GST and Financial Supplies: Why Banks, Insurers, and Lenders Have a Different ITC Calculation

Last reviewed against current ATO guidance: 10 Nov 2026. Always confirm current thresholds, rates, and dates at ato.gov.au.

For most businesses, the GST system is relatively straightforward: charge GST on sales, claim input tax credits (ITCs) on purchases, remit the net to the ATO. Financial services businesses — banks, insurance companies, lenders, superannuation funds, investment managers, and increasingly fintech companies and mortgage brokers — operate under a materially different regime. Understanding why, and how the reduced input tax credit (RITC) system works, is essential for any accountant or bookkeeper serving financial services clients.

What Are Financial Supplies?

Under the GST Act, a financial supply is a supply of an interest in or under specified financial instruments. The definition is broad and includes:

• Deposit and lending: Making or receiving a loan, extending credit, accepting deposits
• Securities: Buying, selling, or issuing shares, bonds, or other securities
• Insurance: Providing general or life insurance (noting that health insurance has specific rules)
• Foreign exchange: Buying or selling foreign currency
• Superannuation interests: Making contributions to or payments from superannuation funds
• Interests in managed funds: Units in unit trusts, interests in managed investment schemes

Financial supplies are input-taxed — not GST-free. The distinction matters enormously. GST-free supplies (like most health and education services) allow full ITC claims on the inputs that generate them. Input-taxed supplies do not — no GST is charged on the supply, and no ITC is generally claimable on the inputs that relate to making them.

This creates a structural GST cost embedded in the financial services sector. A bank that pays $1.1m (including $100,000 GST) for software used exclusively to manage its loan book cannot claim that $100,000 back. The GST becomes a cost of doing business.

Reduced Input Tax Credits (RITC) at 75%

Because applying full input-taxed treatment to all acquisitions by financial institutions would make the system administratively unworkable (and competitively distorting), the GST Act provides for reduced input tax credits under Division 70 for specific categories of acquisition.

The RITC rate is 75% of the full ITC that would otherwise apply. For a $1,100 acquisition with $100 GST, the RITC is $75 — the entity recovers $75 of the $100 GST, and the remaining $25 becomes a non-recoverable cost.

The acquisitions eligible for RITC treatment are specified in the GST Regulations and include:

• Management and accounting services relating to financial supplies
• Transaction processing services (including payment switching and card processing)
• Securities clearing and settlement services
• Regulatory compliance services (legal, compliance consulting, actuarial)
• Certain IT services directly related to financial supply making
• Debt collection services
• Financial data and information services

The 75% rate is applied to the creditable purpose proportion of these acquisitions. If the financial institution makes both financial supplies and taxable supplies (a blended business — common in the financial sector), the calculation becomes an apportionment exercise.

Division 71 Elections

For financial institutions that make both financial supplies and taxable supplies, the Division 71 election (formerly the financial acquisitions threshold, now formalised through the regulations) allows simplified treatment.

The core threshold test: if your financial supplies are below the financial acquisitions threshold — broadly, if the value of financial supplies is less than $150,000 per year OR less than 10% of your total supplies — you can effectively ignore the input-taxed nature of your financial supplies and claim full ITCs on all acquisitions.

This is highly relevant for:

• Accountants who occasionally arrange loans for clients and receive a referral fee
• Businesses that derive a small amount of interest income on surplus cash
• Mortgage brokers and financial planners who receive commissions on financial products
• Fintech companies in early stages with limited financial supply revenue relative to taxable fee income

Where the threshold applies, the business claims ITCs as if all supplies were taxable — simplifying the BAS significantly. Where it does not apply (financial supplies are material), the RITC calculation becomes necessary.

Blended Businesses: Fintech and Mortgage Brokers

The complexity peaks for businesses that mix financial and non-financial supply making. A mortgage broker, for example, may:

• Receive trail commissions on existing loan books (financial supply — input-taxed)
• Charge professional fees for advice or document preparation (taxable supply)
• Receive upfront commissions from lenders for placing loans (potentially financial supply depending on characterisation)

A fintech platform may:

• Charge transaction fees to merchants (taxable)
• Earn net interest margin on lending (input-taxed financial supply)
• Provide data analytics or reporting services (taxable)

For these blended businesses, every acquisition must be attributed to either taxable, input-taxed, or mixed purposes. The ITC claim is then:

• Full ITC for taxable purpose acquisitions
• RITC (75%) for mixed acquisitions eligible under Division 70
• Nil ITC for acquisitions solely related to input-taxed financial supplies

The apportionment methodology must be applied consistently and can be agreed with the ATO under a special method. Large financial institutions typically negotiate special methods; smaller businesses use a reasonable estimate approach based on revenue or transaction splits.

ATO Financial Services GST Guidance

The ATO has published extensive guidance on financial services GST, including:

• GSTR 2002/2: The definitive ruling on financial supplies — what is and is not a financial supply
• GSTR 2004/1: Guidance on ITCs for acquisitions related to financial supplies
• PS LA 2007/21: The ATO's compliance approach to financial supply apportionment

For bookkeepers and accountants working with financial services clients, these documents are essential reference material. The ATO also maintains a Financial Services GST team that issues private rulings on novel arrangements — fintech products and new financial instruments regularly require private rulings because they do not fit neatly into existing categories.

Practical Bookkeeping for Financial Supply Businesses

The bookkeeping obligations for a financial services business include:

1. Classification of every supply as taxable, input-taxed, or GST-free — this affects the BAS labels
2. Apportionment of acquisitions between taxable and input-taxed purposes
3. Application of RITC to eligible Division 70 acquisitions
4. Calculation of the financial acquisitions threshold each BAS period to confirm whether simplified treatment applies

In ReconLink, transactions for financial services clients should use the correct GST codes: INP (input-taxed) for financial supply income and for acquisitions with no ITC entitlement; and a specific workflow for RITC acquisitions where only 75% of the GST is claimed. Maintaining clean coding with the correct GST treatment ensures the BAS accurately reflects the entity's position and minimises overclaiming risk — which is one of the ATO's stated risk areas for the financial services sector.

Financial supply GST is one of the most complex areas of Australian tax, but for bookkeepers serving this sector, mastering the fundamentals — what is input-taxed, when RITC applies, and how to apportion — provides genuine differentiation and genuine value.