What is Input Tax?
Not all goods and services sold by businesses include 10% GST in the price. One type of sale that fits this description is called Input-Taxed.
One of the most common types of Input-Taxed sales are financial supplies such as loans, bank account fees, life insurance, superannuation, shares and bonds.
Residential rent, the money renters pay landlords of residential property, is another example of an Input-Taxed sale.
If your business sells any of those products or services – or anything else regarded as Input-Taxed – you cannot charge GST on those sales.
To see the Australian Tax Office’s list of Input-Taxed supplies, see Table 3 on this page of the ATO website.
Can You Claim GST Credits on Input-Taxed Expenses?
Any expenses you incur in producing your Input-Taxed sales are regarded as Input-Taxed purchases.
For example, if you rent out a residential property, the expenses you incur on that property – such as repairs, insurance and council rates – will be regarded as Input-Taxed purchases.
Unfortunately, even if those expenses include GST, you cannot claim GST credits, because the expenses are Input-Taxed.
This means that you cannot include GST in the rent charged to your tenants, nor can you claim GST credits on the expenses you incurred to operate the same properties.
These same principles apply to all types of Input-Taxed sales and expenses, not just for residential rental properties.
So, if your business sells financial supplies such as loans or life insurance, you will also need to classify any appropriate income and expenditure as Input-Taxed.
What Other Products & Services Don’t Have 10% GST?
Goods and services that are classified as GST-Free or BAS-Excluded also do not have 10% GST.
However, it is important to note that GST-Free, BAS-Excluded and Input taxed are different and as a result, must be treated differently in your accounts and in your Business Activity Statements.
To find out more, check out our articles about what GST-Free and BAS-Excluded mean.
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