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Ruling

Subject: GST and input tax credits

Question 1

Are you entitled to the input tax credits on the purchase of your automatic teller machines (ATMs)?

Answer

No, you are not entitled to the input tax credits on the purchase of your ATMs.

This ruling applies for the following periods:

Not applicable.

The scheme commences on:

Not applicable.

Relevant facts and circumstances

Entity A (you) is registered for GST.

You conduct an enterprise which only involves operating ATMs. This is your only enterprise.

You registered for GST in the relevant year You report your GST on an annual basis.

In the relevant year, you purchased X ATMs.

The total price of the ATMs included GST.

The supplies of the ATMs to you were taxable supplies and were subject to GST.

One of the ATMs is located in Y and the other ATM is located in Z.

You are not an Australian authorised deposit-taking institution (ADI).

The supplier of the ATMs is not an Australian ADI.

You have advised that your ATMs are leased back to the supplier and that the supplier pays you a monthly amount for the lease of the ATMs.

You have provided us with a copy of an agreement between the supplier and yourself (the Agreement).

The Agreement specifically states that the supplier is the 'Deployer', and that you, who is the person described in the Schedule to the Agreement, are the 'ATM Owner'.

The Agreement contains some specific terms and conditions of relevance. It provides that you are the ATM owner who conducts a business of operating ATMs, and that the supplier is a Deployer, who conducts the business of installing, servicing and maintaining ATMs.

The Agreement provides that the Deployer will deploy or arrange for the deployment of the ATM Owner's ATMs and will supply the ATM Owner with the ATM transaction processing services (the Services) at pre-determined locations.

Users of the ATMs are charged a set amount per transaction. This amount is not disclosed in the Agreement.

The Agreement contains some pertinent terms and conditions for the purposes of this ruling request. A clause relates to the Deployer's role in the Agreement, and provides that the Deployer will arrange the installation of the ATMs at an appropriate venue, arrange data lines and electricity, and pay all monthly charges and costs, and to maintain the ATMs.

Other clauses provide that the Deployer will provide you with a statement of transactions and pay you a certain amount per month.

Other clauses of the agreement provides the ATM Owner's obligations.

No reference to the treatment of GST is provided for within the Agreement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 11-5

Section 11-15

Section 11-20

Section 40-5

A New Tax System (Goods and Services Tax) Regulations 1999

Regulation 40-5.09

Reasons for decision

Summary

No, you are not entitled to the input tax credits on the purchase of your ATMs

Detailed reasoning

The basic GST rules surrounding creditable acquisitions are set out under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

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.

(Items marked with an asterisk (*) are defined in the Dictionary at section 195-1 of the GST Act).

In this case, the supplies of the ATMs to you by the seller of the ATMs were taxable supplies which you provided consideration for. You are also registered for GST, which means that paragraphs 11-5(b), (c) and (d) are met. We will therefore focus our discussion on paragraph 11-5(a), which relates to creditable purpose.

Section 11-15 of the GST Act provides the meaning of creditable purpose. It states:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

You have advised that your ATMs are leased back to the seller and that the seller pays you a monthly amount for the lease of the ATMs. However, there is no relevant documentation to support that the arrangement between you and the seller is that of a leasing arrangement. Rather, the Agreement evidences that you are the owner of the ATMs through which you provide ATM services to ATM users and that the seller is a Deployer who provides you with the Services set out throughout the Agreement.

As such, based on the information provided, you are carrying on an enterprise that involves the provision of ATM services.

Subsection 11-15(1) of the GST Act is therefore met, in that you acquired the ATMs in carrying on your enterprise. However, paragraph 11-15(2)(a) provides that you do not make an acquisition for a creditable purpose to the extent that it relates to making supplies that would be input taxed.

Input taxed supplies are provided for at Division 40 of the GST Act. Relevantly, section 40-5 provides that financial supplies are input taxed, and that the term 'financial supply' has the meaning given by the GST Regulations.

Regulation 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) provides the definition of what is a financial supply.

Subregulation 40-5.09(4A) of the GST Regulations relevantly states:

A supply by an entity for a fee of not more than $1 000 is a financial supply if it is a supply of 1 or more of the following ATM services:

(a) a withdrawal from an account;

(b) a deposit into an account;

(c) an electronic transfer from an account;

(d) advice of the balance of an account.

As evidenced by the Agreement, you are conducting an enterprise of operating ATMs through which you provide the aforementioned ATM services.

You are therefore making input taxed financial supplies of ATM services covered by subregulation 40-5.09(4A) of the GST Regulations and your acquisitions of ATMs are made in relation to the making of such ATM services.

Therefore, your acquisitions of ATMs are denied creditable purpose by virtue of paragraph 11-15(2)(a) of the GST Act and you are therefore not entitled to the input tax credits on the purchase of your ATMs under the basic GST rules.

Financial acquisitions threshold

The financial acquisitions threshold (FAT) is an exception rule under subsection 11-15(4) of the GST Act which provides that an acquisition is not treated as relating to making supplies that would be input taxed if the only reason it would be input taxed is because it relates to making financial supplies and you do not exceed the FAT.

The purpose of the FAT is to allow entities that make a relatively small amount of financial supplies, as compared to their taxable supplies or GST-free supplies, to claim full input tax credits relating to those financial acquisitions.

Therefore, if you do not exceed the FAT, you will be entitled to full input tax credits for your acquisitions relating to the making of financial supplies.

You exceed the FAT if you make, or are likely to make, financial acquisitions where the input tax credits related to making those acquisitions would exceed the lesser of either:

· $150,000, or such other amount specified in the Regulations (first limb test), or

· 10% of the total amount of input tax credits to which you would be entitled (second limb test).

If either or both of these levels are exceeded, you will have exceeded the FAT.

As per subsection 189-15 of the GST Act, a 'financial acquisition' is an acquisition that relates to the making of a financial supply (other than a financial supply consisting of a borrowing). In this case, your acquisitions of ATMs are financial acquisitions.

To determine whether you exceed the FAT in a given month you will need to consider your acquisitions in:

· that month and the previous 11 months (current acquisitions), and

· that month and the next 11 months (future acquisitions).

Subsection 189-5(1) of the GST Act states:

(1) You exceed the financial acquisitions threshold at a time during a particular month if, assuming that all the *financial acquisitions you have made, or are likely to make, during the 12 months ending at the end of that month were made solely for a *creditable purpose, either or both of the following would apply:

(a) the amount of all the input tax credits to which you would be entitled for those acquisitions would exceed $150,000 or such other amount specified in the regulations;

(b) the amount of the input tax credits referred to in paragraph (a) would be more than 10% of the total amount of the input tax credits to which you would be entitled for all your acquisitions and importations during that 12 months (including the financial acquisitions).

Subsection 189-10(1) of the GST Act states:

(1) You exceed the financial acquisitions threshold at a time during a particular month if, assuming that all the *financial acquisitions you have made, or are likely to make, during that month and the next 11 months were made solely for a *creditable purpose, either or both of the following would apply:

(a) the amount of all the input tax credits to which you would be entitled for those acquisitions would exceed $150,000 or such other amount specified in the regulations;

(b) the amount of the input tax credits referred to in paragraph (a) would be more than 10% of the total amount of the input tax credits to which you would be entitled for all your acquisitions and importations during those months (including the financial acquisitions).

If after having considered your current acquisitions under the first and second limbs tests and also you future acquisitions under the first and second limb tests results in you not exceeding the FAT, you will be entitled to full input tax credits on your financial acquisitions of the ATMs.

With regard to the first test, it is understood that the total amount of input tax credits on your financial acquisitions is less than $150,000. Therefore, the first limb of the financial acquisitions threshold is not exceeded.

With regard to the second test, all of your acquisitions relate to the making of financial supplies as your enterprise activities only involve the operation of ATMs. Therefore, the limit of 10% of your input tax credits on acquisitions relating to the making of financial supplies is exceeded. As such, you will exceed the FAT as the second test is exceeded and you are therefore not entitled to input tax credits on acquisitions that relate to the making of input taxed financial supplies.

You are therefore not entitled to the input tax credits on the purchase of your ATMs.

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