If registered for GST, or required or entitled to be, a GST credit can be claimed for a car expense incurred for a creditable purpose.
For businesses carrying on an enterprise, the creditable purpose can conceivably include the vehicle’s private use by an employee, although clearly the FBT consequences of that kind of arrangement would need to be considered. (GSTR 2001/3)
For the self-employed sole trader or carrying on business in partnership the GST credit is claimable to the extent of creditable purpose, which requires that the personal and non-creditable use percentages must be identified and excluded.
The basis of creditable purpose estimates
The GST law does not provide rules for calculating the extent of creditable purpose, so an acceptable calculation method is required.
Tax bulletin GSTB 2006/1 provides the bases of acceptable estimates which are summarised below.
The essence of GSTB 2006/1 broadly is that the income tax substantiation method in use may also be used as the basis of calculating creditable purpose, modified if necessary by non-creditable (e.g. input-taxed) purposes.
The bulletin also states that a different method can be used from the one used for income tax, provided the requirements of the chosen method are met.
This method can be used if the creditable business kilometres total no more than 5,000 kilometres per year, and the cents per kilometre vehicle expense claim method is used.
The percentage of GST credit claimable can be determined as:
Estimated Business kilometres ÷ Estimated Total kilometres
Set Rate Method
If no more than 5,000 creditable purpose kilometres are travelled for the year, the following percentages are accepted:
|Estimated creditable purpose kilometres||Creditable purpose percentage|
|0 to 1,250||5%|
|1,251 to 2,500||10%|
|2,501 to 3,750||15%|
|3,751 to 5,000||20%|
See: GSTB 2006/1 para 28
One third of actual expenses and 12% of value
(for years up to 30 June 2015 only)
Both of these car expense claiming methods assume a 33¹⁄³ % extent of business use for income tax purposes.
This same percentage is deemed acceptable as the creditable purpose percentage if more than 5,000 kms are travelled for a creditable purpose during the year.
Log book method
The log book percentage of business use is deemed acceptable as the creditable purpose percentage. There is no minimum or maximum number creditable purpose kilometres.
The 5-year log book validity rules are also accepted for this purpose.
Note: Where the business purpose and creditable purpose are not the same, the claimed input tax percentage would need to be modified accordingly – for example if part of the travel relates to the making of input taxed supplies, such as residential accommodation.
Annual apportionment election
Where an annual apportionment election has been made, the creditable purpose as it relates to private use is settled after the end of the tax year, usually when an income tax return is prepared.
Ruling GSTB 2006/1 confirms that the private use percentage of creditable purpose GST may also be may also be reconciled and adjusted with the GST annual return, but that does not apply to input taxed activities. The input taxed percentage must be eliminated from input tax credit claims in each periodic BAS return.
- GSTB 2006/1 – Goods and services tax: how to claim input tax credits for car expenses
- GSTR 2001/3 – Goods and Services Tax: GST and how it applies to supplies of fringe benefits
- Small business GST concessions
- Car expense substantiation methods
This page was last modified 2017-11-14