GST core
Taxable purchase
A taxable purchase is something a business buys that includes GST in its price, which the business may be able to claim back as an input tax credit if it is used for the enterprise.
Taxable purchase is a term used on the Business Activity Statement and in everyday bookkeeping for an acquisition that has GST in the price. When you buy goods or services from a GST-registered supplier, the supplier is charging GST on a taxable supply. From your side that purchase includes GST, which is why it is called taxable. If you are registered and the purchase is for your business, that GST is generally recoverable.
The related legal concept is a creditable acquisition. For a purchase to qualify, you must acquire it for a creditable purpose, which means it is in carrying on your enterprise and not for private or domestic use. You must be registered or required to be registered, the supply to you must be taxable, and you must provide consideration. If you meet these conditions and hold a valid tax invoice, you can claim an input tax credit.
Taxable purchases are split on the BAS into capital and non-capital purchases. Capital purchases, such as equipment, vehicles or property, are reported at label G10, while day-to-day costs such as stock, rent, advertising and supplies are reported at G11. The GST in these purchases is claimed at label 1B.
Not every purchase with a price tag is a taxable purchase. Some items are GST-free, such as many basic foods, so there is no GST to claim. Others are input-taxed, like financial supplies and residential rent, and no credit is allowed on those. Wages, bank fees on certain accounts and some insurance premiums may have no GST, or only partly. Purchases from an unregistered supplier do not include GST at all.
Private use is a common trap. If you buy a laptop that is used 70% for business and 30% privately, you may only claim credits for the business portion. Buying a meal for a client may be a taxable purchase, but fringe benefits and entertainment rules can affect whether you can claim the credit. Always consider the purpose of the spending.
The paperwork requirement is straightforward. For purchases over $82.50 including GST, you generally need a tax invoice from the supplier before you claim. For purchases of $1,000 or more, that invoice must also identify you as the buyer. You usually claim the credit in the BAS for the period covered by the invoice, and within four years of the due date for that BAS.
This is general information. Because the tax treatment of each purchase can turn on its purpose and the supplier's registration, confirm anything unusual with the ATO or a registered tax professional.
Worked example
Hannah, a registered caterer, buys $2,200 of commercial kitchen equipment including GST and $660 of ingredients and packaging including GST, both used fully in her business. The GST in the equipment is $2,200 divided by 11, which is $200, reported at G10. The GST in the ingredients is $660 divided by 11, which is $60, reported at G11. She claims $260 in total at label 1B.
Practical tips
- Keep a tax invoice for every purchase over $82.50 including GST, since without it the credit may be refused.
- Split mixed-use purchases fairly between business and private use, and claim only the business portion.
- Check that your supplier is registered and has an ABN, because only a GST-registered supplier can charge GST.