Edited version of private advice

Authorisation Number: 1052128069049

Date of advice: 19 July 2023

Ruling

Subject: GST - entitlement to input tax credits

Question

Are you entitled to input tax credits (ITCs) under section 11-20 of the A New Tax System (Goods and Services Tax Act 1999 (GST Act) for acquisition of supplies from Contractors?

Answer

Yes, you are entitled to ITCs under section 11-20 of the GST Act in relation to the acquisitions of supplies from Contractors.

Relevant facts and circumstances

The Landowner Trust (Landowner) purchased a single parcel of vacant land (Land). The Landowner is registered for goods and service tax (GST) and leased its interest in the Land to the Operator Trust (Operator).

The Operator engaged you to develop the Project on the Land.

You entered into Contracts with the Contractors to perform the Works in constructing the Project.

You and the Contractors are registered for GST.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Detailed reasoning

Under section 11-20 of the GST Act you are entitled to the ITCs for any creditable acquisition that you make.

Creditable acquisition

Section 11-5 of the GST Act provides that you make a creditable acquisition if;

(a)  you acquire anything solely or partly for a creditable purpose

(b)  the supply of the thing to you is a taxable supply

(c)   you provide or are liable to provide consideration for the supply and

(d)  you are registered or required to be registered for GST.

Each of the requirements of section 11-5 of the GST Act is considered in turn:

Paragraph 11-5 (a) creditable purpose

You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. For there to be a 'creditable acquisition' there must first be an 'acquisition'. The meaning of 'acquisition' in section 11-10 of the GST Act is the corollary of the meaning of supply in section 9-10 of the GST Act.

Subsection 11-10(1) of the GST Act provides that an acquisition 'is any form of acquisition whatsoever' and includes, amongst other things an acquisition of goods, an acquisition of services, an acceptance of a grant, assignment or surrender of real property, an acquisition of a right to require another person to do anything or tolerate an act or situation, or any combination of any 2 or more of the matters referred to in subsection 11-10(2) of the GST Act.

If you are not the recipient of the supply you will not have made a creditable acquisition, even if you provide consideration for the supply.

Complex multiparty arrangement can give rise, as is the case here, to a large number of supplies and acquisitions. The GST consequences of multiparty arrangements turn on identifying, amongst other things, to whom the supply is made. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) discusses how to identify the recipient of a supply in the more complex multiparty arrangements (referred to as tripartite arrangements).

The total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply. The written documentation setting out the parties understanding of the transactions is the logical starting point in determining the supplies and corresponding acquisitions that have been made (paragraphs 222 to GSTR 2006/9).

In paragraph 134 of GSTR 2006/9 the Commissioner considers the proposition that the entity that has an agreement with a supplier for a supply is the recipient of that supply (even if that supply is provided to a third party).

You have an obligation to render the development works for the purposes of successfully completing the Project. To that end the arrangement contemplates you entering into each of the Contracts with each of the respective Contractors who will undertake the actual construction of the Project.

Each of the Contracts you have entered into give rise to several things which satisfy the statutory definition of a supply and corresponding acquisition including an acceptance of right to require another person to do something i.e. perform the Works on the Land or an acquisition of the Contractors' services. Under the Contracts between you and each of the Contractors you must pay the Contract Sum for the performance of the Works under the Contracts. It follows, that the Contractors' supplies under each of the Contracts meet the statutory definition of a supply and a corresponding acquisition under section 11-10 of the GST Act, which from a contractual sense, you are the recipient of. On that basis, you made acquisitions of each of the Contractors' supplies under the Contracts.

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Pursuant to section 9-20 of the GST Act, an enterprise includes an activity or series of activities done:

• in the form of a business; or
• in the form of an adventure or concern in the nature of trade; or ...

'Business' referred to in paragraph 9-20(1)(a) of the GST Act is defined inclusively and therefore encompasses activities within the ordinary meaning of the word. A profit-making purpose, scale, repetition and regularity, the organisation of activities in a business-like manner, the existence of a significant commercial purpose, books and records which, along with the nature of the activities are relevant indicia to a finding that the activities constitute a business and is consistent with the definition in paragraph 9-20(1)(a) of the GST Act (paragraph 178 of Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number).

The activities undertaken by you in rendering the development works are consistent with a series of activities done in the form of a business. On the facts provided, you are carrying on an enterprise pursuant to section 9-20 of the GST Act.

Having satisfied the requirement that you are 'carrying on an enterprise', it is necessary to determine whether something, in this case the Contractors supplies are acquired in carrying on that enterprise. An acquisition is made 'in carrying on your enterprise' if it is made for the purposes of that enterprise.

You make acquisitions from the Contractors of their supplies which will allow you to meet your obligations to render the development works for the purposes of completing the Project. It follows, that there is a link between the supplies acquired from the Contractors and the enterprise carried on by you for the purposes of subsection 11-15(1) of the GST Act.

Furthermore, as the acquisitions under the Contracts of the Contractors supplies relate to supplies you make that are taxable supplies in carrying out your enterprise, those acquisitions are not of private or domestic nature or related to making supplies that would be input taxed. As such, your acquisitions are for a creditable purpose and paragraph 11-5(a) of the GST Act is satisfied.

Paragraph 11-5(b) supply to you is a taxable supply

Section 9-5 of the GST Act provides that you (the supplier) make a taxable supply if:

• you make the supply for consideration
• the supply is made in the course or furtherance of an enterprise that you carry on
• the supply is connected with the indirect tax zone, and
• you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

On the facts provided, all the requirements of section 9-5 of the GST Act appear to be satisfied by each of the Contractors. That is

• each of the Contractors makes supplies under the respective Contracts for consideration being the Contract Sum
• each of the Contractors makes their supplies in the course or furtherance of an enterprise each of the Contractor's carry's on
• the works under the Contracts are performed in Australia (indirect tax zone)
• the supplies under each of the respective Contracts do not fall within the GST-free or input taxed provisions (Division 38 and 40 respectively) of the GST Act.
• each of the Contractors is registered for GST.

Further each of the Contractors has issued invoices that are inclusive of an amount equal to the GST.

On that basis, paragraph 11-5(b) of the GST Act is satisfied.

Paragraph 11-5(c) consideration for the supply

As you have paid and are liable to pay the Contractors consideration for their supplies paragraph of 11-5 (c) of the GST Act is satisfied.

Paragraph 11-5(d) registered for GST

As you are registered for GST paragraph 11-5(d) of the GST Act is satisfied.

Conclusion

As all the requirements of section 11-5 of the GST Act are satisfied. That is

• you acquired in 'your own capacity' supplies from each of the Contractors under the relevant Contracts.
• you acquired the Contractors' supplies for a creditable purpose in that you acquired the Contractor's supplies in carrying on your enterprise and the acquisitions did not relate to making supplies that would be input taxed or acquisitions of a private or domestic nature.
• the Contractors' supplies under the each of the Contracts are taxable supplies to you
• you provided consideration for the Contractors' supplies; and
• you are registered for GST.

It follows, the acquisition of each of the Contractors supplies under the Contracts are a creditable acquisition giving rise to an entitlement to ITCs under section 11-20 of the GST Act.

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