At Rogerson Kenny Business Accountants, we’ve put together a slideshow to explain the regulations surrounding tax invoice compliance for businesses. You can click through the slideshare, or scroll down to read a transcription below.
BUSINESS FINANCE 101: CLAIMING GST CREDITS
Are you registered for GST? In that case it is likely that you are eligible to claim a credit for any GST included in the price of any goods and services you buy for your business.
YOU CAN CLAIM GST CREDITS IF THE FOLLOWING FOUR CONDITIONS APPLY:
- You intend to use your purchase solely or partly in carrying on your business and the purchase does not relate to making input-taxed supplies
- The purchase price included GST
- You provide, or are liable to provide, payment for the item you purchased
- You have a tax invoice from your supplier (for purchases over $82.50).
YOU CANNOT CLAIM GST CREDIT :
- Without a valid tax invoice
- For purchases that do not have GST in the price
- For wages you pay to staff (there is no GST on wages)
- For motor vehicles priced above a certain limit.
GST CREDITS AND INCOME TAX DEDUCTIONS
If you can claim a deduction for a business purchase in your income tax return, claim the amount of the purchase less any GST credit to which you are entitled.
Example for a business registered for GST:
Alice, a GST-registered computer repairer, buys some stationery for her business. She pays $22 (including $2 GST). Alice can claim a GST credit of $2 on her activity statement and $20 as an income tax deduction on her income tax return.
If you’re not entitled to a GST credit, claim the full cost of the purchase, including any GST, as a deduction.
Example for a business not registered for GST:
Rob is also a computer repairer but is not registered for GST. He buys some stationery for his business at a cost of $22 (including $2 GST). Rob cannot claim a credit for the $2 GST, but he can claim the full $22 as an income tax deduction on his income tax return.
For capital items, such as some machinery, you may be entitled to an income tax deduction for the item’s decline in value (depreciation). When working out the decline in value, use the cost of the item less any GST credits you are entitled to.
Example for a business registered for GST with capital items:
John is registered for GST and buys a new photocopier for his business. The seller is registered for GST and charges John $1155 (including $105 GST). John can claim a GST credit of $105 on his activity statement. John can also claim an amount that reflects the decline in value of the photocopier on his income tax return. John subtracts his GST credit from the purchase price (that is, $1155 – $105 GST = $1050), and uses $1050 to calculate his decline in value claim.
Note: Special GST rules apply when setting up a company and when purchasing second-hand goods, as well as in some other circumstances.
HAVE MORE QUESTIONS?
Contact Rogerson Kenny Business Accountants 03 9802 2533.