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ATO Interpretative Decision

ATO ID 2002/77

Goods and Services Tax

GST and reduced credit acquisition - brokerage services
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a trustee of a superannuation fund, making a reduced credit acquisition under subsection 70-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it engages a broker to provide brokerage services relating to the acquisition and disposal of securities?

Decision

Yes, the entity is making a reduced credit acquisition under subsection 70-5(1) of the GST Act when it engages a broker to provide brokerage services relating to the acquisition and disposal of securities.

Facts

The entity is a trustee of a superannuation fund. The entity, in its capacity as trustee for the superannuation fund, engages a broker to provide brokerage services in relation to the acquisition and disposal of securities.

A broker is a financial supply facilitator for the purposes of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

The entity is not entitled to a full input tax credit on this acquisition, as the acquisition relates to making financial supplies and the entity exceeds the financial acquisitions threshold under Division 189 of the GST Act.

The entity is registered for goods and services tax (GST).

Reasons for Decision

According to subsection 70-5(1) of the GST Act, the GST Regulations may provide that acquisitions of a specific kind, that relate to making financial supplies, can give rise to an entitlement to a reduced input tax credit. These are reduced credit acquisitions.

The table in subregulation 70-5.02(2) of the GST Regulations (the table) sets out those acquisitions that are reduced credit acquisitions.

Item 9 in the table (Item 9) provides that various services relating to the arrangement, by a financial supply facilitator, of the provision, acquisition or disposal of an interest in a security, are reduced credit acquisitions. Order placement and trade execution, clearance and settlement of trades and management of the issue of securities, including rights and bonus issues, are services that are listed under Item 9.

The services acquired by the entity involve the acquisition and disposal of securities. Therefore, the brokerage services acquired by the entity are covered by Item 9.

As such, the entity is making a reduced credit acquisition under subsection 70-5(1) of the GST Act, when it engages a broker to provide brokerage services relating to the acquisition and disposal of securities.

[Note: Item 27 in the table (Item 27) lists supplies for which financial supply facilitators are paid commission by financial supply providers. Where the broker is paid a commission, the entity may also be making a reduced credit acquisition under Item 27.
Under subregulation 70-5.02(1) of the GST Regulations, an acquisition mentioned in subregulation 70-5.02(2) of the GST Regulations that relates to making financial supplies gives rise to an entitlement to a reduced input tax credit. To be entitled to a reduced input tax credit for a reduced credit acquisition, the entity must still make a creditable acquisition under section 11-5 of the GST Act. To make this possible, section 70-10 of the GST Act extends the meaning of 'creditable purpose' for reduced credit acquisitions. Where the entity makes a creditable acquisition of the reduced credit acquisition the amount of the reduced input tax credit is 75% of the GST payable on the supply of the brokerage services (subsection 70-15(1) and subsection 70-5(2) of the GST Act, and regulation 70-5.03 of the GST Regulations).]

Date of decision:  30 August 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 11-5
   subsection 70-5(1)
   subsection 70-5(2)
   section 70-10
   subsection 70-15(1)
   Division 189

A New Tax System (Goods and Services Tax) Regulations 1999
   subregulation 70-5.02(1)
   subregulation 70-5.02(2)
   subregulation 70-5.02(2) table item 24
   subregulation 70-5.02(2) table item 24(h)
   regulation 70.5.03

Related ATO Interpretative Decisions
ATO ID 2002/74
ATO ID 2002/75
ATO ID 2002/76
ATO ID 2002/78

Keywords
Goods & services tax
Reduced credit acquisitions
Input taxed supplies
GST financial supplies

Business Line:  GST

Date of publication:  25 January 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 30 August 2001 Original statement
  30 September 2005 Archived

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