Are you looking to understand how to claim GST credits for your business in Australia? You’re not alone. At Cotchy, we specialise in guiding businesses through the complexities of GST compliance. In this article, we delve into the essentials of GST credit claims, including eligibility criteria, tax invoice requirements, and the nuances of business and private use purchases.
Understanding GST Credits
GST credits are vital for efficient tax management in businesses. As a registered GST entity, you can claim credits for the GST included in the price of items used in your business. This process, known as input tax credits, is an essential aspect of your GST registration benefits.
Eligibility for Claiming GST Credits
To be eligible for GST credits, consider the following criteria:
- Your purchase must be for business use, either fully or partially.
- The price must include GST.
- You must be responsible for the payment of the item.
- A tax invoice is required for purchases exceeding A$82.50.
Ensure your suppliers are GST registered, which you can verify through the ABN Lookup website. Remember, a 4-year limit applies to GST credit claims.
GST and Mixed-Use Purchases
For items used for both private and business purposes, GST credits can only be claimed for the business portion. Adjustments may be needed if actual use differs from the intended use.
For small businesses, there’s an option to account for the private use portion of your business purchases annually instead of with each activity statement lodgment. This requires opting for an annual private apportionment election.
Tax Invoice Essentials
A valid tax invoice is crucial for claiming GST credits on purchases over A$82.50. If your supplier fails to provide a tax invoice within 28 days of request, contact the ATO to request permission to treat a document as a valid tax invoice.
Small Purchases and GST Credits
For items costing A$82.50 or less, keep a detailed record if you can’t obtain a tax invoice. This record should include the supplier’s name, ABN, date of purchase, item description, and the amount paid.
If you are unable to get one of these, keep a record of the purchase, such as a diary entry with: the name and ABN of the supplier, the date of purchase, a description of the items purchased, and the amount paid.
Circumstances Exempt from GST Charges
While GST typically applies to imported services, digital products, and low-value imported goods, there are exceptions. If you’re registered for GST, these sales should not include GST charges. It’s important to provide your ABN to the supplier and confirm your GST registration. In these instances, the supplier isn’t required to issue tax invoices.
In cases where you’ve been incorrectly charged GST on an imported service, digital product, or low-value good, it’s recommended to pursue a refund directly from the supplier.
Understanding Reverse Charge Rules
In situations where you haven’t been charged GST on a purchase due to providing your ABN and confirming your GST registration, there may be occasions when ‘reverse charge’ rules apply. These rules necessitate you to account for GST on such purchases through your Business Activity Statement (BAS).
Generally, reverse charge rules mean you’re required to pay GST on a purchase when you wouldn’t be eligible for a complete GST credit. For non-resident businesses that sell goods and services to Australia, additional guidelines are available via this link.
Calculating GST Credit
If your tax invoice just states “price includes GST” without a specific GST amount, calculate the GST by dividing the total price by 11. This figure is your claimable GST credit for business-use items. For items used partly for business, claim GST credit proportional to business use (e.g., claim 50% GST for an item 50% used for business). If you’re on cash accounting and haven’t fully paid, claim GST credit only on the paid portion. After calculating your GST credits, offset them against your GST liability; if your credits exceed what you owe, you’re due a refund.
Understanding GST credits is key to maximising your tax benefits. At Cotchy, we’re here to help you navigate through these processes. Contact us for personalised assistance with your GST credit claims and optimise your business’s financial health.