ATO Interpretative Decision

ATO ID 2001/444

Goods and Services Tax

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

Issue

Is the entity, a unit trust, entitled to claim any input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it pays a brokerage fee for brokerage services?

Decision

Yes, the entity is entitled to claim input tax credits under section 11-20 of the GST Act when it pays a brokerage fee for brokerage services.

Facts

The entity is a unit trust. The entity invests in shares in the course of its enterprise. In the course of these activities, the entity acquires brokerage services and pays a brokerage fee that includes an amount for goods and services tax (GST) on the supply of those brokerage services.

The supply of the brokerage services to the entity is a taxable supply under section 9-5 of the GST Act.

The entity is registered for GST. The entity calculates that over a 12-month period, it will have spent a total of $550 000 on acquisitions in carrying on its enterprise.

The entity's total input tax credits over the 12-month period is $50 000.

The provision, acquisition or disposal of an interest in shares is a financial supply under item 10 in the table in subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

The entity calculates that $22 000 of the $550 000 would be spent on brokerage services and other acquisitions relating to making financial supplies (these amounts do not include acquisitions relating to a borrowing).

All the acquisitions arise from taxable supplies that are made to the entity.

Reasons for Decision

Section 11-20 of the GST Act provides that an entity is entitled to the input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act sets out the requirements that must be satisfied for an acquisition to be a creditable acquisition. An entity makes a creditable acquisition if:

(a)

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

(b)

the supply to it is a taxable supply; and

(c)

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

(d)

it is registered or required to be registered.

In this case, the requirements in paragraphs (b) to (d) are met. As such, it is necessary to determine whether the entity acquired the brokerage services, partly or solely, for a creditable purpose (paragraph 11-5(a) of the GST Act).

Under subsection 11-15(1) of the GST Act, an entity acquires a thing for a creditable purpose to the extent that it is acquired in carrying on its enterprise. An acquisition is not made for a creditable purpose to the extent that it relates to making supplies that would be input taxed (paragraph 11-15(2)(a) of the GST Act). However, subsection 11-15(4) of the GST Act provides that an acquisition is not treated as relating to supplies that would be input taxed if the only reason it would be input taxed is because it relates to making financial supplies; and the entity does not exceed the financial acquisitions threshold.

The provision, acquisition or disposal of an interest in shares is a financial supply under item 10 in the table in subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). In this case, the entity is making financial supplies as it invests in shares in the course of its enterprise. Further, the entity acquires the brokerage services in the course of these activities. Therefore, in determining whether the entity is entitled to claim any input tax credits when it pays a brokerage fee for brokerage services, it is necessary to determine whether the entity exceeds the financial acquisitions threshold.

Under Division 189 of the GST Act, an entity exceeds the financial acquisitions threshold if it has made, or is likely to make, financial acquisitions where the input tax credits related to making those acquisitions would exceed either or both:

•

$50 000 or such other amount specified in the GST Regulations (first limb test) (paragraphs 189-5 (1)(a) and 189-10(1)(a) of the GST Act); or

•

10% of the total amount of input tax credits to which it would be entitled (second limb test) (paragraphs 189-5(1)(b) and 189-10(1)(b) of the GST Act).

An entity determines whether it exceeds the financial acquisitions threshold in a given month based on its acquisitions in:

•

that month and the previous 11 months (subsection 189-5(1) of the GST Act); and

•

that month and the next 11 months (subsection 189-10(1) of the GST Act).

Financial acquisition is defined in section 189-15 of the GST Act to mean an acquisition that relates to the making of a financial supply (other than a financial supply consisting of a borrowing).

The entity calculates that over a 12-month period, it will have spent a total of $550 000 on acquisitions in carrying on its enterprise, with a total input tax credit of $50 000. Further, the entity calculates that $22 000 of the $550 000 would be spent on brokerage services and other acquisitions relating to making financial supplies. The amount of input tax credits to which the entity would be entitled for its financial acquisitions is $2 000. This amount is less than $50 000. As such, the entity does not exceed the financial acquisitions threshold under the first limb test.

The entity does not exceed the financial acquisitions threshold under the second limb test as the amount of input tax credits to which the entity would be entitled for its financial acquisitions is 4% ($2 000/$50 000 x 100%) of the total amount of the input tax credits to which it would be entitled for all its acquisitions and importations (including financial acquisitions). This percentage is less than 10%.

As the entity does not exceed the financial acquisitions threshold, the acquisition of the brokerage services is not treated, for the purposes of paragraph 11-15(2)(a) of the GST Act, as relating to supplies that would be input taxed. Consequently, the entity is acquiring the brokerage services for a creditable purpose under section 11-15 of the GST Act.

The entity is registered for GST and meets the remaining requirements of section 11-5 of the GST Act. Therefore, the entity is entitled to claim full input tax credits related to its acquisition of brokerage services under section 11-20 of the GST Act.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-5
   paragraph 11-5(a)
   paragraph 11-5(b)
   paragraph 11-5(c)
   paragraph 11-5(d)
   section 11-15
   subsection 11-15(1)
   subsection 11-15(4)
   paragraph 11-15(2)(a)
   section 11-20
   Division 70
   section 70-10
   subsection 70-10(1)
   subsection 70-10(3)
   section 70-15
   Division 189
   section 189-5
   subsection 189-5(1)
   paragraph 189-5(1)(a)
   paragraph 189-5(1)(b)
   section 189-10
   subsection 189-10(1)
   paragraph 189-10(1)(a)
   paragraph 189-10(1)(b)

Other References:
Banking & Finance Industry Partnership - Questions & Answers

Keywords
Goods and services tax
Creditable acquisition
Creditable purpose
Input taxed supplies
GST financial supplies
Reduced credit acquisitions

Business Line:  GST

Date of publication:  11 October 2001

ISSN: 1445-2782