Edited version of private ruling

Authorisation Number: 1011495403138

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Ruling

Subject: GST and foreign currency invoices

Question

Is an entity entitled to input tax credits for a creditable acquisition where the consideration for the acquisition is expressed in a foreign currency?

Advice/Answers

Yes, an entity is entitled to claim input tax credits for a creditable acquisition where the consideration is expressed in a foreign currency.

Relevant facts

An Australian resident entity (you) is the recipient of software and support services from a
non-resident entity.

The services received include provision of trainers in Australia from the non-resident entity.

You also download software from the internet (server is based overseas).

The non-resident entity has an Australian office which is registered for GST in Australia.

You have received an invoice from the non-resident entity and the amounts are listed in a foreign currency.

Detailed Reasoning

Under the GST legislation an entity is entitled to an input tax credit for its creditable acquisitions. These credits are claimed in a GST return which is called the Business activity statement (BAS) of that entity. One of the BAS requirements is that all the amounts in the return are to be shown in Australian currency. Accordingly, where the consideration for a creditable acquisition is expressed in a foreign currency, to be able to claim the associated GST credits on the BAS, the consideration must be converted to its equivalent in Australian currency.

Section 11-25 of the A New Tax System (Goods and Services) Act 1999 (GST Act) determines the amount of input tax credit that an entity is entitled to for a creditable acquisition. Section 11-25 provides:

The amount of an input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

Under section 9-70 of the GST Act the amount of GST that is payable on a taxable supply is 10% of the value of the taxable supply. Further, subsection 9-85(1) of the GST Act provides that the value of a taxable supply is to be expressed in Australian currency (AUD).

Tax invoice

The amount of GST payable can be used to calculate the corresponding GST credits. A valid tax invoice normally includes information about the GST payable on the related supply.

The GST payable will be 10% of the value of the supply, expressed in AUD and as the amount of an input tax credit for a creditable acquisition is equal to the amount of the GST payable on the relevant supply, the amount of an input tax credit that an entity is entitled to must also be expressed in AUD.

Where a supplier makes a taxable supply and the consideration is expressed in a foreign currency, additional requirements are placed on the supplier in relation to creating a valid tax invoice for that supply. Goods and Services Tax Ruling GSTR 2001/2 on foreign exchange conversions (GSTR 2001/2) explains these requirements at paragraph 41 as follows:

41. There are specific tax invoice requirements where a supplier makes a taxable supply and the consideration is expressed in a foreign currency. For the tax invoice to be in the approved form, it must comply with the tax invoice requirements stated in Goods and Services Tax Ruling GSTR 2000/17, and:

· include on the form the GST payable in Australian currency; or

· provide sufficient information to the recipient to work out the GST payable on the supply in Australian currency.

The recipient of the supply can then use the amount of GST payable which is shown on the tax invoice, or the amount of GST payable which they have calculated using the sufficient information provided on the tax invoice, in order to calculate their input tax credit in AUD.

For there to be sufficient information, the supplier is required to provide the recipient with the information necessary to work out the GST payable on the supply in Australian currency. The information can be provided on the tax invoice, or on two or more documents that together meet the information requirements of a tax invoice.

Examples of sufficient information include:

· the price expressed in Australian currency

· the value expressed in Australian currency, or

· the GST payable, price or value expressed in a foreign currency and the conversion rate used by the supplier, or a statement, to work out the GST payable in Australian currency.

An example of a statement with sufficient information is as follows:

'The GST is calculated in Australian currency at the exchange rate published by the Reserve Bank of Australia at 4.00pm Australian Eastern Time on the business day prior to the date of this invoice.'

Additional information

Please note that in limited circumstances, where a recipient is not able to use the information from the tax invoice as the basis of its claim for GST credits, the recipient can make a reasonable estimation of the GST credits in Australian currency. The circumstances envisaged and the conversion methods are discussed at paragraphs 49 to 53 of Goods and Services Tax Ruling GSTR 2001/2.

You can fully view GSTR 2001/2 on the ATO website.

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