Which business expenses have no GST? The list that stops you over-claiming at 1B

Four reasons an expense has no GST

Every line on your statement fits one of these:

• Taxable. GST was charged at 10%. Most goods and services from registered Australian businesses. Claimable at one eleventh of the price.
• GST-free. Taxed at zero: basic food, most health and education services, water, exports. Nothing to claim.
• Input taxed. Financial supplies and residential rent. The seller charges no GST and cannot claim it on their own costs either. Nothing to claim.
• Not a supply at all. Wages, superannuation, your own drawings, fines, government charges and taxes. No GST in any direction.

And one that is about the seller rather than the item: a supplier with turnover under $75,000 does not have to register, and an unregistered supplier cannot charge GST. Their invoice has none, so you claim none. See how to calculate GST for the arithmetic once you know a line is taxable.

Bank fees, merchant fees and interest

Account keeping fees, transaction fees, overdraft and loan interest, credit card interest and loan establishment fees are all financial supplies, which are input taxed. No GST, no credit, even though they are ordinary deductible business costs. Merchant service fees charged by a bank for taking card payments are treated the same way.

Payment processors differ. Some treat their fees as an input-taxed financial supply and charge no GST; others add GST and issue a tax invoice each month. Read the monthly invoice rather than assuming either way, and claim only what it shows.

Wages, super, drawings and contractor payments

Wages are not a supply, so they carry no GST. Neither does superannuation, and neither do the transfers you make to yourself, which are drawings rather than an expense at all. Payments to the ATO for PAYG withholding, income tax or a previous BAS have no GST either.

Contractors are where it gets interesting. A registered subcontractor charges GST and gives you a tax invoice; you claim it. A subcontractor with an ABN who is not registered charges none, and their invoice should not say tax invoice; you claim nothing, and the whole amount is still your deduction. ABN Lookup shows whether an ABN holder is registered for GST. If a supplier gives you no ABN at all, you generally have to withhold 47% from the payment and send it to the ATO, so ask before the job starts.

Rent, insurance and vehicles

Residential rent is input taxed, so if you work from a rented home and claim a share of the rent, there is no GST in it. Commercial rent normally carries GST, and your landlord should issue a tax invoice.

Insurance premiums include GST, but the stamp duty component does not, so the credit is one eleventh of the premium before duty. Insurers also ask for your input tax credit entitlement when you take out a business policy; tell them, because it changes how a claim is paid out.

Vehicle registration is a mix: the registration fee itself carries no GST, the compulsory third party insurance component often does, and stamp duty never does. Tolls and fuel carry GST. Parking fines do not, and are not deductible either. A car from a dealer carries GST up to one eleventh of the car limit; one from a private seller carries none.

Government charges, fines and levies

ASIC fees for a business name, council rates, water and sewerage charges, land tax, licence and permit fees charged by government bodies, court fees and most regulatory levies have no GST. An ABN costs nothing at all. Fines and penalties have no GST and are never deductible. A few commercial services sold by government agencies are taxable, so read the receipt, but the default for a payment to a government body is no GST.

Overseas suppliers and imports

If you are registered for GST and have given an overseas software or advertising supplier your ABN, they should not charge you Australian GST, and there is nothing to claim. If they are an Australian entity or charge GST anyway, you claim it with their tax invoice. Full detail in GST on overseas subscriptions and software. Goods imported over $1,000 attract GST at the border, paid through your customs broker or the courier, and you claim it using the import declaration rather than the supplier invoice.

GST-free things a business does buy

A café or market stall buying flour, milk and raw vegetables is buying GST-free basic food. A course from a registered education provider may be GST-free, and so are water charges. A donation to a charity has no GST, and is only deductible if the charity is a deductible gift recipient and you received nothing back. None of these go into 1B, but all of them are still expenses for income tax.

Deductible is not the same as GST-claimable

Every item above is, or can be, an ordinary income tax deduction at its business share. The only thing that changes is the GST credit. A $20 monthly account fee is a $240 deduction and a $0 credit. Keeping the two questions separate is most of what getting 1B right involves.

Under Simpler BAS you report only G1, 1A and 1B, so nobody sees your working, but the ATO does compare 1B against your industry and your income. FlowFi categorises your statement, keeps wages, super, tax payments and transfers out of the purchase labels altogether, and shows you the lines it wants confirmed. Reviewing those before you copy 1B, with a particular eye on the fees and interest your bank charged, and holding a tax invoice for anything over $82.50, is the five minutes that stops an over-claim.