Input Tax Credits
When there is GST included in the price of any taxable sales made to the business and the business has made the purchases for its use (except if they are making input taxed sales), the business can claim these amounts on the activity statement. These amounts are called input tax credits.
Rules for claiming input tax credits on purchases
Special rules about claiming input tax credits fall into two categories:
purchases or importations of cars and other motor vehicles, and
purchases of real property
Purchases of cars: If an amount is included for the purchase of a car for use in the business and it has a market value (including GST) greater than the car depreciation limit, only include the amount of the limit. This applies to purchases of second-hand cars and new cars. There are other limitations on the amount of expenditure on new cars that can be included.
Purchases of new motor vehicles: Full credit for GST on new motor vehicles was phased in over two years after GST started on 1 July 2000, as shown in this table:
Date of purchase of new motor vehicle | Percentage of input tax credit on new motor vehicle can be claimed |
|---|---|
From 01/07/2000 up to and including 30/06/2001 | 0 |
From 01/07/2001 up to and including 30/06/2002 | 50 |
From 01/07/2002 onwards | 100 |
However, amounts for new motor vehicles can be included if:
the business would have been entitled to a sales tax exemption (under the wholesale sales tax system operating before 1 July 2000) on the purchase of new motor vehicles
the motor vehicles are purchased as trading stock, but not for stock for hire, or
the business is an insurance company and it buys new motor vehicles as replacement vehicles for claimants under insurance policies.
For the purpose of claiming input tax credits, a new motor vehicle is:
any new motor-powered road vehicle (including four-wheel-drive vehicles)
a new detachable trailer designed to be towed by a heavy prime mover, such as a detachable trailer for a semi-trailer, or
a new body for a motor vehicle, including an insulated body, tank body or other body designed for transporting goods (for example, a tank for transporting milk).
Real property: If the business purchased a freehold interest, strata unit or long-term lease and the GST included in the price paid was calculated using the margin method, the business is not entitled to a credit for that GST. This means that the consideration for purchase should not be included at Label G10.