Input Tax Credit
A credit for GST included in the price of goods and services purchased for business use, offsetting GST collected on sales.
An input tax credit (ITC) allows GST-registered businesses to claim back the GST paid on purchases and expenses used in their business. Input tax credits are offset against the GST collected on sales (output tax), and only the net amount is remitted to the ATO. This mechanism ensures GST is ultimately borne only by the final consumer, not by businesses in the supply chain.
To claim an input tax credit, you must: be registered for GST, have a valid tax invoice from the supplier, have paid or be liable to pay for the purchase, and the purchase must relate to a creditable (GST-liable) sale you make. You cannot claim ITCs for purchases related to making input-taxed sales (e.g., residential rental income) or for private/domestic expenses.
If your business makes both taxable and input-taxed sales, you need to apportion your input tax credits. For example, a financial services company that makes mostly input-taxed supplies can only claim a portion of the GST on general overheads. The ATO provides various apportionment methods, and you should choose the one that gives the most fair and reasonable result for your circumstances.