GST credits and income tax deductions
If you can claim a deduction for a business purchase in your income tax return, claim the amount of the purchase less any GST credit to which you are entitled. (See example 1 below).
If you're not entitled to a GST credit, claim the full cost of the purchase, including any GST, as a deduction. (See example 2 below).
For capital items, such as machinery, you may be entitled to an income tax deduction for the item's decline in value (depreciation). When working out the decline in value, use the cost of the item less any GST credits you are entitled to. (See example 3 below)
Example 1: GST credits and income tax deductions – businesses registered for GST
Alice, a GST-registered computer repairer, buys some stationery for her business. She pays $22 (including $2 GST). Alice can claim a GST credit of $2 on her activity statement and $20 as an income tax deduction on her income tax return.
Example 2: GST credits and income tax deductions – businesses not registered for GST
Rob is also a computer repairer but is not registered or required to be registered for GST. He buys some stationery for his business at a cost of $22 (including $2 GST). Rob cannot claim a credit for the $2 GST, but he can claim the full $22 as an income tax deduction on his income tax return.
Example 3: GST credits and decline in value
John is registered for GST and buys a new photocopier for his business. The seller is registered for GST and charges John $1100 (including $100 GST). John can claim a GST credit of $100 on his activity statement. John can also claim an amount that reflects the decline in value of the photocopier on his income tax return. John subtracts his GST credit from the purchase price (that is, $1100 - $100 GST = $1000), and uses $1000 to calculate his decline in value claim.
If you can claim a deduction for a business purchase in your tax return, claim the amount of the purchase less any GST credit to which you are entitled. If you can't claim a GST credit, you can claim the full cost of the purchase, including GST, as a deduction.