ATO Interpretative Decision

ATO ID 2004/220

Goods and Services Tax

GST and entitlement to input tax credits for acquisitions that relate to an entity's relative's travel
FOI status: may be released
Status of this decision: Decision Current

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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 their acquisitions of air travel and accommodation made for a relative who accompanied the entity on a business trip?

Decision

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act for their acquisitions of air travel and accommodation made for a relative who accompanied the entity on a business trip.

Facts

The entity is a sole trader. The entity went on a business trip and was accompanied by a relative. The entity paid for airfares and accommodation for themselves and their relative.

The entity's relative did not assist the entity with their business activities.

The entity's relative is not an employee of the entity.

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

Reasons for Decision

Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes. However, Division 69 of the GST Act provides that some acquisitions that are not deductible under the Income Tax Assessment Act 1997 (ITAA 1997) are not creditable acquisitions.

Subsection 69-5(1) of the GST Act provides that an acquisition is not a creditable acquisition to the extent that it is a 'non-deductible expense'. Of relevance to this situation is paragraph 69-5(3)(b) of the GST Act which provides that acquisitions made for a relative's travel that are not deductible under Division 8 of the ITAA 1997 because of section 26-30 of the ITAA 1997 (which deals with relative's travel expenses), are non-deductible expenses.

Subsection 26-30(1) of the ITAA 1997 provides that an entity cannot deduct a loss or outgoing they incurred, insofar as it is attributable to a relative's travel, if:

•: they travelled in the course of performing their duties as an employee, or in the course of carrying on a business for the purpose of gaining or producing assessable income; and
•: their relative accompanied them while they travelled.

The entity made acquisitions of air travel and accommodation for their relative to accompany them on a business trip.

However, subsection 26-30(2) of the ITAA 1997 provides that an entity is not stopped from deducting a loss or outgoing if:

•: their relative performed substantial duties as their employer's employee or their employee; and
•: it is reasonable to conclude that the relative would still have accompanied the entity even if they had not had a personal relationship with entity.

Also, under subsection 26-30(3) of the ITAA 1997 an entity is not stopped from deducting a loss or outgoing when the expenditure was incurred in providing a fringe benefit.

The entity's relative did not assist the entity with their business activities. As the entity's relative is not an employee there is no fringe benefit for the purpose of subsection 26-30(3) of the ITAA 1997 Therefore, the entity is not excluded from the operation of section 26-30 of the ITAA 1997. As such, the entity cannot deduct its acquisitions of air travel and accommodation for its relative under Division 8 of the ITAA 1997.

As the entity's acquisitions that relate to their relative are not deductible under Division 8 of the ITAA 1997 (due to the operation of section 26-30 of the ITAA 1997), the entity's acquisitions are non-deductible expenses for the purposes of the GST Act.

Therefore, in accordance with subsection 69-5(1) of the GST Act, the entity is not making a creditable acquisition. Accordingly, the entity is not entitled to an input tax credit under section 11-20 of the GST Act for acquisitions of air travel and accommodation made for a relative who accompanied the entity on a business trip.

Date of decision: 26 November 2002

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 11-20
   Division 69
   subsection 69-5(1)
   paragraph 69-5(3)(b)

Income Tax Assessment Act 1997
   Division 8
   section 26-30
   subsection 26-30(1)
   subsection 26-30(2)
   subsection 26-30(2)

Keywords
Goods and services tax
GST input tax credits & creditable acquisitions
Non deductible expenses
GST supplies & acquisitions
Creditable acquisition

Siebel/TDMS Reference Number: 3898259

Business Line: Indirect Tax

Date of publication: 5 March 2004

ISSN: 1445-2782

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