GST Input Tax Credit: What It Is and How to Claim It

Understanding GST input tax credits is crucial for New Zealand businesses registered for GST. This system allows you to claim back the GST you pay on business expenses, significantly reducing your overall GST liability and improving cash flow. Here's everything you need to know about input tax credits and how to claim them effectively.

What is an Input Tax Credit?

The Basic Concept

An input tax credit allows GST-registered businesses to reclaim the GST they pay on business purchases and expenses. When you're registered for GST, you collect GST on your sales (called output tax) and pay GST on your business purchases (called input tax). Instead of paying the full amount of GST collected to Inland Revenue, you can subtract the GST paid on business purchases.

For example, if you collected $1,500 in GST from customers and paid $300 in GST on business expenses, you would only need to pay $1,200 to Inland Revenue ($1,500 - $300 = $1,200).

How the System Works

The input tax credit system ensures that GST is ultimately paid by the end consumer, not by businesses in the supply chain. It prevents "tax on tax" situations where GST would compound at each stage of production and distribution. This makes New Zealand's GST system efficient and fair.

Which Purchases Qualify for Input Tax Credits?

Business Purpose Requirement

To claim an input tax credit, purchases must be acquired for use in your taxable activity (your business). The key criteria include:

• The goods or services must be used for your business operations
• Items purchased for private use don't qualify
• Mixed-use items only qualify partially based on the business-use percentage
• You must be GST-registered when you acquire the goods or services

Common Business Expenses That Qualify

Typical business expenses eligible for input tax credits include:

• Inventory and raw materials: Stock you purchase for resale or use in production
• Office supplies and equipment: Computers, furniture, stationery, and other office necessities
• Business services: Accounting, legal, consulting, and other professional services
• Utilities for business premises: Electricity, gas, water, and telecommunications
• Repairs and maintenance: Business property and equipment maintenance
• Business-related travel: Accommodation, meals, and transport for business purposes
• Advertising and marketing: Website development, promotional materials, and advertising costs

Documentation Requirements

Tax Invoice Requirements

To claim input tax credits, you need proper documentation. For purchases over $50, you must have a valid tax invoice that includes:

• The words "tax invoice" prominently displayed
• Supplier's name and GST number
• Your name and address
• Invoice date
• Description of goods or services supplied
• Total amount charged
• GST amount (or statement that the total includes GST)

How to Claim Input Tax Credits

Include in Your GST Return

Report input tax credits in your regular GST return by:

• Keeping all GST invoices and receipts organised
• Tracking GST paid on eligible business purchases
• Including the total input tax in your GST return
• Subtracting input tax from output tax to calculate net GST owed

Record-Keeping Best Practices

Maintain organised records by:

• Filing all tax invoices and receipts systematically
• Using accounting software that tracks GST automatically
• Keeping records for at least seven years
• Separating business and personal expenses clearly

Common Mistakes to Avoid

Documentation Errors

• Not obtaining proper tax invoices for purchases over $50
• Losing receipts and not having backup records
• Accepting invoices without GST numbers

Calculation Mistakes

• Claiming 100% of mixed-use items instead of the business portion
• Claiming GST on exempt supplies
• Not adjusting for private use of business assets

Conclusion

Input tax credits are a valuable benefit of GST registration that can significantly reduce your tax liability and improve cash flow. By understanding what qualifies, maintaining proper documentation, and claiming credits promptly, you can maximise these benefits for your business.

Remember to keep detailed records, understand your GST accounting basis, and be conservative with mixed-use asset claims. When in doubt, consult with a tax professional to ensure you're claiming all eligible credits while staying compliant with GST rules.