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How do I calculate my input tax credit entitlement?

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:

  1. Add up all of the GST you have paid or are liable to pay on your business expenses.
  2. 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. 


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.


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.

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