Show download pdf controls
  • Issue 2 Input tax credits

    2.1 How will a supplier under a long-term contract confirm the input tax credit status of a recipient?

    This question is answered in paragraphs 192 - 200 of GST ruling GSTR 2000/16External Link. The relevant paragraphs are reproduced below.

    Supplier's responsibility

    192. For agreements made on or after 2 December 1998 but before 8 July 1999, the supplier needs to ascertain whether the recipient would be entitled to a full input tax credit. This is because the entitlement affects whether the agreement satisfies subsection 13(1) and, therefore, whether the supply made is GST-free under section 13. In addition, for agreements made before 2 December 1998, if a review opportunity arises on or after 2 December 1998 but before 8 July 1999, it will be necessary for the supplier to establish the recipient's entitlement to a full input tax credit for the supply. This is because the entitlement determines the relevant date for the purposes of paragraph 13(2)(b) and therefore whether the review opportunity has arisen on or after the relevant date.

    193. Subsection 13(4) does not specify a time at which the supplier is required to establish the recipient's entitlement to a full input tax credit for the supply. However, the words 'would be entitled' indicate that the test is to be applied to the position at the time of making the agreement. The supplier should establish whether the recipient would have been entitled to a full input tax credit for the supply if the law applying at the time the first supply is made on or after 1 July 2000 had applied at the time the agreement was made.

    194. The supplier is only required to establish the recipient's entitlement to a full input tax credit on a once only basis. In the case of an agreement that provides for supplies to be made progressively or for a period, the supplier is not required to establish the entitlement of the recipient to a full input tax credit on an ongoing basis. It is sufficient if the supplier has established this by the time the first Business Activity Statement ('BAS') is made after 1 July 2000.

    195. The supplier should take reasonable steps to ascertain whether the recipient would be entitled to a full input tax credit and have reasonable grounds for deciding the recipient is entitled to a full input tax credit. In a case where the recipient was not actually entitled to a full input tax credit, if a supplier can demonstrate it had reasonable grounds for concluding the recipient would be entitled to a full input tax credit, the Commissioner will not amend the supplier's liability for GST to the extent that the supply under the agreement has already been made.

    196. What is reasonable will depend on all the circumstances. In most cases this will require the supplier to ask the recipient whether or not it would be entitled to a full input tax credit for the supply. If the supplier obtains a written statement from the recipient stating the recipient's entitlement to a full input tax credit, this will constitute reasonable grounds for deciding the application of section 13, unless the supplier has reason to believe the information is incorrect. If the supplier is unable to obtain this information from the recipient, the supplier will need to satisfy itself that the recipient is entitled to a full input tax credit for the supply before treating it as GST-free. In some situations, it may be possible to ascertain from the nature of the supply that the recipient is not entitled to an input tax credit eg a supply of residential premises by way of lease covered by section 40-35 of the GST Act is input taxed and not a taxable supply, therefore the recipient is not entitled to an input tax credit. Also, if not registered for GST, the recipient is not entitled to an input tax credit.

    197. As the establishment of the recipient's entitlement to a full input tax credit is a once only test, a change of parties in circumstances where section 13 can still apply will not have consequences for agreements made on or after 2 December 1998 and before 8 July 1999.

    Example

    198. Luke makes a written agreement with Douglas on 1 February 1999 for Douglas to supply commercial premises under a lease for a three-year period. The agreement does not contain a review opportunity. Under the circumstances which existed when the agreement was made, Luke will be entitled to a full input tax credit for the supply made on or after 1 July 2000 under the law which applies at the time the supply is made. Therefore section 13 will apply to the agreement.

    199. On 1 August 2000 Luke assigns his rights and obligations under the agreement to Ebony who is not registered or required to be registered for GST and is therefore not entitled to an input tax credit for the supply. The assignment does not create a new agreement.

    200. As establishment of the recipient's entitlement is a once only test relevant to the circumstances at the time of making the agreement, the supply to Ebony will continue to be GST-free.

    2.2 What are the circumstances in which the Tax Office will consider that a supplier has acted in a manner to sufficiently establish the input tax credit entitlement of the recipient?

    To establish the entitlement of the recipient of a car for a disabled person

    Taxpayers will always need some reasonable basis on which to conclude that an acquisition is creditable. However, what is reasonable will depend on the circumstances. For small purchases, it is obviously inappropriate for purchasers to conduct extensive investigations.

    For purchases over $55 (GST-inclusive), it would be appropriate to expect a more careful review by the purchaser of a tax invoice for compliance with the requirements than for very small purchases.

    If registration for GST is a significant enough issue for the recipient, they will be able to find out if the supplier is GST-registered from the Australian Business Register.

    Small purchases

    In most cases, establishing credit entitlement for small purchases will simply be a matter of obtaining a receipt. Many receipts will satisfy the tax invoice requirements even if the value of the supply is less than $50, as suppliers would normally supply a standard form of receipt or docket that meets the tax invoice requirements.

    A purchaser may be able to ascertain entitlement to a credit for an acquisition through a course of dealing with a particular supplier. Where the purchaser has previously obtained tax invoices for other purchases of a larger value, it would be reasonable to conclude that an input tax credit can be claimed.

    In many cases, this may be a matter of simply asking the supplier whether you can claim a credit. If a supplier says that GST is payable on the supply, a recipient will be entitled to rely on that unless s/he has reason to suspect something is amiss (such as an ABN with the wrong number of digits)

    2.3 Can an employer claim input tax credits for expenses incurred on behalf of a superfund?

    Under the GST Act, input tax credits are available to a registered entity in relation to supplies acquired in the course of carrying on its enterprise. Where employers have made acquisitions that are used in carrying on the superannuation fund, under the GST Act the employer will not necessarily be entitled to input tax credits in relation to those acquisitions.

    The superannuation fund is a separate entity and enterprise to that of the employer. Where an employer incurs expenses on behalf of the superannuation fund, the employer is not entitled to input tax credits for GST included in the expenses. These amounts paid on behalf of the superannuation fund by the employer are not acquired in carrying on the employer's enterprise.

    Where the employer makes taxable supplies of services to the superannuation fund, the employer will be entitled to input tax credits in relation to acquisitions that relate to making that supply or that are otherwise acquired by the employer for a creditable purpose. The superannuation fund may be entitled to reduced input tax credits on the GST included in the price of these services.

    2.4 Entities on a cash basis who enter into a hire purchase agreement after 1 July 2000

    How do they claim input tax credits on the monthly payments where the principal component of each payment varies on each instalment? Does the financier have to provide this schedule in advance?

    Where the amount of interest/principal component is known

    If the financier provides regular accounts or statements that shows the interest/principal component for every the instalments, then the entities must use the statement as the basis for calculating their entitlement to input tax credits. Estimating the amount of input tax credit is not acceptable.

    Financiers' method of calculation is known

    Where the method used by the financiers for calculating the interest/principal component for their GST purposes is known, then it is expected that the same method should also be adopted by the entities.

    Where the amount of interest/principal component is not known

    If the entities have taken all reasonable steps to obtain the break down of the principal/interest component for every instalment and cannot obtain the information from the financiers, it is acceptable for the entities to estimate the interest/principal component based on methods acceptable for income tax purposes. Income Tax Ruling TR93/16 provides the following methods for calculating the interest/principal components:

    Rule 78;
    Straight line; and
    Actuarial method.

    The method used for estimating the interest/principal components must be consistently applied for income tax and GST purposes by the entities.

    2.5 Input tax credits and income tax deductions

    Contributed by NIA

    Where an input tax credit (ITC) is not claimed, it appears that no income tax deduction is available for the portion of the expense that would otherwise be an input tax credit. It is a fairly common practice that some taxpayers either cannot get a tax invoice, or choose not to claim an input tax credit, that they believe the whole of the amount is deductible. This issue needs some statement from the ATO. Whilst it sounds inherently unfair, it is the ATO's position that such input tax credits should not be deductible where the taxpayer is entitled to an ITC. This approach should be spelt out clearly to clients and practitioners.

    ATO response

    Section 27-5 of the Income Tax Assessment Act 1997 provides that you cannot deduct an amount for a loss or outgoing you incur to the extent that the loss or outgoing includes an amount relating to an input tax credit to which you are entitled or decreasing adjustment which you have. The entitlement to claim exists whether or not, or in which tax period, you choose to claim an input tax credit for GST purposes.

    This issue is covered in the return form instructions for 2001 as follows:

    Where GST is payable in relation to income, the GST must be excluded from the income derived. Deductions are reduced by the input tax credit entitlement. If you are not registered or required to be registered for GST purposes or not entitled to claim input tax credits, then your income and deductions are not adjusted for GST. You claim the GST-inclusive amount incurred on outgoings. Special rules apply to GST adjustments.

    This text appears in the company instructions but similar texts appear in other return form instructions. In addition, the October publication "How to keep your business records" explains the nature of the records you need to keep for both income tax and GST/BAS purposes, and such records would be sufficient for entities to establish their input tax credit entitlements.

    A tax invoice is the primary document that taxpayers can rely on to establish a claim for an input tax credit, except in the case of small expenses, or certain situations where the Tax Office will accept other documents. A taxpayer may also request a tax invoice for a taxable supply and the supplier is obliged to comply within 28 days of the request.

    The lead times between the end of the financial year and the due date for lodging returns (3 months for self preparers) are much longer than the 21 days after the end of a quarter within which taxpayers need to lodge their BAS. Consequently, we do not envisage that taxpayers who take reasonable care to retain adequate records would have difficulties with establishing their input tax credit entitlements in time.

    2.6 Input tax credits and income tax deductions

    If someone enters into a luxury car lease for income tax purposes the lessee is deemed to have acquired the car. Does this impact on who can claim the input tax credit for GST purposes?

    Also are there any restrictions on the claiming of input tax credits on the lease payments for a luxury car. Again for income tax purposes the lease payments are only deductible on the finance charge component however the lessee can claimed depreciation up to the luxury car limit.

    Contributed by TPA

    ATO response

    Subject to section 20 of the GST Transition Act, when an entity (lessor) acquires a luxury car for the purpose of leasing, the GST input tax credits available will be restricted to 1/11 of the car depreciation limit in accordance with section 69-10 of the GST Act. Generally, section 20 (as amended) denies input tax credits on new motor vehicles acquired on or before 22 May 2001.

    However these restrictions do not apply when a car is acquired by way of lease - paragraph 69-10 (4)(b).

    Therefore when an entity acquires a luxury car by way of lease, input tax credits for the GST included in the lease payments are available to the extent that it is a creditable acquisition.

    2.7 GST and income tax deductibility - depreciation

    Contributed by NTAA

    If Jim buys a computer for $11,000 which he uses 50% for business purposes, is his depreciation claim based on a 'cost' of $10,500 ($11,000 less input tax credit of $500) or $10,000? The cost to Jim should be $10,500 as s.27-20 ITAA indicates the amount paid for the computer is only reduced by the input tax credit claimed of $500.

    ATO response

    In general terms, Division 42 provides a deduction for depreciation for a unit of plant owned and used by a taxpayer for the purpose of producing assessable income.

    The deduction is calculated under Subdivision 42-E by reference to the cost of the plant determined under Subdivision 42-B. 'Cost' under the subdivision is generally 'cost to you' modified by specific provisions. The deduction is reduced to the extent that the item is used for a purpose other than the production of assessable income.

    In calculating depreciation under Division 42 the following adjustments are made for input tax credits.

    Applying Section 27-20 reduces the depreciation deduction by reducing amounts paid or payable by the amount of any input tax credit. That section provides:

    "27-20 Elements in calculation of amounts

    In calculating an amount that you may be able to deduct:

    (a) an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any input tax credit for an acquisition related to the amount paid or payable, or any decreasing adjustment related to that amount; and

    (b) an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any GST payable on a taxable supply related to the amount received or receivable, or any increasing adjustment related to that amount."

    As a result 'cost' paid or payable, being an element in the calculation of depreciation, is reduced by the amount of any input tax credit to which the taxpayer is entitled. This reduced cost is then used (directly or indirectly) in the calculation of an amount of depreciation using either of the diminishing value or prime cost methods (sections 42-160 and 42-165).

    Section 42-170 then reduces the deduction calculated to the extent that the item of plant is not used to produce assessable income.

    In the example $10,500 is the cost to be used in calculating the depreciation deduction.

    Subdivision 27-B has a similar effect in its application to depreciating assets and expenditure for which amounts may be deducted under Divisions 40 and 328.

    2.8 GST and income tax deductibility where cents per km used

    Contributed by NTAA

    Issue 35 refers to the interaction between s.8-1 and s.27-5 ITAA 1997. But what is the quantum of the tax deduction available to a GST registered taxpayer where a car is used partly for business purposes and partly for private purposes and the claim for a tax deduction is calculated under subdivision 28-C ITAA 1997?

    For example:

    Alice is a GST registered sole trader. Alice drives her 2000cc car 3,000 business kilometres during the 2001 income year. This is also the estimated number of kilometres travelled for a creditable purpose so she has used as her extent of creditable purpose 15%, in accordance with the set rate method in GST Bulletin GSTB 2000/2, when claiming input tax credits relating to her car expenses.

    Is Alice's deduction for income tax purposes $1,755 (3,000 x 58.5 cents) or must she reduce it by the input tax credit claimed for GST purposes?

    Alice's deduction is claimable under subdivision 28-C and not section8-1 of the ITAA 1936. Her deduction is based on a statutory formula and not the amount of loss or outgoing she incurred. Therefore, section27-5 does not reduce her deduction by any amount of input tax credit. Moreover, there is no element in the calculation of Alice's deduction under subdivision 28-C that includes an amount that relates to an input tax credit. Therefore, section 27-20 cannot reduce any motor vehicle claim under subdivision 28-C by the amount of input tax credit claimed for GST purposes.

    ATO response

    There is no provision under Division 27 which could operate to reduce a claim made by a GST registered taxpayer under section 28-25.

    2.9 GST and compulsory third party insurance

    Issue

    There is currently a provision denying input tax credits (ITC's) in connection with compulsory third party insurance premiums that are paid. That denial expired on 1 July 2003. Is there an intention to change that expiry date?

    Apparently the law has been amended to make it clearer when an ITC can be claimed after 1 July 2003 in the Tax Laws Amendment Bill No. 6.

    ATO response

    Section 23 of the A New Tax System (Goods and Services Tax Transition) Act 1999 sets out a transitional rule that applies to Compulsory Third Party (CTP) Insurance.

    Section 23 was recently amended by Taxation Laws Amendment Act (No. 1) 2003, which was introduced in the House of Representatives as Taxation Laws Amendment Bill (No. 6) 2002. Previously, the section removed any entitlement to an input tax credit where the premium or similar payment was paid before 1 July 2003. The section now reads:

    23. Input tax credits relating to compulsory third party schemes

    1. You are not entitled to an input tax credit for:

    (a) a premium, contribution or similar payment made under, or a levy paid in connection with, a compulsory third party scheme, if the premium, contribution or similar payment relates to a period commencing before 1 July 2003; or

    (b) a premium paid, in respect of a period of cover commencing before 1 July 2003, on an insurance policy issued under a compulsory third party scheme.

    (1AA) It does not matter, for the purposes of subsection (1), whether the payment occurred before, on or after 1 July 2003.

    (1A) If, because of subsection (1), you are not entitled to an input tax credit for an acquisition you make, section 29-70 of the GST Act (which is about tax invoices) does not apply in relation to the supply to which the acquisition relates.

    2. A compulsory third party scheme is:

    (a) a statutory compensation scheme; or

    (b) a scheme or arrangement, established by an Australian law, under which insurance policies are issued;

    that is specified in the regulations, or that is of a kind specified in the regulations.

    Two important points are to be noted.

    Firstly, there has been no change to the critical date of 1 July 2003; merely, what needs to occur before 1 July 2003 for the section to operate has changed.

    Whether the Government intends to change the critical date is a matter of policy, which is the preserve of the Commonwealth Department of the Treasury. As such, the Commissioner considers it inappropriate to comment on such matters.

    Secondly, there remains no 'to the extent rule' or 'apportionment rule'. That is, if the premium or similar payment relates to a period commencing before 1 July 2003, or the premium is in respect of a period of cover under an insurance policy that commences before 1 July 2003, there is no entitlement to an input tax credit, irrespective of whether part of the period may extend beyond 1 July 2003.

    2.10 GSTR 2003/13 and partnerships and ITCs

    Issue

    The ICAA refers to paragraphs 28 to 30 of GSTR 2003/13 (dealing with supplies and acquisitions in the capacity as partner), and to paragraphs 114 and 117 of that Ruling (dealing with tax invoice requirements) and asks the following additional questions which challenge the need for the Commissioner to exercise his discretion under subsection 29-70(1) to treat the tax invoice issued to the partner as a tax invoice issued to the partnership, as suggested in paragraph 117 of GSTR 2003/13.

    1. If the tax invoice contains the name of only one partner can the partnership claim an input tax credit for that acquisition on the basis that subsection 184-5(1)(b) treats an acquisition made by a partner as an acquisition made by the partnership?

    2. Furthermore, if the partner is reimbursed by the partnership for this expense then wouldn't subsection 111-5(1)(c) treat the reimbursement as consideration for an acquisition by the partnership from the partner and allow the partnership to claim the input tax credit for this acquisition?

    3. In paragraph 30 of GSTR 2003/13 it is stated that one factor indicating that an acquisition is made by a partner in that capacity includes an acquisition paid for out of partnership profits or from a partnership account. Does this mean out of the profit distributed to the partner or out of the revenue of the business before the profit is distributed to each of the partners? Does it mean paid as an expense from a partnership account or paid as a distribution of profits from a partnership account?

    ATO response

    1. Tax invoices

    Subsection 184-5(1) provides that a supply, acquisition or importation made by or on behalf of a partner of a partnership in his or her capacity as a partner is taken to be a supply, acquisition or importation made by the partnership and is not taken to be a supply, acquisition or importation made by that partner or any other partner. That subsection does not deal with the information that a tax invoice should contain. Regulation 29-70 sets out the additional information, (additional to the information required under subsection 29-70(1) of the GST Act) that should be contained in a tax invoice.

    Where an acquisition is made by a partner in their capacity as a partner, there are, in some cases, no indications on an invoice that the acquisition was made by the partner in that capacity. Thus, the appearance of only the partner's name on the tax invoice may not reflect the acquisition as an acquisition of the partnership.

    Given the specific name requirements in subregulation 29-70.01(2), and to remove any doubts about the capacity of partnerships to claim ITCs for acquisitions made by a partner as a partner, in circumstances where the name requirements were not strictly complied with, the Commissioner considered it prudent to exercise the discretion under subsection 29-70(1) of the GST Act. In our view, this provides greater certainty to partnerships and partners about the entitlement of the partnership to input tax credits in respect of acquisitions made by its partners as partners.

    The relevant section of the general law partnership rulings, GSTR 2003/13, (paras 114-116 below) notes, therefore, the requirements of the regulations and the exercise of the Commissioner's discretion to so allow a partnership to claim an input tax credit where a tax invoice has been issued to a partner under his or her name only, and where that partner has been acting in the capacity of partner of the partnership.

    Acquisitions by the partnership

    • 114. In most cases, where a partner makes a creditable acquisition in the capacity as a partner, the partnership must hold a tax invoice to claim an input tax credit. If the tax invoice is for supplies totalling $1,000 or more, Regulation 29-70.01 requires that it contains the name, and either the address or ABN of the recipient. Where the recipient is a partnership, the details required will be the name of the partnership and either its address or ABN. The name requirement will be met if the tax invoice shows the names of all the partners, or the business or trading name.
    • 115. However, there may be occasions when a document issued to the partnership as a tax invoice is for a total amount payable of $1,000 or more, but contains only the name of a partner. The Commissioner exercises his discretion under subsection 29-70(1) to treat the document as a tax invoice if it contains the name of a partner instead of the partnership, but otherwise complies with subsection 29-70(1). This gives practical effect to the operation of subsection 184-5(1), and provides a result which is consistent with the treatment of tax invoices relating to reimbursements, discussed in paragraphs 110 to 113 above.
    • 116. Where the tax invoice shows a total amount payable of less than $1,000, the fact that it shows the name of a partner and not the name of the partnership will make no difference. The name of the recipient is not a requirement for tax invoices for this amount.

    2. Reimbursements

    Where a partner makes an acquisition in a capacity other than his or her capacity as partner of the partnership, but which is for an expense that is directly related to his or her activities as partner of the partnership, section 184-5 will not apply. However, if the partnership subsequently reimburses the partner, the partnership may become entitled to an input tax credit in respect of that acquisition under Division 111. The relevant section of GSTR 2003/13 is noted below:

    • Reimbursements
      • 110. A partner making an acquisition in relation to the enterprise of the partnership ordinarily makes it in the capacity as partner. However, partners may incur expenses that are directly related to their activities as partners of the partnership, but not actually incurred in their capacities as partners. An example is a partner making calls from a private telephone to partnership clients.
      • 111. When the partnership reimburses the partner for the expense, Division 111 treats the reimbursement as consideration for an acquisition that the partnership makes from the partner. This Division allows registered entities to claim input tax credits on certain acquisitions made by their employees, agents, officers or partners where such expenses are reimbursed. A registered partnership is entitled to an input tax credit if the requirements of Division 111 are satisfied.
      • 112. One of the requirements of this Division is that the supply to the partner must be taxable. The partner needs to provide the partnership with the tax invoice (except where the value is $50 or less) it obtained for this supply, as the partnership may claim an input tax credit if it holds this tax invoice.
      • 113. Where a partner makes an acquisition and is acting in the capacity as a partner of the partnership, the acquisition is taken to be by the partnership. The question of reimbursements in this instance will not arise (see subsection 111-5(3A)).
       

    In these circumstances, it is unlikely that any invoice that the partner has obtained will be in the name of the partnership. More usually, it will be in the partner's name only. Where the partnership holds a tax invoice in the name of that partner only, it will be possible for the partnership to claim an input tax credit under Division 111 provided that all the other requirements of Division 111 are met. GSTR 2000/17, which deals with tax invoices, specially notes that invoices that are in the name of the officer who is reimbursed will be acceptable for this purpose. The relevant part of the ruling is reproduced below:

    • Reimbursements
      • 73. Division 111 has special rules covering the situation where you reimburse an employee, an officer of a company or a partner for an expense they incur for an acquisition directly related to that position.
      • 74. Providing the requirements of the Division are met, the reimbursement is treated as consideration for an acquisition you make from that person. 16 You may claim the input tax credit for a creditable acquisition if you hold the tax invoice that was issued to the person you reimbursed. 17 The tax invoice may identify that person and not you as the recipient of the taxable supply.
       

    3. Partnership profits

    Paragraph 30 of GSTR 2003/13 is intended to indicate some factors that might show that partners are acting in their capacity as partners. In the context of that paragraph, the reference to 'profits' is intended to be read in a wider sense to refer to moneys coming into the partnership. Thus the meaning to be attributed to 'paid out of partnership profits' in paragraph 30 of GSTR 2003/13 is 'paid as an expense out of the revenue of the business'.

    2.11 Communication strategies about input tax credits for luxury car lease payments

    Issue

    There appears to be an element of confusion in regard to the claiming of input tax credits for Luxury Car lease payments amongst taxpayers and some ATO officers.

    Section 69-10 (c) of the GST Act outlines the limit for claiming input tax credits in regard to luxury cars. However, it does not specifically refer to car lease payments.

    This issue of car lease payments however was raised at a Tax Practitioner Industry Partnership Forum (TPIPF) meeting and published on the website as item 2.6 as follows:

    • '2.6 Input tax credits and income tax deductions
    • If someone enters into a luxury car lease for income tax purposes the lessee is deemed to have acquired the car. Does this impact on who can claim the input tax credit for GST purposes?
    • Also, are there any restrictions on the claiming of input tax credits on the lease payments for a luxury car? Again for income tax purposes the lease payments are only deductible on the finance charge component however the lessee can claimed depreciation up to the luxury car limit.'

    In our view there appears to be a lack of awareness on this issue by both taxpayers and some ATO officers. The ICAA recommend that the ATO incorporate some clarity on this issue in their GST and Motor Vehicles - Fact Sheet or another appropriate product.

    ATO response

    Please refer to issue 7.5.b. on the Motor Vehicle Industry Partnership - Issues Register for the ATO response to this issue.

    2.12 ITC claim after deregistration

    Issue

    A supply is made by a GST registered taxpayer to a GST registered purchaser. Both the supplier and the recipient account for GST on a cash basis and treat the supply as if it were not a taxable supply (for example, because they believed that the supply was GST-free). The Tax Office audits the supplier and advises that the supply was a taxable supply and that GST is now payable. As a result of this audit, the supplier issues the recipient with a tax invoice. The recipient has since deregistered.

    Questions

    1. Is the recipient entitled to an input tax credit for the acquisition it made whilst it was registered?

    (a) If yes, to which tax period is the input tax credit attributable?

    (b) What is the procedure to claim the input tax credit?

    Discussion

    At the time of the acquisition by the recipient, all the requirements for that acquisition to be a creditable acquisition were met. S29-10(3) of the GST Act provides that the input tax credit cannot be attributed to a tax period if no tax invoice is held. At the time the recipient first held a tax invoice, they were no longer registered for GST. If they are no longer registered and are not lodging activity statements, there is no obvious way to claim the input tax credits.

    ATO response

    Based on the facts provided, the purchaser is not entitled to claim an input tax credit for the acquisition it made whilst it was registered. This is because the input tax credit is not attributable to a tax period. As the purchaser is neither registered, nor required to be registered, it does not have tax periods applying to it and therefore, does not have a 'net amount' for the periods after it has cancelled its registration.

    An entity whose registration has been cancelled may still have acquisitions and importations for which entitlements to input tax credits have arisen. In these circumstances, section 138-15 of the GST Act may allow amounts of GST, input tax credits and adjustments that have not been attributed to a previous tax period to be attributed to the entity's concluding tax period.

    Subsection 138-15(1) states that the input tax credit to which you are entitled for a creditable acquisition is attributable to a particular tax period, and no other, if:

    (a) during the tax period, your registration is cancelled, and

    (b) immediately before the cancellation, you were accounting on a cash basis, and

    (c) the input tax credit on the acquisition was not attributable, to any extent, to a previous period during which you accounted on a cash basis, and

    (d) it would have been attributable to that previous tax period had you not accounted on a cash basis during that period.

    The tax period in which you cease to be registered is your concluding tax period. You must attribute any amounts of GST, input tax credits or adjustments that you have not yet accounted for and for which you hold a tax invoice to your concluding tax period. If a recipient does not hold a tax invoice at the time it ceases to be registered and has completed the activity statement for its concluding tax period, it cannot attribute input tax credits to the concluding period.

    The normal attribution rules in the GST legislation do not allow for the claiming of an input tax credit where a tax invoice is not held (subsection 29-10(3) of the GST Act). Therefore, if an entity receives a tax invoice for a creditable acquisition it made whilst registered, but the tax invoice is not received until after the entity deregisters; the GST legislation does not provide any provisions that allow the entity to claim an input tax credit.

    The Commissioner has a discretion under subsection 29-70(1) of the GST Act to treat a document as a tax invoice that does not meet the tax invoice requirements. Whether or not the Commissioner would exercise his discretion to treat a document that is not a tax invoice as a tax invoice in circumstances where a recipient's registration is cancelled before they hold a tax invoice would be decided on a case by case basis. The Tax Office would need to look at documents the recipient did hold at the time their registration was cancelled and assess other relevant factors before determining whether it was appropriate to exercise this discretion.

      Last modified: 22 May 2014QC 28063