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Ruling

Subject: GST and lease of aircraft

Question 1

Are input tax credits available to the Lessee under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on acquisitions made by it under the Lease Agreement between the Lessee and B as lessor?

Answer

No.

Relevant facts and circumstances

The Lease Agreement relates to a foreign made but Australian registered aircraft (Aircraft).

At the times when the Lease Agreement was entered into and the Aircraft was delivered and made available to the Lessee the Aircraft was located overseas at the maker's manufacturing facility. B will not bring the Aircraft to Australia, either the Lessee or a member of its GST group will.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-25

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

Reasons for decision

Summary

Input tax credits are not available to the Lessee under Division 11 of the GST Act on acquisitions made by it under the Lease Agreement between it and B.

Detailed reasoning

Under section 11-5 of the GST Act you make a creditable acquisition 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.

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, under subsection 11-15(2) 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 or the acquisition is for a private or domestic nature.

From the information received, the Lessee acquired the Aircraft for a creditable purpose as it acquired the Aircraft in carrying on its enterprise. The Lessee will provide consideration in the form of lease rental payments for the supply and it is registered for GST. Accordingly where the supply of the Aircraft to the Lessee is a taxable supply its acquisition will be a creditable acquisition under section 11-5 of the GST Act.

Taxable supply

Under section 9-5 of the GST Act a supply is a taxable supply if:

(a) the supplier makes the supply 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.

From the information provided, B is making the supply for consideration and in the course of an enterprise it is carrying on. Where the supply is connected with Australia and B is registered or required to be registered for GST the supply of the Aircraft will be a taxable supply under section 9-5 of the GST Act .There is no provision in the GST Act that makes a supply of aircraft in Australia GST-free or input taxed.

Connected with Australia

The connection with Australia is one of the elements required to be satisfied before a supply is a taxable supply under section 9-5 of the GST Act. Goods and Services Tax Ruling GSTR 2000/31 provides guidance on when supplies are connected with Australia and is available at www.ato.gov.au

Section 9-25 of the GST Act defines when a supply is connected with Australia. For the purposes of determining whether a supply is connected with Australia, section 9-25 makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property.

A supply of goods is a supply of any form of tangible personal property, that is, any form of personal property that has a physical existence but does not include intangible personal property such as intellectual property like a copyright. A supply of goods can occur by way of sale, lease, hire and so on. Accordingly the lease of the Aircraft is a supply of goods made by B.

In your case, the Aircraft will be brought to Australia and relevant to this supply is subsection 9-25(3) of the GST Act. Under subsection 9-25(3) of the GST Act a supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

This means that the supplier is either an exporter from outside Australia and importer into Australia or an exporter from outside Australia and installer or assembler in Australia.

Under paragraph (a), a supply of goods brought to Australia is connected with Australia if the supplier imports the goods regardless whether or not the supplier engages a customs broker to arrange customs clearance of the goods. A supplier imports goods where the supplier causes the goods to be brought to Australia to apply them to their own purposes and complete the customs facilities. This scenario is outlined in Example 16 of GSTR 2000/31:

Example 16 - Goods supplied by way of lease

150. UK Crane Co (a United Kingdom resident company) leases a specialised crane to Construct Co (an Australian resident company) for use in Australia. The supplier imports the crane into Australia from the United Kingdom.

151. As the supplier imports the goods into Australia, the supply is connected with Australia under paragraph 9-25(3)(a). The supply is also a taxable importation under section 13-5.

In contrast, a supplier does not import goods where the customs formalities for the importation are completed by the entity that acquires the goods from the supplier. Accordingly, where the recipient imports the goods paragraph (a) is not applicable to the supply of goods being brought to Australia.

From the information provided the supply of the Aircraft by B differs from that set out in Example 16 above. B's supply is not connected with Australia as:

o The Lessee or a member of its GST group will effect the importation of the Aircraft into Australia; and

o B will not install or assemble the Aircraft in Australia.

Accordingly the supply of the Aircraft by B will not be a taxable supply under section 9-5 of the GST Act because the supply of the Aircraft is not connected with Australia.

Therefore the acquisition of the Aircraft by the Lessee is not a creditable acquisition under section 11-5 of the GST Act as all the requirements in that section are not satisfied. Accordingly the Lessee will not be entitled to claim input tax credits for supplies made under the Lease Agreement.

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