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Mergers and acquisitions – claiming input tax credits

The entitlement of an entity to claim input tax credits for acquisitions associated with merger and acquisitions activity.

Last updated 11 April 2017

This information explains how entities can claim input tax credits for acquisitions associated with merger and acquisition (M&A) activity.

It is designed primarily for tax managers and tax practitioners who have a working knowledge of GST.

What we mean by M&A

References to M&A in this information include takeovers and mergers of companies, as well as the sale and purchase of business assets (including goodwill). M&A activity refers to any of the steps that lead up to an M&A transaction. This includes activities where the intended M&A transaction does not eventuate.

M&A may consist of several different supplies for GST purposes. For example, in addition to the sale of shares or business assets, there may be supplies associated with corporate restructuring, capital raising, divestments or share buy-backs.

Assumptions we have made

For the purpose of this information, it is assumed that apart from determining if the acquisition relates to input taxed supplies, all the other requirements for creditable purpose and claiming input tax credits are met. It is also assumed that the entity incurring the cost of the acquisition is the entity making the acquisition and the entity undertaking the M&A activity.

This information does not address reduced input tax credits for acquisitions that relate to making financial supplies, and, unless specifically mentioned, it does not address circumstances where GST-free financial supplies may occur.

See also  

  • Apply for a private ruling
  • GSTR 2008/1:Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? - paragraphs 149 to 196 may be of particular assistance in the context of M&A
  • GSTR 2002/2: Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions - paragraphs 266-274 may be of particular assistance in the context of M&A
  • GSTD 2012/3: Goods and services tax: does an adjustment for a change in extent of creditable purpose necessarily arise for services acquired in relation to a proposed merger and acquisition transaction that does not eventuate, or that does not proceed in the manner contemplated at the time the services were acquired?

Understand the difficulties of determining the extent of creditable purpose on related acquisitions.

Information on the 3 broad phases in mergers and acquisitions activity.

Factors that determine whether an acquisition is for a creditable purpose and an input tax credit can be claimed.

Services or things which are related to the operation of the newly merged business and not to the transaction itself.

Penalties may apply for incorrectly claiming input tax credits.

Some acquisitions made in the course of M&A may be used for a different purpose than intended.