Most business owners wonder how to claim GST for their business. Little do many realise that there are three essential elements to claiming a deduction for a business purchase in your activity statement.
Check your eligibility
If your business turnover is more than $75,000 per year, the Australian Taxation Office requires you to be registered for GST.
542 Tip: Registering means you can claim tax credits, but it also means you have responsibilities such as including GST in the price of what you sell. Be sure to include there are no details missing on your invoice such as date of issue.
Time is of the essence
The ATO limits GST claims to four years, although there are exceptions.
You must have a valid tax invoice with purchases above $82.50 (including GST). Some basic food items like fruit and vegetables are GST-free and can’t be claimed on your activity statement.
If the invoice says ‘price includes GST’, you can divide the total purchase price by 11, provided you use the item solely for business purposes. If the item includes private use, you can only claim a GST credit for the portion used for business.
If you account for GST on a cash basis and you’ve only partly paid for the purchase, you can only claim a GST credit on the paid portion.
You must hold valid tax invoices for business purchases over $82.50 (including GST).
542 Tip: Claiming a credit as soon as possible will help with cash flow. Documents like bank statements, purchase orders or delivery receipts aren’t sufficient to meet the tax invoice requirements.
It’s on the record
If you use a manual record-keeping system, you can account for GST by adding a GST amount column to your cash receipts and cash payments books.
If you prefer to keep your records electronically, we recommend Xero. This cloud accounting software makes it simple to track, calculate and manage GST and get full audit reports.
542 Tip: If you find that your actual use of the goods or services you purchased differs from your intended business use, you may be able to adjust the amount of GST credits you have claimed.
Confused about GST for small business? Talk to us to arrange a consultation.
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