Financial supplies are input taxed. This means you:
- do not pay GST to us on financial supplies you make
- cannot generally claim GST credits for the GST included in the price you paid for anything you purchased to make those supplies.
However, there are four exceptions where you can claim the GST credit you paid on a purchase you use to make your financial supply:
- you use the purchase to make a financial supply through a business or a part of a business that you carry on outside Australia
- you do not exceed the financial acquisitions threshold
- your purchase relates to a borrowing you make, if certain conditions are met
- your purchase is a reduced credit acquisition that you use to make a financial supply.
Where your purchases relate to making financial supplies as well as taxable and GST-free supplies, they will need to be apportioned.
You can claim GST credits on purchases that you use to make financial supplies through a business that you carry on outside Australia.
Whether you are making financial supplies through a business that you carry on outside Australia depends on your particular circumstances. If you believe you are in this situation, we recommend you ask us for advice before claiming any GST credits.
There are 2 tests that apply to see if you exceed the financial acquisitions threshold. You may exceed the threshold under either test. Both tests are based on financial acquisitions you make. A financial acquisition is an acquisition that relates to the making of a financial supply (other than a borrowing).
Both tests take into account all the financial acquisitions you make over a 12-month period:
- current financial acquisitions mean financial acquisitions you make over the whole of the current month plus the previous 11 months
- future financial acquisitions mean financial acquisitions you make over the whole of the current month plus the following 11 months (you must estimate this amount).
To test whether you exceed the financial acquisitions threshold in a particular month, you must assume that the financial acquisitions you have made, or are likely to make, are not used:
- to make input-taxed sales
- partly for a private or domestic purpose.
You exceed the financial acquisitions threshold for a particular month if the GST credits you could claim for current or future financial acquisitions are more than either of the following:
- $50,000 (before 1 July 2012) or $150,000 (on and after 1 July 2012) in the relevant 12-month period
- 10% of the total amount of GST credits you could claim for all your purchases (including financial acquisitions) during the relevant 12-month period.
For more detailed information, see:
- GSTR 2003/9 Goods and services tax: financial acquisitions threshold
- Financial services – questions and answers
- GST terms: financial acquisition
Borrowing can be secured or unsecured and includes raising funds by issuing a:
- discounted security
- other document evidencing indebtedness.
You may be able to claim GST credits on purchases you make that relate to you making a financial supply (consisting of a borrowing), to the extent that the borrowing relates to you making supplies that are not input taxed.
From 1 July 2012 this concession does not apply if you are an Australian authorised deposit taking institution, such as a bank, building society or credit union, and the purchase relates to you making a financial supply consisting of a borrowing made through a deposit account.
If you are the lender, purchases that relate to loans you make are financial acquisitions.
Reduced credit acquisitions are certain special types of purchases listed in the GST regulations. You can claim a partial GST credit on these items if you use them to make financial supplies and you exceed the financial acquisitions threshold.
Generally, you can claim 75% of GST included in the purchase price of a reduced credit acquisition.
The list of reduced credit acquisitions are broadly categorised under the following headings:
- Transaction banking and cash management services, such as managing accounts and processing services
- Payment and fund transfers services
- Securities transaction services and unit registry services
- Loan services
- Credit union services
- Debt collection services
- Asset-based finance services
- Trade finance services
- Capital markets and financial instruments services, such as derivatives.
- Funds management services
- Insurance services, such as brokerage.
- Trustee and custodial services
- Supplies to recognised trust schemes
- Monitoring services.
There is an exception to this general rule which relates to supplies purchased on and after 1 July 2012 by a recognised trust scheme. A recognised trust scheme is defined in the GST regulations to include certain managed investment schemes, superannuation funds (though not self-managed superannuation funds) and approved deposit funds.
On and after 1 July 2012, recognised trust schemes may claim a reduced GST credit of only 55% on their reduced credit acquisitions, other than those specified in the GST regulations. For those specified in the GST regulations their entitlement will remain at 75%.
There are also other acquisitions that attract partial input-tax credits which are only relevant for certain offshore supplies between closely-related entities.
For more detailed information, see GSTR 2004/1 Goods and services tax: reduced credit acquisitions.