 when you file your activity statement. However, there are exceptions in specific circumstances. Without a tax invoice, you can claim GST credits.
There are certain purchases that don’t qualify for GST credits even if GST is included in the price, including:
- private or domestic purchases
- input tax supplies
- real property under the margin scheme
- for some purchases that you can’t claim as an income tax deduction like entertainment expenses
- where the duration for claiming a GST credit for the purchase has ended.
These are just a few examples. Confused? Don’t worry. This is where small business accountants help you.
When Can You Claim a GST Credit?
You can claim a GST credit for any GST included in the cost you pay for things you use in your business. This is called a GST credit or an input tax credit. To claim GST credit in your business activity statement, you need to be registered for GST. You are allowed to claim GST credits if:
- you are likely to use your purchase solely for your business, and the purchase doesn’t lead to making input-taxed supplies
- the purchase price includes GST
- you are liable to pay for the item you bought
- you have a tax invoice provided by your supplier
When claiming GST credits, you need to ensure that your suppliers are registered for GST. You can confirm it by checking the GST registration status of an entity. For claiming GST credits, a 4-year time limit applies. The tax agent in Melbourne can help you understand the whole criteria.
GST and Purchases for Private Use
You may only be eligible for a GST credit for the portion of a transaction that is related to your business use if you buy products or services for both personal and company use. You might need to modify the amount of GST credits you have claimed if you subsequently discover that your actual use was different from what you had planned.
Small businesses would be able to report the private part of their purchases once a year instead of every time they file an activity statement. You must have an annual private apportionment election in order to accomplish this.
When Do You Need a Tax Invoice?
You need to have a tax invoice to claim a GST credit for purchases that cost over $82.50 (including GST). Your supplier has 28 days to give you a tax invoice after you request one. You need to wait until you get it before claiming the GST credit, even if this is in a later reporting period.
Tax invoice is incomplete
An invoice that has incomplete or incorrect information is not a valid tax invoice. You can treat it as a tax invoice if it has missing information that can be received from other documents that the supplier has given you. Otherwise, you can ask your supplier to replace it with a correct and complete tax invoice.
When you don’t get a tax invoice
If your supplier doesn’t respond to your request for an accurate invoice:
- within the 28-day time period, and
- if you can’t find the missing information from other documents provided by the supplier to you, you can get permission to treat a document as a valid tax invoice.
- Small purchases
To claim a GST credit for purchases that cost $82.50 or less, you must have one of the mentioned below:
- a tax invoice
- a cash register docket
- an invoice
- a receipt
If you can’t get one of the mentioned-above, keep a record of the purchase, such as:
- the date of purchase
- the supplier’s ABN and name
- the description of purchased items
- the amount paid.
The blog outlines conditions for claiming GST credit and when you are not allowed to claim GST credit. If you find it difficult to understand the conditions, you can reach Reliable Melbourne Accountants.
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