An input-taxed supply is one on which no GST is charged to the recipient, and the supplier also cannot claim input tax credits on the purchases directly related to making the supply. This double treatment — no GST charged, no credits claimable — distinguishes input-taxed supplies from GST-free supplies, where credits are still available.
Main categories
- Financial supplies — most loans, credit cards, deposits, shares, units in funds, and insurance (with some exceptions). Defined in the GST Regulations.
- Residential rent — renting a dwelling to a tenant for residential accommodation.
- Precious metals — first sale of gold, silver, or platinum of a required purity to a purchaser who is not a registered entity.
- School tuck shops and canteens — supplies by eligible non-profit organisations.
Reduced input tax credits (RITCs)
Even though full input tax credits cannot be claimed on costs attributable to input-taxed supplies, certain acquisition types attract a reduced input tax credit — typically 75% of the full credit. This applies to some outsourced services used by financial institutions (e.g. certain IT, legal, and back-office services), and is governed by the RITC rules in the GST Act.
BAS reporting and apportionment
Input-taxed sales are reported at label G4 on the BAS. Where a business makes a mix of taxable, GST-free, and input-taxed supplies, it must apportion its input tax credits — only the portion attributable to taxable and GST-free supplies is creditable. Common methods are the direct allocation method or an ATO-approved apportionment approach.
Example
A property investor owns two units — one commercial (taxable supply of premises) and one residential (input-taxed). Management fees of $1,100 incl. GST relate to both properties equally. She can claim $50 input tax credit (the portion attributable to the commercial unit) but not $50 (the residential portion).
Common mistakes
- Claiming full input tax credits on costs that partly relate to residential rent — a very common error for property investors or mixed-use property clients.
- Treating short-term rental income (Airbnb, holiday letting) as input-taxed when it may actually be a taxable supply of commercial accommodation.
- Not applying the RITC rules where they are available, resulting in under-claimed credits for financial institutions.
Is selling a residential property input-taxed?
The sale of a residential property can be either input-taxed (existing residential premises), GST-free (sale of a going concern or farmland), or taxable (new residential premises sold by a developer). The classification depends on whether it is 'new residential premises' and who is selling it. New residential premises sold by a developer are taxable at 10% (or 1/11th of the contract price under the margin scheme).