GST on business expenses: what you can claim and what you cannot

If you are registered for GST, you can claim back the GST included in the price of things you buy for the business. The ATO’s page on when you can claim a GST credit lists four conditions: you intend to use the purchase solely or partly for your business and it does not relate to making input-taxed supplies, the purchase price included GST, you provide or are liable to provide payment, and you have a tax invoice from your supplier for purchases more than $82.50. All four, not three.

Most claiming mistakes come from the second condition. A purchase has to have had GST in it before there is anything to claim back, and a surprising share of what a small business buys does not.

General information, not tax advice. The ATO is the authority - see ato.gov.au or ask a registered tax or BAS agent.

What a GST credit actually is

A GST credit, or input tax credit, is the GST you paid on a business purchase, offset against the GST you collected on your sales. On a BAS, GST on sales sits at 1A and GST on purchases at 1B, and what you send the ATO is the difference. Where the credits are larger than the GST collected, the ATO’s page notes you are entitled to a refund.

The arithmetic is simple. Where a tax invoice states only that the price includes GST, the ATO says you can work out the credit by dividing the price by 11, provided you use the item wholly for business. A $330 tool bought entirely for the business carries a $30 credit. The same page also sets a 4-year time limit for claiming a GST credit, so a shoebox found three years later is usually still claimable and one found six years later is not.

Two things are outside this entirely. If you are not registered for GST, there are no credits to claim, and the GST you pay is simply part of the cost of the purchase for income tax purposes. And a GST credit is not a deduction: they are separate systems, run on separate forms, and the quarterly side of the mechanics is in BAS due dates and how to prepare.

The tax invoice rule

For a purchase of more than $82.50 including GST, a valid tax invoice from the supplier is one of the four conditions. Not a bank statement line, not an EFTPOS docket showing only a total, not an email saying thanks for your business. Below that figure a record of the purchase is still needed for your own accounts, but the tax invoice requirement does not bite.

The ATO also suggests checking that your suppliers are registered for GST, which is a free lookup on ABN Lookup. An unregistered supplier cannot charge GST, so a document from one showing a GST line is a document worth querying before you claim against it.

The habit that makes this painless is unglamorous: photograph the receipt at the counter and attach it to the expense the same day. Thermal paper fades, and an expense with no attached document is the one that gets quietly dropped from the claim when the reconstruction happens.

Purchases with no GST to claim

Three categories come up constantly.

GST-free items. The ATO’s GST-free sales page lists what is GST-free, including most basic food, some education courses, some medical, health and care services, water, sewerage and drainage, precious metals, international transport, farmland and exports. Nothing in that price is GST, so nothing comes back.

Input-taxed purchases. The ATO’s page on input-taxed sales covers sales that do not include GST in the price and where the seller cannot claim credits on related purchases. Bank fees and residential rent are the ones a sole trader meets most often.

Suppliers who did not charge GST. An overseas software vendor, a supplier under the registration threshold, a contractor not registered for GST. Their invoices carry no GST line, which is correct, and there is nothing to claim.

The failure mode is the same in all three: an accounting tool set to code every expense at 10% by default, and nobody checking. That produces an over-claim on 1B, which is the sort of thing that surfaces at review and comes back as an amendment.

Private use, and where the credit is blocked

Where a purchase is for both business and private use, the ATO’s when you can claim a GST credit guidance is that you claim a credit only for the business portion, and if your actual use later differs from your intended use you may need to adjust the credits already claimed. Its example is straightforward: 50% business use, 50% of the GST claimed.

That means the phone, the laptop, the internet connection and the ute all need a defensible split worked out at the time and written down. The ATO also allows some small businesses to account for the private portion once a year rather than on each activity statement, through an annual private apportionment election. That is worth raising with a registered agent if your expenses are heavily mixed, and worth confirming against the ATO’s current guidance before you elect.

Entertainment is the other place credits get blocked. GST credits generally follow the income tax treatment of the expense, and entertainment is an area where deductibility is restricted, so the credit usually is too. It is fact-dependent enough that a registered tax or BAS agent is the right person to apply it to your own spending rather than a general rule from an article. The deduction side sits in small business deductions and record keeping.

Cars and the car limit

Buying a vehicle is the one purchase where the credit is capped. The ATO’s page on purchasing a motor vehicle explains that where a car costs more than the car limit, the maximum GST credit is generally one-eleventh of that limit rather than one-eleventh of what you paid. The same page sets out a small set of exceptions where the full credit is available despite the limit, such as holding the car solely as trading stock. The car limit is indexed and changes, so check the current figure on that page before doing the sums.

Two related points from the same page. Where the vehicle is used solely for business, the credit is available in full up to that cap, and the purchase goes at label G10 as a capital purchase. Where the car is used partly privately, the credit is apportioned in the same way as any other mixed-use purchase. Leasing works differently again: the credit on lease payments is based on business use and is not limited to one-eleventh of the car limit.

Timing: cash basis or accruals

When you claim decides which quarter the credit lands in. The ATO’s page on choosing an accounting method covers the two options, and the difference matters most on large purchases straddling a quarter.

On a cash basis, the credit follows the payment: if you have not fully paid for a purchase, the ATO says you can claim only the GST included in the amount actually paid. On a non-cash basis, the credit generally follows the earlier of paying or receiving the invoice. Neither is better in the abstract, but switching methods without understanding which purchases move is how a quarter ends up double-claimed, so that is a conversation for a registered agent.

How Apsis helps

Apsis puts a receipt upload on every expense, so the document the credit depends on is attached to the record rather than sitting in a glovebox, and each expense stays with the client and job it belongs to. GST is computed from the line items on your invoices rather than typed in, so the sales side of the same quarter agrees with the documents you actually sent. Expenses with receipt upload and invoices are on the free plan, which covers 5 clients and 20 invoices a month. On the paid plan, the tax module adds a GST and BAS view showing GST collected and GST paid for a period, so the 1A and 1B figures are something you check rather than assemble.