GST core
Apportionment of GST credits
Apportionment of GST credits means splitting the GST on a purchase between the part used for creditable purposes and the part that is not, so you only claim the creditable share.
Apportionment is the process of dividing a purchase between its creditable and non-creditable uses. It applies whenever you buy something that you will use partly for business activities that carry GST credits and partly for private reasons or to make input-taxed supplies. The GST credit you claim is limited to the creditable share of the GST on the purchase.
The law requires you to use a fair and reasonable method. There is no single method that suits every situation, so the best method depends on the type of purchase and the way it is used. For vehicles, a logbook is usually the best evidence. For home office costs, floor area or time spent might be used. For shared business costs such as accounting fees, a proportion based on turnover or on the number of transactions might make sense.
Businesses with both taxable and input-taxed activities need to apportion their shared costs. A residential and commercial landlord, for example, might apportion the cost of insurance, agent fees and repairs that cannot be directly assigned to one type of property. A reasonable approach might be to use the floor area or rental income of each part, applied consistently from year to year.
Your chosen method should be documented and consistent. The ATO is more likely to accept a method that is logical, based on actual data and applied consistently than one that appears to maximise credits. If circumstances change, you should update your method and reflect the change in your calculations. Guessing percentages without any supporting evidence tends to be a weak position in a review.
A common misunderstanding is that apportionment is only for large businesses. Small businesses and sole traders also need to apportion, particularly when they mix business and private expenses. Another is believing a rough estimate is enough. The estimate has to be reasonable and supported. Equally, treating a mixed purchase as entirely private and claiming nothing can mean missing out on legitimate credits.
If you are unsure which method is right for you, speak with a registered tax professional, and keep the working that supports your percentages for at least five years. This content is general information only, so confirm your method with the ATO or a registered tax professional.
Worked example
A registered landlord owns one commercial shop and one residential unit with equal floor areas, so 50% of the building is used for taxable commercial rent. A $1,100 insurance bill including GST has GST of $1,100 / 11 = $100. Using floor area as a fair and reasonable method, the creditable share is $100 x 50% = $50, which is claimed. The other $50 is not.
Practical tips
- Choose a method that fits the type of cost, document it and use it consistently from year to year.
- Keep your working papers, such as floor plans, logbooks and usage records, to support your percentage.
- Revisit your percentages whenever your business mix changes, such as starting a new service line.