Input tax credits are the same as GST credits – they are credits which can be claimed for the amount of GST included in the price of goods that you buy for use in your business.
Essentially, if you purchase a good or service which will be utilised in/for your business, you can claim back the GST which you paid on that item or service.
You can claim GST credits if:
- The purchased product or service will be used solely or partly for your business.
- There was GST paid in the purchase price.
- You paid for the item.
- You have a tax invoice to prove you paid for the item.
You cannot claim GST credits if:
- You don’t have the relevant tax invoice.
- You did not pay GST in the purchase price, or it was a GST-free item.
- It was a motor vehicle above a certain limit.
Is it a credit or deduction?
Whether the GST is given as a credit or a tax deduction depends on whether your business is registered for GST.
If your business is registered for GST, you can claim the credit on your activity statement.
If your business is not registered for GST, you can’t claim the credit, but you can potentially claim the full product amount as an income tax deduction.
Keep in mind that the non-GST part of the payment could be an income tax deduction also if your business is registered for GST.
Let’s imagine that you have purchased business equipment for $22 (including $2 GST).
As a GST-registered business, you should claim a GST credit of $2 on your activity statement, and an income tax deduction of $20 on your income tax return.
As a non-GST-registered business, you should claim the full $22 on your income tax return.