GST core
Partial creditable purpose
Partial creditable purpose describes a purchase used partly for business activities that carry GST credits and partly for private or input-taxed purposes, so only part of the GST is claimable.
A purchase has a creditable purpose when you acquire it in carrying on your enterprise, other than for making input-taxed supplies or for private purposes. Many purchases are not entirely one or the other. A phone used for both business and personal calls, a car used for client visits and weekends, or an office used by a business that earns both taxable and input-taxed income are examples where the creditable purpose is only partial.
When this happens you can claim a GST credit only for the portion of the purchase that relates to the creditable purpose. The ATO expects you to work out the percentage on a fair and reasonable basis, using records such as a logbook, usage statements, floor areas, time records or other evidence that is appropriate for the item. The result is the extent of creditable purpose, and your credit is the GST on the purchase multiplied by that extent.
The extent is often an estimate at the time of purchase, as you can only expect, rather than know for certain, how an asset will be used. If actual use turns out to differ significantly from your estimate, an adjustment may be required later. This is why records of actual use are valuable, and why the rules about changes in creditable purpose exist.
For businesses that make both taxable and input-taxed supplies, such as a landlord with both commercial and residential rentals, partial creditable purpose is a regular part of the BAS. Costs that relate directly to taxable activities are fully creditable, costs that relate directly to input-taxed activities are not, and shared costs, like accounting fees, are apportioned using a reasonable method that reflects the activities of the business.
Common misunderstandings include claiming full credits on a mixed-use item, or choosing a convenient round percentage without any evidence. The ATO can challenge percentages that are not supported. Another is thinking you cannot claim anything if there is some private use. That is not the case, because you can generally claim the part that is for business purposes.
Keep records that justify your percentage and review it each year. If your usage changes, update the percentage going forward. This page is general information only, so confirm how to work out your percentage with the ATO or a registered tax professional.
Worked example
A registered tradesperson buys a $44,000 (GST-inclusive) van expecting 75% business use. GST included is $44,000 / 11 = $4,000. The credit claimable for the creditable part is $4,000 x 75% = $3,000. The remaining $1,000 relates to private use and is not claimable. A logbook helps support the 75% figure.
Practical tips
- Keep usage records such as logbooks or timesheets so you can support your percentage.
- Review your percentage each year and adjust if actual use is changing, because an adjustment may be needed.
- Take a baseline reading, such as the odometer or a usage snapshot, at the start of each year to make your records easier to prepare.