• GST and annual private apportionment

    During the course of operating your business, you may purchase something partly for business purposes and partly for private use. You can only claim a GST credit for the portion of your purchase that is for business purposes.

    The amount of GST credit you claim can be worked out by completing one of the following steps.

    1. Estimate the portion of your purchase you intend to use for private purposes and reduce the amount of GST credit you claim on your activity statement by this amount.
    2. If eligible, you can claim a GST credit on your activity statement for all the GST included in the purchase price and later make a single annual increasing adjustment to account for the private portion of all business purchases. This is called annual private apportionment.

     

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    GST definitions: business, GST credits, purchases

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    How annual private apportionment works

    If eligible, you can choose to use the annual private apportionment concession (see Who is eligible? This means you do not need to estimate the intended private use portion of your purchase when claiming your GST credit. Generally you may claim a GST credit for the total amount of GST included in the price of your purchase.

    You will then need to make a single adjustment after the end of your income year to account for the private portion of all of these purchases. Your adjustment will either increase the amount of GST you are liable to pay or reduce your GST refund for the tax period you make the adjustment in.

    Who is eligible

    You can choose to use annual private apportionment if you:

    • are a small business with an annual turnover of less than $2 million, or an enterprise that is not a business with a GST turnover of $2 million or less
    • have not opted to pay GST by instalments or report GST annually (as these options do not involve the lodgment of GST returns on a quarterly or monthly basis).

     

     

    Choosing to use annual private apportionment

    If eligible, you can choose to use annual private apportionment at any time. Your choice will take effect at the start of the earliest tax period your next activity statement is due.

    Your choice to use annual private apportionment will continue to apply until:

    • you are no longer eligible
    • you exceed the relevant turnover threshold on 31 July in any year and you carry on an enterprise but are not a business (see Who is eligible?)
    • you are not a small business entity for an income year (see Who is eligible?)
    • you decide to no longer use this option.

     

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    How to stop using annual private apportionment

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    You do not need to notify us if you choose to use annual private apportionment but you must keep a record of this. Your records must include the date you chose annual private apportionment and the date it took effect.

    Example: Date of effect of annual private apportionment

    Daniella reports and pays GST monthly, and her November activity statement is due 21 December 2004. If Daniella chooses to use annual private apportionment at any time between 22 November 2004 and 21 December 2004, the date of effect of the apportionment is 1 November 2004.

    End of example

    If you want your apportionment to take effect from a start of another tax period, you need to write to us at PO Box 3524 ALBURY NSW 2640 and include the following details:

    • the name of your business
    • your Australian business number (ABN)
    • the date you would like your apportionment to take effect (the date of effect must be the first day of one of your tax periods)
    • a brief reason for your request
    • you must sign your request

    If your request is approved, your previous activity statements may need to be revised.

    Attention

    Refusing a request to allow your election to take effect from the start of another tax period is a reviewable GST decision. If your request is disallowed and you are not satisfied with this decision, you can ask us to review it. Refer to Correct a mistake or dispute a decision – home.

    The earliest date an annual private apportionment can take effect is 1 October 2004 if you report GST quarterly, or 1 November 2004 if you report GST monthly.

    End of attention

    Purchases and annual private apportionment

    Annual private apportionment applies to all purchases you make that are partly for business and partly for private purposes, unless any of the following applies:

    • the business portion of the purchase relates solely to making input-taxed supplies
    • any part of the purchase is a reduced credit acquisition – a reduced credit acquisition is a purchase that relates to making financial supplies that you can claim a reduced GST credit for.

    You cannot use annual private apportionment for a purchase that is used solely either for:

    • private purposes
    • making input-taxed supplies.
    Attention

    If you make input-taxed financial supplies as a minor part of your business, annual private apportionment can apply to your purchases that relate to making those supplies. This is as long as you do not exceed the financial acquisitions threshold.

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    Calculate your GST credits

    If you have chosen to use annual private apportionment, you can generally claim a GST credit for the total amount of GST included in the price of your business related purchases.

    However, if a business-related purchase partly relates to making input-taxed sales, and you only provide part of the payment for the purchase, you must use the following formula to work out your GST credit:

    (full GST credit) x (extent of the non-input-taxed purpose) x (extent of payment) = amount of GST credit you can claim

    The full GST credit is the amount of the GST credit you are eligible to claim if all of the following apply:

    • you made the purchase solely for business purposes
    • you provided (or were liable to provide) all of the payment for the purchase
    • the purchase did not relate to making input-taxed supplies.

    The extent of the non-input-taxed purpose is the portion of the purchase that does not relate to making input-taxed supplies, expressed as a percentage of the total purpose of the purchase.

    The extent of payment is the amount you pay (or are liable to pay) for the purchase, expressed as a percentage of the total purchase price.

    Find out more

    GST definitions: payment

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    Example: Amount of GST credit

    Harry is registered for GST and lodges his activity statement on a quarterly basis. Harry is eligible and has chosen annual private apportionment.

    Harry purchases telephone services from a local telephone company. He pays $220 for these services including $20 GST. He anticipates his phone use will be 30% business and 70% private. The business component does not relate to making input-taxed supplies.

    As Harry has chosen to use annual private apportionment, he can claim a $20 GST credit for the purchase on the first activity statement he lodges after receiving a tax invoice for the purchase.

    If Harry had chosen not to use annual private apportionment, he would only be entitled to a GST credit of $6 (30% of $20).

    As Harry has claimed a $20 GST credit he will need to make an increasing adjustment at a later date.

    End of example

     

    Example: Amount of GST credit if the purchase relates to making input-taxed supplies

    Mary has several businesses, one of which involves renting out residential premises. Mary has chosen annual private apportionment.

    Mary purchases telephone services from a local telephone company. She pays $220 for these services including $20 GST and she is liable to pay the full purchase price. Mary anticipates that she will use the services for:

    • regular business activities (30%)
    • private purposes (55%)
    • her renting out of residential premises (15%).

    Mary's GST credit must take into account the extent of the services that relate to the supply of her rental property so she must use the formula:

    (full GST credit) x (extent of the non-input-taxed purpose) x (extent of payment)

    $20 X 85% X 100% = $17

    Mary can claim a GST credit of $17.

    If Mary had not chosen to use annual private apportionment, she would only be able to claim a GST credit of $6 (30%   $20). Mary will need to make an increasing adjustment at a later date because she has claimed a $17 GST credit.

    End of example

    Importations and annual private apportionment

    Annual private apportionment applies to importations in a similar way as it does to purchases. To calculate the amount of the GST credit you can claim for an importation you make partly for business and partly for private purposes, use the following formula:

    (full GST credit) x (extent of the non-input-taxed purpose) = amount of GST credit you can claim

    The full GST credit is the amount of the GST credit you are eligible to claim if both of the following apply:

    • you made the importation solely for business purposes
    • the importation did not relate to making input-taxed supplies.

    The extent of non-input-taxed purpose is the portion of the importation that does not relate to making input-taxed supplies, expressed as a percentage of the total purpose of the importation.

    Attention

    The amount you pay or are liable to pay for the importation is not relevant. If you make input-taxed financial supplies as a minor part of your business, annual private apportionment can apply to your importations that relate to making those supplies. This is as long as you do not exceed the financial acquisitions threshold.

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    Find out more

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    When to make your adjustment

    Attention

    This section explains the latest activity statement in which you can make your adjustment. You can however make your annual increasing adjustment in an earlier activity statement if you want (as outlined below).

    End of attention

    Normally, you must make your annual increasing adjustment on either:

    • your activity statement that covers the period when your income tax return is due – that is for the income year covering the tax period you claimed your GST credit in
    • an earlier activity statement.

    Example: When to make your annual increasing adjustment

    Harry is registered for GST and lodges his activity statement on a quarterly basis. Harry, being eligible, has chosen to use annual private apportionment.

    Harry claims a full GST credit for his 1 July to 30 September 2008 quarterly tax period.

    Harry is required to lodge an income tax return for the period 1 July 2008 to 30 June 2009. The due date for this income tax return is 31 October 2009. This due date falls within Harry's tax period which spans 1 October to 31 December 2009.

    Harry must make his annual increasing adjustment in the activity statement which covers the tax period 1 October to 31 December 2009.

    End of example

    If you are not required to lodge an income tax return, you must make your annual increasing adjustment in your activity statement for the tax period spanning 31 December of the financial year that starts after the tax period in which you claimed the full GST credit.

    In certain circumstances your annual increasing adjustment will need to be brought forward to a specific tax period. You (or your legal representative) will need to make an annual increasing adjustment in the activity statement that relates to your concluding tax period if:

    • you no longer carry on an enterprise
    • your GST registration is cancelled
    • you go into liquidation, receivership, or no longer exist as an enterprise
    • you become bankrupt
    • you die.

    Where your election to use annual private apportionment is cancelled or disallowed in the financial year where you claimed the GST credit for the purchase, you must make an annual increasing adjustment on your activity statement either in:

    • the tax period in which the cancellation or disallowance takes effect
    • an earlier tax period that you choose.

    However, if the cancellation or disallowance takes effect from 1 July in any year, your annual increasing adjustment will be made at the time you would have made it had your election not been cancelled or disallowed.

    How to work out your adjustment

    The amount of your annual increasing adjustment equals:

    • the amount of the GST credit you have received or will receive for your purchase, less
    • the amount of the GST credit you would have received if you had not chosen annual private apportionment.

    If you have applied annual private apportionment to several purchases, you must calculate an annual increasing adjustment for each purchase, add the adjustments together and report the total on the relevant activity statement.

    Example: Calculating your annual increasing adjustment

    Elena is registered for GST and lodges her activity statement on a quarterly basis. Being eligible, she chooses to use annual private apportionment.

    Elena works out her adjustment for telephone services as follows:

    Initial GST credit entitlement

    $20

    Less the amount she would have been entitled to claim if she had not chosen annual private apportionment

     $6

    Annual increasing adjustment

    $14

    After Elena has accounted for the adjustment, the amount of GST credit she received in respect of the purchase ($6 = $20 - $14) is equal to the amount she would have received if she had not chosen annual private apportionment ($6).

    If Elena also purchased a computer partly for private purposes, and partly for business purposes that do not relate to making input-taxed supplies, she must also make an adjustment to account for her private use of the computer. If she calculates the increasing adjustment for the computer to be $10, she must add this to her adjustment for the telephone services and report the total of $24 ($14 + $10) on her appropriate activity statement.

    When you calculate your annual increasing adjustment, you must take into account certain other adjustments, if any, that you have made with respect to your purchase. This includes:

    • adjustments that have arisen because of a change in the purchase price
    • instances where the supplier has written off a bad debt.

    Example: Calculating annual increasing adjustments for purchases which have had previous adjustments

    Ron is registered for GST and has chosen annual private apportionment. He purchases a laptop partly for business purposes not related to making input-taxed supplies (10%) and partly for private purposes (90%). The purchase price is $1,100. After receiving a tax invoice, Ron claims a full GST credit of $100.

    Before Ron needs to make his adjustment, the price of the laptop increases by $110. As a result, Ron must pay a total of $1,210 for the item. Included in this amount is $110 GST (1/11   $1,210). Ron must make a decreasing adjustment of $10 to account for the fact that he only claimed a GST credit of $100. Ron makes this decreasing adjustment on the activity statement that covers the date on which he receives an adjustment note relating to the price increase.

    Working out the annual increasing adjustment

    To work out his annual increasing adjustment, Ron must subtract the amount of GST credit he would have received if he did not choose to use annual private apportionment from the amount of GST credit he did receive. These amounts must take into account both the GST credit Ron claimed and the decreasing adjustment that he made due to the price increase.

    Step 1: Calculating the amount Ron received

    Initial GST credit

    $100

    Plus a decreasing adjustment for the price increase

     $10

    Total amount Ron received for his purchase

    $110

    Step 2: Calculating the amount Ron would have received

    Ron purchased the item only partly for business purposes (10%). If he had not elected annual private apportionment, he would have received a GST credit and a decreasing adjustment only for the business portion of the GST included in the original purchase price and the subsequent price increase.

    Initial GST credit Ron would have received ($100 x 10%)

    $10

    Plus decreasing adjustment Ron would have received ($10 x 10%)

    $1

    Total amount Ron would have received for his purchase

    $11

    Step 3: Calculating the amount of the annual increasing adjustment

    Amount Ron received

    $110

    Less amount Ron would have received

     $11

    Amount of the annual increasing adjustment

     $99

    The GST credit Ron received ($100) plus the decreasing adjustment he had ($10) minus the annual increasing adjustment ($99) equals the amount Ron would have received if he did not make an annual private apportionment ($11).

    Example: Calculating adjustments after you have made your annual increasing adjustment

    Ron is registered for GST and has chosen annual private apportionment.

    After making his annual increasing adjustment, Ron receives a rebate of $220 for the item he purchased. After the rebate, Ron has effectively paid a total of $990 for his purchase ($1,210 - $220). This amount includes $90 GST.

    As Ron purchased the item partly for business purposes not related to making input-taxed supplies (10%) he can claim a GST credit of $9 (10%   $90 GST included in the amount he paid).

    Ron calculates his increasing adjustment as follows:

    GST credit and previous adjustments Ron has received
    (refer to the previous example)

    $11

    Less the amount Ron is actually entitled to

     $9

    Annual increasing adjustment

     $2

    Ron must make the increasing adjustment on the activity statement that covers the date on which he became aware of the rebate.

    After making an annual increasing adjustment, you may need to make further adjustments at a later time to account for changes in private purpose if both of the following apply:

    • your actual use of the purchase for private purposes differs from the estimate of private use you used to calculate your annual increasing adjustment
    • you paid more than $1,100 (including GST) for the purchase.
    End of example

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    How to stop using annual private apportionment

    Generally, there are three reasons why you would stop using annual private apportionment, they are:

    • you choose to cancel
    • we disallow your use of annual private apportionment
    • your turnover exceeds the threshold for eligibility (see Who is eligible?)

    You can cancel your annual private apportionment at any time. If you do, the cancellation will take effect from the start of tax period your next activity statement is due.

    You do not need to notify us of your decision, but you must keep a record of your cancellation. Your record must include the date you decided to stop using annual private apportionment.

    If your election to use annual private apportionment is cancelled in the financial year that you claimed the GST credit for the purchase, you must make an annual increasing adjustment on your activity statement either in:

    • the tax period in which the cancellation takes effect
    • an earlier tax period that you choose.

    However, if the cancellation takes effect from 1 July in any year, your annual increasing adjustment will be made at the time you would have made it had your election not been cancelled.

    We can disallow your annual private apportionment if we find you have not complied with one or more of your tax obligations. Your election will cease to have effect from the start of the tax period in which you are notified of the disallowance.

    Where your election to use annual private apportionment is disallowed in the financial year where you claimed the GST credit for the purchase, you must make an annual increasing adjustment on your activity statement either in:

    • the tax period in which the disallowance takes effect
    • an earlier tax period that you choose.

    However, if the disallowance takes effect from 1 July in any year, your annual increasing adjustment will be made at the time you would have made it had your election not been disallowed.

    Attention

    Disallowing your annual private apportionment is a reviewable GST decision. If your annual private apportionment is disallowed and you are not satisfied with this decision, you can ask us to review it. Refer to Correct a mistake or dispute a decision – home.

    End of attention

    If you cease being a small business entity for an income year, your annual private apportionment is taken to have ceased on the first day of that income year.

    If on the 31 July in a financial year you carry on an enterprise and your GST turnover exceeds $2 million, your annual private apportionment is taken to have ceased from the start of that financial year.

    You must make any outstanding annual increasing adjustment at the time you would have made it had your turnover not exceeded the relevant threshold.

    Example: Date annual private apportionment ceases

    Sarah lodges her activity statement on a quarterly basis. Sarah chooses to use the annual private apportionment concession. She claims the GST credit on her purchase in the tax period ended 30 September 2009.

    She must lodge her March 2010 activity statement on or before 28 April 2010.

    Sarah's activity statement is not yet due, so her cancellation will take effect from the beginning of the tax period this activity statement relates to. Her March 2010 activity statement period is 1 January 2010 to 31 March 2010, so she cannot use annual private apportionment from 1 January 2010.

    Sarah will need to complete her activity statement for the March 2010 quarter as though her annual private apportionment has been cancelled from the start of the quarter. Sarah will also account for her outstanding annual increasing adjustment in this activity statement.

    End of example

    Special rules for annual private apportionment

    Some special rules apply when using annual private apportionment for certain purchases.

    Cars

    If you purchase a car, the GST credit you can claim is limited to one-eleventh of the car limit.

    Find out more

    GST and motor vehicles

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    Insurance

    If you make a claim under an insurance policy, you must advise the insurer of the amount of GST credit you can claim for the insurance premium as if your annual private apportionment election did not apply. This allows the insurer to work out their entitlement to claim an adjustment that may arise on any settlement of a claim under your insurance policy.

    Find out more

    Insurance and GST

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    GST groups

    The representative of a GST group can only choose to use annual private apportionment if each member of the group satisfies the eligibility criteria (see Who is eligible?)

    Any decision made by the representative member to use annual private apportionment, or to stop using it, applies to each member of the GST group.

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    GST groups

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    More information

      Last modified: 12 Mar 2015QC 17872