Every quarter, thousands of Australian business owners lodge a Business Activity Statement (BAS) claiming GST credits they are not entitled to — and just as many miss credits they were. Bank fees claimed when there is no GST in them. The full GST on a luxury ute when the law caps it. Credits on six-year-old invoices that expired at year four. An input tax credit is one of the simplest ideas in the GST system, yet it produces a steady stream of BAS errors, ATO adjustments and quiet overpayments.

This explainer from Trinity Accounting Practice covers what an input tax credit actually is, what you can and cannot claim, the invoice rules, the four-year deadline, and the errors we correct most often when new clients bring us their BAS history.

The basic idea: GST is only meant to tax the final consumer

GST (Goods and Services Tax) is a 10% tax designed to land on the final consumer — not on businesses along the way. An input tax credit (the ATO now usually says “GST credit”) is the mechanism that makes this work. When your GST-registered business buys something for use in the business, you can generally claim back the GST included in the price. You collect GST on your sales, claim credits on your purchases, and pay the ATO only the difference.

A quick illustration. A Beverly Hills café buys a coffee machine for $11,000 ($10,000 plus $1,000 GST). Because the machine is used in the business, the café claims a $1,000 input tax credit on its next BAS. The machine effectively cost $10,000. If a household bought the same machine, the $1,000 GST would simply be part of the price — that is the “final consumer” paying the tax as designed.

What you can claim — the four conditions

You can generally claim a GST credit when all of the following are true:

You are registered for GST. Not registered, no credits — full stop.
The purchase is for your business (a “creditable purpose”), not private use, and not for making input-taxed supplies.
The price actually included GST. Plenty of business costs do not — more on this below.
You hold a valid tax invoice for purchases over $82.50 (GST-inclusive). Below that threshold, an ordinary receipt or even a bank record may be enough; above it, no tax invoice generally means no credit until you obtain one.

A valid tax invoice for purchases of $1,000 or more must show the seller’s identity and ABN, the date, a description of what was sold, the GST amount (or a statement the price includes GST), and the buyer’s identity or ABN. The ATO’s tax invoice requirements page sets out the full list.

What you cannot claim — the usual suspects

Purchases with no GST in the price. Most bank fees, interest, stamp duty, ASIC fees, council rates, water rates, many government charges, wages and superannuation, and basic GST-free food. Coding 10% GST on bank fees is probably the single most common bookkeeping error in Australia.
Private-use portions. If your mobile phone is 60% business, you can claim 60% of the GST — not all of it. The same apportionment logic applies to home internet, vehicles and anything else with mixed use.
Entertainment. If the cost is not deductible for income tax (client lunches, most entertainment), the GST credit is generally not claimable either.
Purchases used to make input-taxed supplies. Explained next — this one trips up every landlord.
GST above the car limit. For 2025–26, the car depreciation cost limit is $69,674, which caps the maximum GST credit on a car at $6,334 (one-eleventh of the limit). Buy a $90,000 dual-cab and you cannot claim the full $8,182 of GST in the price — the claim stops at $6,334.

“Input-taxed” vs “GST-free” — the naming confusion that costs money

This is the worst-named distinction in Australian tax, so here it is plainly:

GST-free supplies (basic food, most health and education services, exports): you charge no GST on your sales, but you can still claim GST credits on your business purchases. Sellers of GST-free supplies often receive BAS refunds.
Input-taxed supplies (residential rent, most financial supplies): you charge no GST on your sales, and you cannot claim GST credits on purchases that relate to those sales.

The practical sting: a residential landlord cannot claim GST credits on agent fees, repairs or strata levies for the rental property, because residential rent is input-taxed. We regularly see new clients who have been claiming those credits for years — each one an error the ATO can unwind, with interest. Commercial rent, by contrast, is a taxable supply, so commercial landlords usually can claim.

The four-year deadline — credits do expire

You generally have four years from the due date of the BAS for the period in which the credit first became claimable. Miss the window and the credit is gone permanently — the ATO has no discretion to extend it in most cases. We see this most often with businesses that fall behind on lodgements: by the time the backlog is cleared, the oldest credits have lapsed. A business catching up on five years of BAS may find its first year of credits simply unclaimable.

Worked example — one quarter, three errors

A Sydney IT consultant lodges her own BAS. In one quarter she claims credits on: $480 of bank and merchant fees (mostly no GST — roughly $30 over-claimed once the GST-bearing merchant fees were isolated), 100% of her $1,320 phone and internet bills despite around 40% private use ($48 over-claimed), and the full GST on a $77,000 car ($7,000 claimed, but the 2025–26 cap allows only $6,334 — $666 over-claimed). Total over-claim for the quarter: about $744. Run for four years, that pattern approaches $12,000 of credits the ATO can claw back with general interest charge on top — from a taxpayer who genuinely believed she was being careful. The fixes were simple: correct tax codes in Xero, a documented business-use percentage, and the car-limit cap applied once at purchase.

Where it all lands: your BAS

Input tax credits are reported at label 1B (GST on purchases) on your BAS, offset against label 1A (GST on sales). If 1B exceeds 1A — common in a quarter with big equipment purchases, or for exporters and other GST-free sellers — the ATO refunds the difference. Accounting software like Xero builds the BAS from your tax codes automatically, which means the BAS is only ever as accurate as the coding underneath it. Garbage codes in, wrong BAS out.

A Trinity insight from 22 years in practice

Almost every GST credit error we find traces back to one decision made years earlier: how the chart of accounts and default tax codes were set up on day one. A bank-fees account defaulted to “GST on expenses” will mis-claim on autopilot, every month, forever — and no one notices because each individual error is small. When we onboard a new business to Xero, we spend more time on tax-code defaults than on anything else, because an hour of setup discipline prevents a decade of compounding BAS errors. The cheapest GST review you will ever do is the one before the first BAS, not after the fortieth.

What this means for you

If your bookkeeping codes GST on bank fees, ASIC fees or stamp duty: your BAS has been overstating credits. Fix the defaults and consider correcting prior periods.
If you own a residential rental property: you generally cannot claim GST credits on its expenses — residential rent is input-taxed.
If you bought a car above $69,674 in 2025–26: your GST credit is capped at $6,334, regardless of the GST in the price.
If you claim 100% on phones, internet or vehicles with private use: apportion, and keep a record of how you got the percentage.
If you have unlodged BAS going back years: credits start expiring at the four-year mark. Catching up sooner preserves real money.
If you are missing tax invoices for purchases over $82.50: chase them — without the document, the credit is generally not claimable.

How Trinity can help

Trinity Accounting Practice prepares and reviews BAS for businesses across Sydney from our Beverly Hills office. As Certified Xero Advisors, we set up tax codes properly at the start, run GST health checks on existing files, correct historical over- and under-claims, and lodge as registered agents — which also gives most clients extra time on quarterly deadlines. If you suspect your GST coding has been wrong for a while, a review is far cheaper than an ATO adjustment.

Book a GST and BAS review with the Trinity team →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.