Deductions
Apportionment
Apportionment is splitting a cost or supply between business and private, taxable and non-taxable, or different periods, so only the correct portion is deducted or claimed as a GST credit.
Apportionment means dividing a single amount into parts so each part can be treated according to its own purpose. In tax, you might split a bill between business and private use, between a part that attracts GST credits and a part that does not, or across time periods. It is a central idea whenever one purchase does more than one job.
For income tax, apportionment limits deductions to the part of an expense that relates to earning assessable income. Examples include a home internet service used for work and family, a car used for business and private trips, or rent on a home with a dedicated office. The method used must be fair and reasonable, based on a real measure such as hours, kilometres, floor area or itemised usage.
For GST, apportionment limits your credit when an acquisition is partly for a creditable purpose and partly not. A creditable purpose is a business purpose that is not input-taxed and not private. If you use something partly to make taxable supplies and partly for private use or to make input-taxed supplies, such as residential rent, you can only claim credits for the creditable share. You make a reasonable estimate when you buy and may need to adjust later.
Apportionment also appears when one invoice includes both taxable and GST-free items, or when a sale includes a mix of items. In those cases you identify the GST amount for each part separately, so that the correct GST is reported on sales and the right credits claimed on purchases. Accounting software with proper GST codes per line helps with this.
Records are important. A short written working showing how you chose the percentage, along with the underlying data, protects your claim if the ATO asks. Reviewing your percentages each year makes sense, because use patterns change, and a change in use can trigger a GST adjustment.
Typical errors include using a round-number guess without any basis, using the same percentage for everything, and forgetting to apply the same percentage to both the deduction and the credit. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered landlord who also runs a taxable consulting business pays $2,200 including GST for accounting services covering both activities. Records suggest 25% relates to input-taxed residential rent and 75% to taxable consulting. The creditable share is 75% x $2,200 = $1,650 inclusive. The GST credit is $1,650 / 11 = $150, and the other $550 carries no credit.
Practical tips
- Base each percentage on real data like kilometres, hours or floor area, and keep the working.
- Apply the same percentage to the income tax deduction and the GST credit unless there is a reason to differ.
- Review your percentages each year, as a change in use may require an adjustment.