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Edited version of your written advice

Authorisation Number: 1012663680160

Ruling

Subject: GST and input tax credits

Question

1. Is Entity 1 entitled to claim an input tax credit of the GST included in the options fees paid?

2. If the answer to the above question is "No", can the Commissioner use the discretion provided under section 29-70(1B) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to determine the tax invoices issued to entity 2 and other evidence available, as a tax invoice issued to Entity 1 to enable Entity 1 to claim input tax credits included in the options fees.

Advice/Answers

1. No, Entity 1 is not entitled to claim an input tax credits of the GST included in the options fees paid as there is no evidence of Entity 1 making a creditable acquisition.

2. No, the Commissioner cannot use his discretion to treat the tax invoices and other evidence available as a tax invoice to enable Entity 1 to claim input tax credits.

Relevant facts

Reasons for decision

An entity is entitled to claim input tax credits on creditable acquisitions they make.

Therefore, what needs to be determined here is whether Entity 1 has made a creditable acquisition of the things supplied under the relevant options agreements.

A creditable acquisition is defined in section 11-5 of the GST Act as follows:

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

In order for paragraph 11-5(a) of the GST Act to be satisfied, the entity that wishes to claim the input tax credits must acquire the thing . For instance, paragraph 11-5(a) states, you acquire anything…..Therefore, in order for Entity 1 to satisfy paragraph 11-5(a), they must have acquired the things supplied under the options agreement.

Paragraph 54 of goods and services ruling, Goods and services tax: supplies (GSTR 2006/9) provides the following regarding the meaning of 'acquisition'.

Whilst it is acknowledged that Entity 2 was used in error in the options agreement there is no evidence of Entity 1 actually making the acquisitions under the options agreements.

All the evidence provided to us only indicates that Entity 1 should have been used in the options agreement. Therefore, in the absence of legal documents that provide evidence that it was in fact Entity 1 that made the acquisitions under the relevant options agreements and not Entity 2, we are of the view that Entity 1 has not made any acquisitions under these options agreements. Just the mere indication that Entity 1 should have been used in the options agreement does not make Entity 1 the 'acquirer' of the things under the options agreement. All the evidence supplied thus far suggests that it was Entity 2 that made the acquisitions. Therefore, as Entity 1 does not meet paragraph 11-5(a) of the GST Act, they have not made a creditable acquisition of the relevant supplies made under the options agreements and therefore is not entitled to claim any input tax credits.

Tax invoice discretion

As mentioned before, whether or not an entity is entitled to claim an input tax credit is dependent on whether or not that entity has made a creditable acquisition.

The requirement to hold a valid tax invoice to attribute the relevant amount of input tax credit on the creditable acquisition made is a secondary requirement.

Therefore, as Entity 1 has not made a creditable acquisition of the supplies made under the relevant options agreements, it is not necessary to decide whether to exercise the discretion under subsection 29-70(1B) of the GST Act.


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