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  • Choosing an accounting method

    To complete the relevant GST items on your activity statement, you may use either:

    The accounting basis you use will determine:

    • the amounts you report on your activity statement
    • how you report the amounts you earned from making financial supplies.

    You may account on a cash basis or a non-cash basis.

    Accounts method

    If you use the accounts method, use the information in your accounts to report amounts at:

    • 1A (GST on sales)
    • 1B (GST on purchases).

    You must also complete:

    • G1 (total sales)
    • G10 (capital purchases)
    • G11 (non-capital purchases).

    If you use the accounts method, do not report:

    • financial supplies at G4 (input-taxed supplies)
    • financial acquisitions at G13 (purchases for making input taxed sales).

    Example: Accounts method

    Angela purchases an item for $55,000 including GST, partly to make:

    • financial supplies (50%)
    • taxable supplies (50%).

    The purchase is a reduced credit acquisition. Reduced credit acquisitions are certain types of purchases you can claim a reduced GST credit for when you use them to make financial supplies (see Reduced credit acquisitions).

    To work out the GST credit she can claim, Angela works out:

    • the GST she paid in the purchase price of the item; that is, one-eleventh of the purchase price ($55,000 ÷ 11 = $5,000)
    • 50% of the GST she paid in the purchase price (the percentage of the GST that relates to making financial supplies) ($5,000 × 50% = $2,500)
    • 75% of the GST that relates to making financial supplies (the percentage that she can claim as a GST credit for a reduced credit acquisition) ($2,500 × 75% = $1,875).

    Angela can claim:

    • $1,875 in reduced credit for the GST she paid that relates to making financial supplies
    • a full GST credit for the other 50% of the GST she paid in the purchase price of the item ($2,500).

    Angela can claim a total GST credit of $4,375 ($1,875 + $2,500).

    End of example

    See also:

    • GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies
    • GSTR 2004/1 Goods and services tax: reduced credit acquisitions – includes a complete list of items that are reduced credit acquisitions

    Calculation worksheet method

    The calculation worksheet works out the amount you include in your activity statement at:

    • 1A (GST on sales)
    • 1B (GST on purchases).

    You must complete each part of the calculation worksheet that relates to your sales and purchases. In particular, when you make input-taxed financial supplies, you must complete G4 (input-taxed sales) and G13 (purchases for making input-taxed sales) on the worksheet.

    Sales

    Report the amount you earned from your financial supplies in the reporting period at G4 (also include this at G1). On the calculation worksheet, subtract G4 from G1 to make sure GST is not included on your financial supplies when you work out GST payable at 1A.

    Purchases

    Complete G10 (capital purchases) and G11 (non-capital purchases) on the calculation worksheet, showing all your purchases, including any purchases you used, or plan to use, to make financial supplies in the reporting period. The amounts you report at G10 and G11 must include GST.

    If none of the exceptions to claiming GST credits or reduced GST credits for purchases apply to you, you must complete G13 (purchases for making input-taxed sales) on the calculation worksheet. Include the total amount of purchases that you used to make financial supplies at G13. This makes sure you do not claim GST credits on these purchases.

    If one of the first three exceptions to claiming GST credits or reduced GST credits for purchases applies to you, do not report anything at G13 for purchases that you used to make those financial supplies. This will make sure you correctly report any GST credits you can claim at 1B (GST on purchases).

    If you make purchases that are reduced credit acquisitions, report at G13 only 25% of the purchase price, if you:

    • can claim reduced GST credits for those purchases
    • use, or plan to use, the purchases to make financial supplies.

    This makes sure that when you subtract G13 from total purchases at G12 on the calculation worksheet, you include the correct amount of GST credit at 1B.

    If you make a reduced credit acquisition that does not solely relate to making financial supplies, report at G13 only 25% of the part of the purchase's price that relates to making financial supplies.

    Example: Calculation worksheet method

    Angela uses the calculation worksheet method to complete her activity statement.

    Angela purchases an item for $55,000 including GST, partly to make:

    • financial supplies (50%)
    • taxable supplies (50%).

    Angela includes at:

    • G11, the purchase price of $55,000
    • G13, the purchase price ($55,000) × 25% (because this is a reduced credit acquisition) × 50% (the part of the purchase that relates to making financial supplies) = $6,875.

    After completing the calculation sheet, Angela works out that the amount she must include at 1B is ($55,000 − $6,875) ÷ 11 (GST) = $4,375.

    Angela can claim a total GST credit of $4,375.

    End of example

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      Last modified: 30 Jul 2019QC 17480