Edited version of private ruling

Authorisation Number: 1011483343174

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Ruling

Subject: GST and entitlement to input tax credits

Question

Are you entitled to claim input tax credits for expenses to start your enterprise?

Answer: Yes.

You are entitled to input tax credits for expenses to start your enterprise to the extent that it is used for a creditable purpose.

Relevant facts and circumstances

You (an individual) are registered for Goods and Services Tax (GST) as a sole trader to commence carrying on an enterprise of providing online training services.

You paid a fee in order to carry this out, and to obtain the relevant materials to carry out your activities.

You commenced to prepare for the start of the business by taking the necessary lessons.

However you decided to delay the start of the business (that is, advertising the services). You stated that this was due to the prevailing economic situation. This was a business decision on your part that it was not cost effective to commence advertising at this time. You however continued to prepare for the start of your business which you anticipate you will be fully prepared shortly.

After you registered for GST you have incurred set up costs to start your business for which payment for these acquisitions has been made in full. Other than one acquisition, the acquisitions will be wholly for use in your business with no private usage. One acquisition however is used 80% for business and 20% private usage based on logs you have kept.

You have provided a copy of the relevant tax invoices held by you for the expenses.

You have registered to account for GST on a cash basis and will lodge business activity statements (BAS) annually.

Reasons for decision

Entitlement to input tax credits

Under section 11-20 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to claim input tax credits for any creditable acquisition that you make.

You make a creditable acquisition under section 11-5 of the GST Act if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide consideration for the supply; and

(d) you are registered or required to be registered.

From the facts given, you have provided consideration by way of payments for the supplies, and you are registered for GST. Therefore, paragraphs 11-5(c) and 11-5(d) of the GST Act are satisfied. What needs to be determined is whether you have made the acquisitions solely or partly for a creditable purpose, and also if the supplies to you are taxable supplies.

Creditable purpose

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on an enterprise. The term 'carrying on' is defined in section 195-1 of the GST Act which states:

carrying on an *enterprise includes doing anything in the course of the commencement or termination of the enterprise.

(* denotes a defined term in section 195-1 of the GST Act)

However, under subsection 11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that:

· the acquisition relates to making supplies that would be input taxed (for example financial supplies and supplies of residential premises); or

· the acquisition is of a private or domestic in nature.

In this case, you have made acquisitions in order to set up your business. You had incurred these expenses after you became registered for GST. You stated that other than one acquisition these expenses will be wholly for use in your business with no private usage. One acquisition however is used 80% for business and 20% private usage based on logs you have kept.

Carrying on an enterprise for GST purposes includes anything done in the course of the commencement of the business. Paragraph 70 of Goods and Services Tax ruling GSTR 2008/1 provides a list of some factors that would suggest that an acquisition is made in carrying on an enterprise and this includes (amongst other things) that the acquisition is incidental or relevant to the commencement, continuance or termination of the enterprise.

As your acquisitions are relevant to the commencement of your business of providing training services, they are acquired in carrying on your enterprise. The expenses are not for making input taxed supplies. As such, paragraph 11-5(a) of the GST Act is satisfied and the expenses are for a creditable purpose for, 80% of one expense and 100% for the other expenses.

The next step is to determine if you satisfy paragraph 11-5(b) of the GST Act, in that the supplies to you are taxable supplies.

Taxable supply to you

In order for a supply to be a taxable supply to you all the requirements of section 9-5 of the GST Act must be met. A supply is a taxable supply under section 9-5 of the GST Act if:

(a) the supply made by the supplier to you is for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

(c) the supply is connected with Australia; and

(d) the supplier is registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, you provided consideration for the supplies, the relevant supplies are purchased from business suppliers in Australia, and the supplies to you had GST included in their price (which would indicate that the suppliers are registered for GST). Furthermore, there are no provisions in the GST Act which would make the supplies to you GST-free or input taxed. This suggests that the supplies were taxable supplies to you and that all the requirements of section 9-5 of the GST Act were satisfied. Therefore, you have satisfied paragraph 11-5(b) of the GST Act as the supplies to you were taxable supplies.

Amount of input tax credits

Accordingly, you satisfy all the requirements of a creditable acquisition under section 11-5 of the GST Act in relation to 80% of one expense and 100% of the other expenses.

The amount of input tax credits that you are entitled to claim are outlined below.

Under section 11-25 of the GST Act, you will be entitled to full input tax credits equal to the amount of the GST paid for the creditable acquisitions used 100% for business use.

Under section 11-30 of the GST Act, you will be entitled to partial input tax credits for the creditable acquisition used 80% for business use calculated as follows:

Full input tax credit x Extent of creditable purpose x Extent of consideration

You account for GST on a cash basis, you have made full payment for the acquisitions in a relevant tax period, and are holding tax invoices. Therefore, you are entitled to attribute, that is, to claim the amounts shown above in the relevant BAS.

Other information

As stated above, you will only be entitled to the input tax credits to the extent of the creditable purpose. The intended use of the acquisitions at the time of their purchase would determine the extent of the creditable purpose. Where the acquisitions are used privately by you, the acquisitions will be partly creditable. If there is a change in the extent of creditable purpose, then the you will have to make adjustments under Division 129 of the GST Act but only if the value of your purchase was $1,001 (GST-exclusive) or more. For guidance on this matter, refer to Fact Sheet Making An Adjustment On Your Activity Statement (NAT 11035), in particular pages 4 to 6.

For more information on input tax credits please refer to:

· Goods and Services Tax Ruling GSTR 2006/4: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.

· Goods and Services Tax Ruling GSTR 2008/1: when do you acquire anything or import goods solely or partly for a creditable purpose?

· Goods and Services Tax Ruling GSTR 2000/29: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

· Fact Sheet GST credits for business (NAT 3019).

All these ATO publications are accessible from our website at www.ato.gov.au.

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