Start your business
Start your business
Run your business
Run your business
Grow your business
Grow your business
Accountants and Bookkeepers
Accountants and Bookkeepers
- Accountants and Bookkeepers
  Learn how accountants and bookkeepers can be productive in these articles & guides
- Learning and Development
  A range of informative content to enhance your QuickBooks experience.
Updates
Updates
- Product Updates
  Watch this space for monthly product updates.
- Intuit News
  Latest news, articles & guides

Need help choosing a plan?

1800 917 771 Schedule a call

Schedule call

A person is cutting a piece of paper with a pair of scissors.

How do I calculate my input tax credit entitlement?

April 17, 2024

Death and taxes are inescapable facts of life. However, while there are several taxes that you, as a business, may face, and therefore need to be aware of to remain compliant, it is equally important to understand what is made available in terms of tax offsets, exemptions and tax credits that may apply in certain circumstances. This article focuses specifically on input tax credits - what they are, how they are calculated, and what you need to look out for.

Once your business’s turnover reaches A$75,000 or more, you will need to register for goods and services tax (GST). Through your Business Activity Statement (BAS) lodgements, you will report and pay your GST in pay as you go (PAYG) instalments.

However, in addition to making GST payments, you may also be entitled to claim credits for any GST included in the price you paid. This is known as an input tax credit (ITC) or GST credit.

Calculating Your ITC Entitlement

The good news is that calculating your ITC entitlement is a simple two-step process:

Add up all of the GST you have paid or are liable to pay on your business expenses.
Offset this figure against the GST you have collected. The result is your ITC entitlement.

Risks Associated with Calculating ITCs

Calculation errors

Take care when making your calculations. If errors made in your taxable income impact GST charges, they can affect the amount of GST you collect and pay.

If you report or pay too much GST for the reporting period, you make a credit error. Examples include accidentally reporting a GST sale twice or overstating the GST on sales. Errors can also be made by over-claiming ITCs.

Reporting or paying too little GST, on the other hand, means that you are making a debit error. Examples include failing to include GST on a taxable sale, understating GST on sales, or overstating the GST credits. Additionally, wrongly calculated GST can result in incorrect offsets against GST collected.

Reckless behaviour or intentional disregard of GST laws

Strict rules govern your eligibility to claim ITCs, including requirements and parameters for when an ITC may or may not be claimed. Recklessness that falls short of the standard of care expected (that is, gross carelessness) or any intentional disregard of a GST law may result in any debit error not being rectifiable.

Over reliance on ITC estimators

Enterprise organisations that use ITC estimators typically establish governance and compliance systems and processes to ensure that the ITC estimators are used appropriately and reviewed accurately.

There are several methodologies used by these estimators which effectively calculate an estimate, average or percentage of ITCs for the unprocessed tax invoices of a business for a given tax period.

Consequences

If your organisation chooses to rely on an ITC estimator, it increases the risk that you may over-claim your ITCs, raising the possibility that you may be flagged for review by the Australian Taxation Office (ATO). Use of an ITC estimator will have a negative impact on your business’s profile with the ATO if you’re not seen to have appropriate controls and governance in place.

If reviewed by the ATO and found to have made false or misleading statements or unable to show valid tax invoices for the ITCs claimed in your BAS, then you may be subject to:

penalties and
a general interest charge (GIC), applied to unpaid tax liabilities and which is calculated on a daily compounding basis on the amount outstanding

The review will be an objective assessment of whether your ITC estimator produces an accurate estimate of your ITC entitlement. The review will consider the behaviour of you and your agent in the lead-up to the BAS lodgement, the adequacy of appropriate governance and internal controls, the number of regular reviews of your ITC estimator, and any steps taken to minimise ITC over-claims.

Protective measures to mitigate risks

If you choose to use an ITC estimator, we recommend that you:

assess all the risks associated with its use
ensure your ITC estimate methodology complies with relevant accounting standards and undergoes regular review (at least half yearly)
ensure appropriate controls and governance measures are in place
take steps to minimise and verify that there are no ITC over-claims
make allowances for business fluctuations, significant expenditure and seasonal variations to avoid overclaiming your GST
reconcile the estimated ITC claim against your actual entitlement for each tax period in which an ITC estimator was used
make revisions to your BAS for tax periods where you have over-claimed your ITCs

For further guidance, you may refer to the ATO’s tax risk management and governance review guide.

Examples

Here are two examples of how to calculate the ITC for a business.

Your business is registered for GST: Claiming ITCs

Melanie, a freelance marketing consultant, purchases an additional office desk for A$440 which includes A$40 GST. As she is registered for GST, Melanie can claim the A$40 as an ITC on her BAS.

Your business is not registered for GST: Claiming ITCs

Michael, who owns a small printing business but is not registered for GST, purchases a photocopier for A$440. He is not able to claim the A$40 as a tax credit because he is not registered for GST.

Remain compliant with Quickbooks

Understanding how to calculate your ITC entitlement, what can and cannot be claimed, risks to identify and the proactive steps to mitigate these risks are all crucial for businesses.

While every business must pay income tax and register for GST on reaching a certain threshold, there are also opportunities to claim tax credits. However, with strict rules in place, it is essential that your business is fully informed and compliant.

If you need support and assistance with calculating your ITC entitlement or managing it with super simple accounting software, reach out with any questions you may have.

Read more with our guide to Franking credits.

taxes

GST Guide for Beginners

May 6, 2024

contabilidade

O que é o volume de negócios? Um guia para pequenas empresas

April 29, 2022

Business owner doing budget in fashion design atelier

taxes

What is a small business tax offset?

May 1, 2024

Looking for something else?

Get QuickBooks

Smart features made for your business. We've got you covered.

See how it works

Help Me Choose

Use our product selector to find the best accounting software for you.

Choose your product

QuickBooks Support

Get help with QuickBooks. Find articles, video tutorials, and more.

Start learning

Stay up-to-date with the latest small business insights and trends!

Want more? Visit our tools and templates!

First Name*

Email*

What best describes you?*

By signing up you are agreeing to our terms and privacy policy.

- - QuickBooks reserves the right to change pricing, features, support and service at any time. Prices are in AUD and include GST. See our Terms of Service for further information.
  - Pricing: All prices are in AUD and include GST.
  - ProAdvisor Program: Please find the terms of our ProAdvisor program here.
  - 75% off for 6 months: For new subscribers, enjoy a 75% discount off the current monthly retail price for QuickBooks Self-Employed, QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first 6 months of your subscription (Offer). The discount will applied from the date of your enrolment and will continue for 6 months. From month 7, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 50% off for 12 months: For new subscribers, enjoy a 50% discount off the current monthly retail price for QuickBooks Self-Employed, QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first 12 months of your subscription (Offer). The discount will applied from the date of your enrolment and will continue for 12 months. From month 13, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 30% off for 3 months (Advanced): For new subscribers to QuickBooks Online Advanced, enjoy a 30% discount off the current monthly retail price for the first 3 months of your subscription (Offer). The discount will apply from the date of your enrolment and will continue for 3 months. From month 4, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 30% off for 12 months (Advanced): For new subscribers to QuickBooks Online Advanced, enjoy a 30% discount off the current monthly retail price for the first 12 months of your subscription (Offer). The discount will apply from the date of your enrolment and will continue for 12 months. From month 13, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 30% off for 3 months (existing subscribers): For existing QuickBooks subscribers who upgrade to QuickBooks Online Essentials, Plus or Advanced, enjoy a 30% discount off the current monthly retail price for 3 months of your subscription (Offer). The discount will be applied from the date you upgrade in-product and will continue for 3 months. From month 4, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time services and prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - Free Trial: First thirty (30) days of subscription to QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll (including QuickBooks Advanced Payroll), starting from the date of enrolment, is free. During the free trial, you may pay any number of employees using QuickBooks Payroll free of charge. To continue using QuickBooks after your 30-day trial, you'll be asked to present a valid credit card for authorisation and you'll be charged monthly at the then-current fee for the service(s) you've selected.
  - QuickBooks Payroll powered by Employment Hero: Payroll services are offered by a third party, Employment Hero. QuickBooks Payroll is only accessible via QuickBooks Online subscriptions. You will be charged $5.00 (incl. GST) per month for each ‘active employee’ paid using QuickBooks Payroll. An ‘active employee’ is one who has been paid at least once in the billing month. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). Pricing, terms and conditions, including service options, are subject to change.
  * Employment Hero was voted the leading payroll solution for SMBs <50 employees (Australian Payroll Association 2021 Payroll Benchmarking Study)
  - Customer support: Call or chat to an expert for QuickBooks Online Accountant, QuickBooks Simple Start, Essential, Plus, and Advanced or use in-product QB Assistant and chat for QuickBooks Self-Employed. You'll also find useful resources in the QuickBooks Community.
  - Compatible Devices: QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll require a computer with Internet Explorer 10, Firefox, Chrome, or Safari 6 and an Internet connection (a high-speed connection is recommended). The QuickBooks Online mobile app works with iPhone, iPad, and Android phones and tablets. QuickBooks Online and QuickBooks Payroll are accessible on mobile browsers on iOS, Android, and Blackberry mobile devices. Devices sold separately; data plan required. QuickBooks Payroll cannot be used on the mobile apps. Not all features are available on the mobile apps and mobile browser. QuickBooks Online mobile access is included with your QuickBooks Online subscription at no additional cost. Data access is subject to cellular/internet provider network availability and occasional downtime due to system and server maintenance and events beyond your control. Product registration required.
  - Get paid faster: Get paid 2.5x faster invoicing with PayPal
  * PayPal and QuickBooks customers get paid on average in less than 5 days, which is over 7 days faster than the average for invoices that get paid with other payment methods. Data is for paid invoices that were created in QuickBooks in Australia between 23.05.22 and 23.11.22
  - Tax deductions: Tax deductions not guaranteed due to being subject to user data entry errors. Mileage calculation provided by the Australia Taxation Office - 85 cents per kilometre for the 2023-2024 income year. To a maximum of 5,000 business kilometres per car (Deductions are only applicable to cars)
  - Customer Service Awards: Excellence in Customer Service Award at the CX Australia Awards 2022
  - Multiple file discount: Multiple file discount applies to QuickBooks Australia customers only and valid when signing up for more than one QuickBooks Online subscription in one order. Further terms and conditions available here. Not applicable to QuickBooks Self Employed.
  - Reviews: GetApp, Capterra, Google Play Store, Apple App Store reviews as at date 08/01/24.
  - Cost per day claim: Based on a QuickBooks Simple Start Plan at its regular retail price of $25 per month and a 31 day month.
  - Cost per day claim (annual): Based on a QuickBooks Simple Start Plan at its regular retail price of $270 per year and a 365 day year.
  - Annual Billing: You may pay for your QuickBooks Online subscription on an annual, upfront basis to enjoy a discount on the current fees. If you use QuickBooks Payroll powered by Employment Hero, your payroll costs will still be charged monthly to your nominated payment method in accordance with your usage as set out here. If you cancel your QuickBooks Online subscription within the pre-paid 12 month period, you will not be eligible for a refund, but will retain full access to your QuickBooks Online subscription for the remainder of the 12-month period. Unless cancelled by you prior, your annual subscription will auto-renew on the 12 month anniversary of your sign-up date using the billing details you have given us. Discounts, prices, terms and conditions are subject to change.
  - Over 7 million customers: Based on number of global QB customers (ecosystem) (7.1m) worldwide as of October 2022.
  - Free Onboarding: Applicable to Buy Now subscriptions on QuickBooks Simple Start, Essentials and Plus plans. Not available for QuickBooks Self-Employed.
  - Save Hours: Save up to an average of 29 hours per month with QuickBooks.
  - * Based on a survey conducted by Intuit Australia Pty Ltd in September 2022. Time saving is in comparison to previous accounting method, based on 184 responses from customers that saw time savings.
  - Get access to QuickBooks Tax: ***Access QuickBooks Tax, powered by LodgeiT, by becoming a member of the QuickBooks ProAdvisor Program (it’s free to join). Find out more about the ProAdvisor Program here, including the terms of the QuickBooks Tax offer in the Program here.
  - QuickBooks Time Disclaimers & Offers for Australia: For Important pricing offers and disclaimers with further information, please see here.
  - *Full terms and conditions for access to QuickBooks Tax, powered by LodgeiT as part of the the Proadvisor Program can be found here. QuickBooks reserves the right to change pricing, features, support and service at any time.
  - **Intuit conducted a study involving 56 interviews with accountants and bookkeepers who used Books Review for BAS preparation between March to December 2021 and found that when using Books Review, participants reduced the time spent preparing their clients BAS Reports by around 40%.
  - Our Terms of Service apply to all QuickBooks Online subscriptions. Please review them carefully.