An input tax credit is the GST/VAT you paid on business purchases that you can claim back from the tax authority. It offsets the GST/VAT you collected on sales.
Input tax credits (also called input tax deductions or GST credits) allow you to recover the GST or VAT you paid on purchases made for your business. When you buy supplies, equipment or services for business use, the GST/VAT included in those purchases can be claimed as a credit against the GST/VAT you collected on your sales. To claim an ITC, you generally need a valid tax invoice, the purchase must be for business purposes and the item must not be specifically excluded (like entertainment in some jurisdictions). The net GST/VAT you owe is your output tax (collected on sales) minus your input tax credits (paid on purchases). If your ITCs exceed your output tax, you receive a refund. Proper ITC tracking is essential for accurate tax reporting and cash flow management. Over-claiming ITCs attracts penalties, while under-claiming means you are paying more tax than necessary. SortBooks automatically identifies and tracks ITCs on every purchase transaction in Xero, ensuring you claim every credit you are entitled to.
SortBooks helps with the bookkeeping behind input tax credit (itc) by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing input tax credit (itc) by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
GST is a broad-based consumption tax applied to most goods and services. Businesses collect GST on sales and claim credits for GST paid on purchases, remitting the net amount to the tax authority.
VAT is a consumption tax charged on goods and services at each stage of production and distribution. Businesses collect VAT on sales and reclaim VAT on purchases, remitting the net amount.
A tax invoice is a document that includes GST/VAT information and your registration number. It is required for customers to claim input tax credits on their purchases from you.
The BAS is an Australian tax form used to report GST, PAYG withholding, PAYG instalments and other tax obligations to the ATO, typically lodged quarterly.
Tax compliance means meeting all your obligations to file tax returns, make payments and maintain records as required by your country's tax laws and tax authority.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.