1051481757305 | Legal database

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Edited version of your written advice

Authorisation Number: 1051481757305

Date of advice: 14 February 2019

Ruling

Subject: GST and brokerage fees

Question

Are you entitled to claim the GST credits on the brokerage fees?

Answer

You are unable to claim full GST credits for your acquisition of brokerage services because you exceed the financial acquisitions threshold.

However, you can claim a reduced input tax credit of 75% of the GST paid on the acquisition of brokerage fees.

The scheme commences on:

1 October 2018

Relevant facts and circumstances

● You are registered for goods and services tax (GST),

● Your only income is from trading in stock options, shares and mini warrants, there is no other income,

● Your acquisitions only relate to financial supplies,

● All trades are done through a Broker,

● You provided a tax invoice from the Broker which contains the brokerage services.

Relevant legislative provisions

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

Section 11-15 of the GST Act

Subsection 38-190(1) of the GST Act

Subsection 40-5 of the GST Act

Sections 189-5 and 189-10 of the GST Act

Regulations 40-5.09 and 70-5 of A New Tax System (Goods and Services Tax) Regulations1999

Reasons for decision

In order to be entitled to an input tax credit, an entity must make a creditable acquisition. To be a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), amongst other things, the thing must be acquired, solely or partly, for a creditable purpose.

Subsection 11-15(1) of the GST Act provides that an entity acquires a thing for a creditable purpose to the extent that it is acquired in carrying on its enterprise. However, paragraph 11-15(2)(a) of the GST Act provides that you do not acquire a thing for a creditable purpose to the extent that it relates to making supplies that would be input taxed.

Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed.

The provision, acquisition or disposal of something is a financial supply where it satisfies the relevant requirements of regulation 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

The provision, acquisition or disposal of shares is covered at Item 10 of the table in subregulation 40-5.09(3) of the GST Regulations and line D4 in Schedule 2 of GSTR 2002/2. Therefore, where the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied the provision, acquisition or disposal of shares will be a financial supply that is input taxed.

However, there are certain exceptions to this general rule. You can claim the GST credit you paid on a purchase you use to make your financial supply if any of the following apply:

● you use the purchase to make a financial supply through a business or a part of a business that you carry on outside Australia

● you do not exceed the financial acquisitions threshold

● your purchase relates to a borrowing you make which, in turn, you use for making sales that are not input taxed

● your purchase is a reduced credit acquisition that you use to make a financial supply.

You incur brokerage fees in making financial supplies connected with Australia.

Financial acquisitions threshold

Relevant to your situation is the financials acquisitions threshold. If you do not exceed the financial acquisitions threshold, you will be entitled to full input tax credits for your acquisitions relating to financial supplies.

The GST Issues register ‘Financial services - questions and answers’ available on ato.gov.au covers the financial acquisitions threshold and states:

7.3. When do I exceed the financial acquisitions threshold?

Sections 189-5 and 189-10 of the GST Act set out when an entity will exceed the financial acquisitions threshold.

You exceed the financial acquisitions threshold 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 (1st limb test), or

• 10% of the total amount of input tax credits to which you would be entitled (2nd limb test).

If either or both of these levels are exceeded, an entity will have exceeded the financial acquisitions threshold.’

As you are making financial supples and your GST inclusive brokerage fees exceed 10% of the total amount of input tax credits to which you are entitled you will exceed the second limb of the financial acquisitions threshold. On this basis, you will exceed the entire financial acquisitions threshold.

As you exceed the financial acquisitions threshold under the general rules, you will not be able to claim full input tax credits on your brokerage fees.

Reduced credit acquisitions

Reduced credit acquisitions are certain types of purchases listed in the GST Regulations that you can claim a reduced GST credit on when you use them to make financial supplies.

Therefore, even though you exceed the financial acquisitions threshold, you may still be entitled to reduced input tax credits on brokerage fees. Brokerage fees costs are generally considered to be securities transaction services and a reduced credit acquisition under item 9 in the table in subregulation 70-5.02(2) of the GST Regulations.

Paragraph 284 of Goods and Services Tax Ruling: GSTR 2004/1: Goods and services tax: reduced credit acquisitions (GSTR 2004/1) sets out the reduced credit acquisition under item 9 where it is an acquisition of the arrangement by a financial supply facilitator of the provision, acquisition or disposal of an interest in a security:

Item 9

Arrangement, by a financial supply facilitator, of the provision, acquisition or disposal of an interest in a security, including the following:

(a) order placement and trade execution;

(b) clearance and settlement of trades;

(d) arranging flotations and privatisations;

(e) arranging mergers and acquisitions;

(f) arranging takeover bids;

(g) performing a settlement, including issue of drafts and encashment;

(h) other securities transactions, including lodgment, withdrawal and exchange control;

(i) underwriting, except a matter that is described in the table in regulation 40-5.09

You use the services of a Broker to conduct your share trading enterprise.

As you are using a broker to conduct your share trades, you are therefore able to claim a reduced credit acquisition on your brokerage fees under item 9 in the table in subregulation 70-5.02(2) of the GST Regulations.

The amount of reduced input tax credit is 75% of the GST included in the brokerage fees. (regulation 70-5.03 of the GST Regulations).

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