Edited version of private advice

Authorisation Number: 1051549230336

Date of advice: 25 July 2019

Ruling

Subject: GST and carrying on an enterprise, creditable acquisitions and second hand goods

Question 1

Does your enterprise continue when you make your first purchase?

Answer 1

Yes.

Question 2

Can you claim a GST credit equal to 1/11th of the purchase price?

Answer 2

Yes.

This ruling applies for the following period

The scheme commences on:

25 July 2019

Relevant facts and circumstances

You are registered for GST on an accruals basis.

You are in the process of developing an app.

You are considering to purchase an asset to put on the app.

It is considered you conduct your operations in the form of a business by:

·         developing and following a structured business plan;

·         conducting your operations for a profit making purpose;

·         conducting your operations in a systematic and organised manner and on a recurring and regular basis.

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 9-20

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

A New Tax System (Goods and Services Tax) Act 1999, Division 66

Reasons for decision

Detailed reasoning

The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done:

·   in the form of a business (paragraph 9-20(1)(a))

The phase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the ATO view on the meaning of 'entity' and 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN).

Goods and Services tax Determination GSTD 2006/6 Goods and Services Tax: does MT 2006/1 have equal application to the meaning of 'entity' and enterprise' for the purposes of A New Tax System (Goods and Services Tax) Act 1999, provides that the discussion in MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

The A New Tax System (Australian Business Number) Act 1999 (ABN Act) does not define an 'activity, or series of activities'. In the absence of a statutory definition these terms take their ordinary meaning. An activity is essentially an act or series of acts that an entity does. Entities can undertake a wide range of activities with varying degrees of interrelationship. The meaning of the term 'activity, or series of activities' for an entity can range from a single undertaking, including a single act, to groups of related activities, or to the entire operations of the entity (paragraph 153 MT 2006/1).

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 Income Tax: am I carrying on a business of primary production lists indicators of carrying on a business:

·  a significant commercial activity;

·  an intention of the taxpayer to engage in commercial activity;

·  an intention to make a profit from the activity;

·  the activity is or will be profitable;

·  the recurrent or regular nature of the activity;

·  the activity is systematic, organised and carried on in a business-like manner and records are kept;

·  the activities are of a reasonable size and scale;

·  a business of product; and the entity has relevant knowledge or skill.

Application in your case

You advised that you consider you conduct your operations in the form of a business by:

·  - developing and following a structured business plan;

·  - conducting your operations for a profit making purpose;

·  - conducting your operations in a systematic and organised manner and on a recurring and regular basis.

Therefore, as you have already made the decision to start a business and operate in a businesslike manner with an intention to make a profit, you are considered to be carrying on an enterprise and will continue to be after purchasing your first asset to put on the app.

Creditable acquisitions

Taxpayers are entitled to GST credits for their creditable acquisitions. As stated within 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 liable to provide, consideration for the supply; and

(d) you are registered, or required to be registered.

As outlined within Section 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.

You advised that your purchases will solely be for a creditable purpose. You are registered for GST purposes. Therefore, provided that the acquisition is a taxable supply to you and you provide or are liable to provide consideration, you are entitled to claim a GST credit on the creditable acquisition.

Second hand acquisitions

Division 66 of the GST Act allows a taxpayer to claim GST credits for acquisitions of second-hand goods, even though GST was not payable on the original supply of the goods.

Second-hand goods are defined under section 195-1 of the GST Act as goods that do not include valuable metal (gold, silver or platinum or any other substance specified for the purposes of paragraph (d) of the definition of precious metal in the GST Act) or animals/plants.

Section 66-5 of the GST Act establishes the rules for second-hand goods which are acquired from unregistered suppliers:

(1) If you acquire second hand goods for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business, the fact that the supply of the goods to you is not a taxable supply does not stop the acquisition being a creditable acquisition.

(2) However, this section does not apply, and is taken never to have applied, to the acquisition if:

(a) the supply of the goods to you was a taxable supply, or was GST-free; or

(b) you imported the goods; or

(c) the supply of the goods to you was a supply by way of hire; or

(d) subdivision 66-B applies to the acquisition; or

(e) you make a supply of the goods that is not a taxable supply.

Amount to claim

Subsection 66-10(1) of the GST Act states the amount of the GST credit for a creditable acquisition of second-hand goods for which the consideration is more than $300 is:

(a) an amount equal to 1/11 of the consideration that you provide, or are liable to provide, for the acquisition; or

(b) if that amount is more than the amount of the GST payable on a * taxable supply of the goods that you make - the amount of GST on that taxable supply.

Section 66-15 discusses how to attribute the GST credit.

Records to keep

Subsection 66-17(2) specifies that a record with the following information must be obtained when a second-hand good is acquired:

(a) the name and address of the entity that supplied the goods to you; and

(b) description of the goods (including their quantity); and

(c) the date of, and the *consideration for, the acquisition.

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