What is an input tax credit?

GST flows through a business rather than sticking to it. You charge GST on taxable sales, pay GST on most business purchases, and report both on your BAS. The credits for GST you paid reduce the GST you owe, and where the credits come to more, the difference is refunded.

Timing depends on how you account. On a cash basis you claim in the period you actually pay; on accruals you claim when you get the invoice or pay, whichever is first. Buying a ute on a chattel mortgage is the classic case: you own it from settlement, so the credit is usually claimable in that period, while depreciation is spread over years.

There is no credit where no GST was charged. GST-free purchases such as most basic food, and input-taxed supplies such as residential rent and many financial services, carry none. Buying from a supplier who is not registered for GST is the same story. If your own sales are input-taxed, such as residential rent, you generally cannot claim credits on the purchases that relate to them, even when the supplier charged GST, and mixed use has to be apportioned.

Private use has to be stripped out. If a laptop is used half for work, you claim half the credit. Passenger cars have their own cap, set by the ATO's car limit, and claims are generally limited to four years from the due date of the relevant BAS.

Paperwork is the part that catches people out. You need a valid tax invoice for purchases above the low-value limit, showing the seller's identity and ABN, the date, what was bought and the GST charged. A supplier must provide one within 28 days of a request.

Keep those invoices with your BAS working papers. Where a supplier will not provide one, you cannot claim, so it is worth chasing before the period closes. If you are unsure whether a purchase qualifies, the ATO's GST guidance or your accountant can confirm it.