ATO Interpretative Decision

ATO ID 2004/34 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn as it is a clear application of a legislative provision and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a sole trader, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for legal expenses incurred in relation to an unfair dismissal action against a previous employer?

Decision

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act, for legal expenses incurred in relation to an unfair dismissal claim against a previous employer.

Facts

The entity carries on an enterprise in its capacity as a sole trader and is registered for goods and services tax (GST).

The entity lodged an unfair dismissal claim against a previous employer following termination of its employment.

The unfair dismissal claim was settled out of court, subject to a deed of release. The deed specified that each party was to bear their own legal costs in relation to the unfair dismissal claim. The supply of the legal services to the entity was a taxable supply under section 9-5 of the GST Act.

Reasons for Decision

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

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

•

it acquires anything solely or partly for a creditable purpose

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the supply to it is a taxable supply

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

•

it is registered or required to be registered for GST.

The first requirement in section 11-5 of the GST Act is that the entity makes the acquisition solely or partly for a creditable purpose.

Subsection 11-15(1) of the GST Act provides that an entity acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise.

The entity currently carries on an enterprise in their capacity as a sole trader. However, the entity incurred the legal expenses for their unfair dismissal claim as the result of their previous employment. The entity did not acquire the legal services in carrying on their current enterprise, they acquired them in their capacity as an employee. Paragraph 9-20(2)(a) of the GST Act states that an enterprise does not include an activity, or series of activities, done by a person as an employee. Accordingly, as the legal expenses were incurred in the entity's capacity as an employee, they were not incurred in the course of carrying on an enterprise.

As such the first requirement in section 11-5 of the GST Act is not satisfied and the entity is not making a creditable acquisition. Therefore, the entity is not entitled to any input tax credits for the legal expenses incurred in relation to the unfair dismissal claim against a previous employer.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   paragraph 9-20(2)(a)
   section 11-5
   section 11-15
   subsection 11-15(1)
   section 11-20

Keywords
Goods and services tax
GST input tax credits & creditable acquisitions
GST supplies & acquisitions
Creditable acquisition
Creditable purpose
GST enterprise
GST supply

Business Line:  GST

Date of publication:  16 January 2004

ISSN: 1445-2782