ATO Interpretative Decision

ATO ID 2001/555

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can the entity, that is not registered nor required to be registered for goods and services tax (GST), claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for the GST inclusive amount of acquisitions made in gaining or producing assessable income?

Decision

Yes, the entity, that is not registered nor required to be registered for GST, can claim a deduction under section 8-1 of the ITAA 1997 for the GST inclusive amount of acquisitions made in gaining or producing assessable income.

Facts

The entity is not registered nor required to be registered for GST. The entity makes an acquisition. The acquisition is a loss or outgoing that satisfies subsection 8-1(1) of the ITAA 1997. The supply to the entity is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The acquisition is not a loss or outgoing of capital or of a capital nature or of a private or domestic nature. The loss or outgoing is not incurred in gaining or producing exempt income.

Reasons for Decision

An entity can claim a loss or outgoing as a deduction under section 8-1 of the ITAA 1997 if the loss or outgoing meets the requirements in subsection 8-1(1) of the ITAA 1997 and is not excluded by subsection 8-1(2) of the ITAA 1997.

Subsection 8-1(1) of the ITAA 1997 provides that an entity can deduct from its assessable income any loss or outgoing to the extent that:

•

it is incurred in gaining or producing its assessable income; or

•

it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

The entity's acquisition meets the requirements of subsection 8-1(1) of the ITAA 1997.

However, subsection 8-1(2) of the ITAA 1997 provides that an entity cannot deduct a loss or outgoing under section 8-1 of the ITAA 1997 to the extent that :

•

it is a loss or outgoing of capital, or of a capital nature; or

•

it is a loss or outgoing of a private or domestic nature; or

•

it is incurred in relation to gaining or producing exempt income; or

•

a provision of the ITAA 1997 prevents the entity from deducting it.

The entity's acquisition is not a loss or outgoing of capital or of a capital nature or of a private or domestic nature. Additionally, the loss or outgoing is not incurred in gaining or producing exempt income. Therefore, it is necessary to consider whether the entity is prevented from deducting the GST inclusive amount by another section of the ITAA 1997.

Division 27 of the ITAA 1997 sets out the effect of GST in working out an entity's deductions. Section 27-5 of the ITAA 1997 provides that an entity cannot deduct, under the ITAA 1997, a loss or outgoing it incurs, to the extent that the loss or outgoing includes an amount relating to an input tax credit to which it is entitled or a decreasing adjustment that it has.

In order to determine whether the entity is entitled to an input tax credit or has a decreasing adjustment for the loss or outgoing, consideration must be given to the GST Act.

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes. Under section 11-5 of the GST Act, an entity makes a creditable acquisition if:

•

it acquires anything solely or partly for a creditable purpose; and

•

the supply of the thing to it is a taxable supply; and

•

it provides, or is liable to provide, consideration for the supply, and

•

it is registered or required to be registered for GST.

In order to make a creditable acquisition, all of these requirements must be met. The entity is not registered for GST nor is it required to be registered for GST. As such, it is not making a creditable acquisition under section 11-5 of the GST Act. Therefore, the entity is not entitled to an input tax credit for the GST component of the loss or outgoing.

Additionally, as the entity is not registered or required to be registered for GST, it would not have a decreasing adjustment under the GST Act.

Therefore, as the entity is not entitled to an input tax credit nor does it have a decreasing adjustment, section 27-5 of the ITAA 1997 does not apply. The entity can claim a deduction under section 8-1 of the ITAA 1997 for the GST inclusive amount of acquisitions made in gaining or producing assessable income.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-5
   section 11-20

Keywords
Goods & services tax
GST net amount and adjustments
Adjustments
GST supplies & acquisitions
Creditable purpose
Deductions and expenses
Income tax

Business Line:  GST

Date of publication:  3 November 2001

ISSN: 1445-2782