GST core
Creditable acquisition
A creditable acquisition is something you acquire for your business, from a GST-registered supplier, on which you can claim an input tax credit for the GST included in the price.
Creditable acquisition is the legal term for a purchase that entitles you to claim GST back. The A New Tax System (Goods and Services Tax) Act 1999 sets out the conditions. In plain language, you must buy something for a creditable purpose, which means for use in your enterprise, and the supplier must be charging GST because the sale to you is a taxable supply. You also need to be registered or required to be registered for GST, and you must provide consideration for what you receive.
The phrase 'creditable purpose' is central. If you acquire something to carry on your enterprise, it is generally creditable. If it is for private or domestic use, it is not. If it is used to make input-taxed supplies, such as residential rent, it is also not creditable. Many purchases are mixed, and for those you claim credits only for the portion that is for a creditable purpose, using a fair and reasonable method of apportionment.
Evidence is just as important as purpose. For most purchases of more than $82.50 including GST, you must hold a tax invoice by the time you lodge the BAS in which you claim the credit. If the purchase is $1,000 or more, the invoice must also identify you or your business as the buyer. A bank statement showing that you paid is not usually sufficient proof on its own.
Timing follows the BAS system. You generally claim the credit in the BAS for the tax period in which you hold the invoice, or in which you paid, depending on whether you use the cash or accruals basis. There is a time limit of four years from the due date of the BAS for that period, after which you can generally no longer claim. Late claims therefore need to be considered carefully.
The effect of claiming is that the GST in the price is reported at label 1B and reduces the net GST you pay. If your credits exceed the GST you have collected, you may receive a refund. Because refunds attract attention, the ATO checks that credits are backed by records and valid purposes.
Typical creditable acquisitions include stock for resale, office supplies, a work vehicle used for the business, tools, advertising, and business software subscriptions. Typical non-creditable ones include groceries for the family, a holiday, and purchases from unregistered suppliers who charge no GST. Special limits apply to cars, where the claim is capped by the car limit, which is set by the ATO and changes, so check ato.gov.au for the current figure.
This explanation is general information only. For complicated purchases, check the position with the ATO or a registered tax professional before claiming.
Worked example
Leo is a registered plumber. He buys a $1,430 GST-inclusive pipe-cutting machine used only for work. He holds a tax invoice that names his business. The GST in the price is $1,430 divided by 11, which is $130. This is a creditable acquisition, so he claims $130 at label 1B on his quarterly BAS. If he had used the machine 60% for work, he would claim only 60% of $130, or $78.
Practical tips
- Check purpose first: if the item is partly private, claim only the business share of the GST.
- Hold the tax invoice before you lodge the BAS in which you claim the credit.
- Remember the four-year time limit so you do not lose credits you were entitled to.