ato logo

Effect of GST credits on income tax deductions

Examples explaining the effects of goods and services tax (GST) credits on income tax deductions.

Last updated 8 December 2019

If you can claim a deduction for a business purchase in your tax return, claim the amount of the purchase less any goods and services tax (GST) credit you're entitled to.

Example: businesses registered for GST

Alice, a GST-registered computer repairer, buys 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 tax return.

End of example

If you're not entitled to a GST credit, claim the full cost of the business purchase, including any GST, as a deduction.

Example 1: businesses registered for GST, but purchase relates to making input taxed supplies

Alice also has a residential unit that she has rented out. She does some repairs to the unit costing her $110.

As the supply of the residential unit is an input taxed supply, Alice is not entitled to claim any GST credit for the purchases that relate to the unit.

Alice can claim a deduction for the full amount of $110 on her tax return.

End of example


Example 2: businesses not registered for GST

Rob is a computer repairer but is not registered or required to be registered for GST. He buys stationery for his business at a cost of $22 (including $2 GST).

Rob cannot claim a GST credit for the $2 GST as he is not registered for GST. Rob can claim the full $22 as an income tax deduction on his tax return.

End of example

For capital assets, such as machinery, you may be entitled to an income tax deduction for the asset's decline in value (depreciation). The cost of an asset that you can depreciate is reduced by the amount of any GST credit that you are entitled to. That is, when working out the decline in value, use the cost of the asset less any GST credits you're entitled to.

Example: 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 $1,100 (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 tax return. John subtracts his GST credit from the purchase price ($1,100 - $100 GST = $1,000), and uses $1,000 to calculate the deduction he is entitled to in his tax return.

End of example

See also: