GST core
Input-taxed supply
An input-taxed supply is a sale on which the seller charges no GST and cannot claim input tax credits for the GST included in the costs of making it.
An input-taxed supply is one where GST is effectively applied to the seller's inputs rather than its output. The seller does not add GST to the price, so customers pay no GST on top. However, because the sale is not taxable, the seller is generally not entitled to claim input tax credits for the GST it pays on purchases that relate to making those sales. The tax is therefore 'stuck' in the seller's costs.
The two best-known examples are financial supplies and residential rent. A bank charging interest on a loan, or a landlord renting out a home to a tenant, does not add GST to what it charges. Other examples include sales of established residential premises, as opposed to new ones, and certain fund-raising events by charities in specific circumstances. Whether something is input-taxed depends on the legislation and on the specific facts.
The contrast with a GST-free supply is vital. A GST-free supply also has no GST charged, but the seller keeps the right to credits. For an input-taxed supply that right is lost for related costs. If a landlord pays $330 including GST to repair a rental property, none of the $30 GST included in that cost can generally be claimed back, because the repair relates to an input-taxed supply.
Input-taxed sales are not counted toward the registration threshold in the same way as taxable and GST-free sales. A business whose only activity is residential rental generally does not need to register for GST on that basis. But a business that makes both input-taxed and taxable sales must work out how much of its purchases relate to each, and claim credits only for the taxable part. This process is sometimes called apportionment.
There is also a financial acquisitions threshold, which allows some businesses with only small amounts of financial supplies to still claim full credits. The details are set out in the legislation and ATO guidance and can be technical, so a business with financial supplies should check its position carefully.
A common misunderstanding is that a landlord who charges rent to a business tenant is in the same position as one renting to a tenant living in the premises. Commercial property rent is generally taxable if the landlord is registered, while residential rent is input-taxed. Another is assuming that all bank fees are input-taxed, when some fees may in fact be taxable.
Because the boundaries between input-taxed, GST-free and taxable supplies are detailed, treat this page as general information only. Confirm your own position with the ATO or a registered tax professional before you decide what to charge or claim.
Worked example
Priya owns an investment unit that she rents to a tenant for $2,400 per month. Because residential rent is input-taxed, she charges no GST, so the tenant simply pays $2,400. During the year she pays a plumber $1,100 including GST for repairs to the unit. The GST in that bill is $1,100 divided by 11, which is $100. She cannot claim that $100 as an input tax credit because the repair relates to an input-taxed supply.
Practical tips
- Do not claim input tax credits on costs that relate directly to residential rent or other input-taxed sales.
- If you make both taxable and input-taxed sales, keep records that let you split your purchases fairly between the two.
- Do not assume all rent is input-taxed. Commercial property rent is generally taxable when the landlord is registered for GST.