EDITED VERSION OF GST PRIVATE RULING

Authorisation Number: 34343

SUBJECT:

GST and claim for input tax credits

QUESTIONS AT ISSUE:

1. Are you allowed to claim input tax credits for any goods and services tax (GST) paid for staff amenities?

2. Are you allowed to claim input tax credits for any GST paid on gifts bought for your clients?

3. Are you allowed to claim input tax credits for any GST paid on entertainment provided to your clients?

FACTS:

• You are registered for GST.

• The staff amenities relate to various items provided to company employees such as tea, coffee, Panadol, toilet paper, paper towels, soap and other toiletries.

• You buy gifts for your clients which are various items which you have specified.

• Gifts are bought as a promotional goodwill.

• You also pay for their dinner and drinks when entertaining your clients.

• You have kept relevant tax invoices for the above expenses.

DECISION:

1. Yes, you are entitled to claim an input tax credit for any GST paid when you purchase goods for use in staff amenities.

2. Yes, you are entitled to claim an input tax credit for any GST paid when you purchase gifts for your clients.

3. No, you are not entitled to claim an input tax credit for any GST paid on entertainment provided to your clients.

REASONS FOR DECISION:

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to claim an input tax credit for any creditable acquisition that you make.

Under section 11-5 of the GST Act, you make a creditable acquisition if:

• you acquire anything solely or partly for a creditable purpose,

• the supply of the thing to you is a taxable supply,

• you provide, or are liable to provide, consideration for the supply, and

• you are registered, or required to be registered for GST.

Firstly, it needs to be determined whether you acquire the goods for a creditable purpose. According to section 11-15 of the GST Act, you acquire a thing for a creditable purpose, to the extent that you acquire it in carrying on your enterprise.

However, under section 11-15 of the GST Act, you do not acquire the goods for a creditable purpose to the extent that:

• the acquisition relates to making supplies that would be input taxed, or

• the acquisition is of a private or domestic nature.

Where you provide tea, coffee, Panadol, toilet paper, paper towels, soap and other toiletries for staff in your company staff amenities, all those goods are bought with a creditable purpose.

Activities which foster the promotional goodwill of the company are done so in the carrying on of your enterprise. In this case, gifts are given to encourage repeat business from your clients. As such, by giving gifts you are improving your potential client relations. Therefore, the gifts are purchased with a creditable purpose.

As you are not a natural person, your acquisitions cannot be of a private or domestic nature. Furthermore, the acquisitions do not relate to making supplies that are input taxed.

In addition, you are registered for GST. The supply of all of the items to you except for tea and coffee are taxable supplies to you and you provide consideration for those goods. Therefore, you are making a creditable acquisition for them under section 11-5 of the GST Act.

The supply to you of tea and coffee is GST-free and so does not include GST, is not a taxable supply and therefore not a creditable acquisition for you.

As you are making a creditable acquisition, you are entitled to an input tax credit under section 11-20 of the GST Act when you purchase them that as they will be provided for the purposes of the other items of your enterprise.

GST on Entertainment

Entertainment expenses are similar in nature to these other expenses and apart from any exception would be a creditable acquisition.

However, Division 69 of the GST Act denies input tax credits for certain expenses that are not deductible under Division 8 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 69-5 of the GST Act specifically provides for the types of 'non-deductible expenses' for income tax purposes which do not give rise to creditable acquisitions. Where expenses are not deductible under Division 8 of the ITAA 1997, they do not give rise to creditable acquisitions.

Subsection 32-10(1) of the ITAA 1997, defines the term 'entertainment' as follows:

(a) entertainment by way of food, drink or recreation; or

Further, section 32-5 of the ITAA 1997 states that a deduction is not allowable for an expense incurred in respect of providing entertainment.

However, there are some exceptions to this rule under Subdivision 32-B of the ITAA 1997. These exceptions include the expenses incurred in providing food and drinks to employees in an in-house dining facility, providing food, drink, accommodation or travel to an individual reasonably incidental to attending a seminar, expenses incurred in providing entertainment to promote or advertise the business or its products to the public and the expenses incurred by you in providing entertainment by way of fringe benefits to your employees.

As your entertainment expenses do not fall within the above mentioned exceptions, they are considered to be 'non deductible expenses' and no entitlement arises for input tax credits in respect of those expenses.

As provided in paragraph 69-5(3)(f) of the GST Act, if an expense is an entertainment expense under Division 32 of the ITAA 1997, it will be a non-deductible expense under Division 8 of the ITAA 1997. Where the entertainment is provided to your clients, such expenses would fall under the non-deductible category. Therefore, these expenses do not give rise to creditable acquisitions for the purposes of the GST Act.

Disclaimer

The Register of Private Binding Advice is published as a public record of the binding advice issued by the ATO. Each piece of advice is based on a specific set of circumstances advised to the ATO and the law in force at the time of the advice, and is considered binding only in respect of the person/s or entity/ies on whose behalf the advice was sought. The Register is a historical record of advice provided, and is not updated to reflect changes in the law, withdrawal of advice or any other change in circumstance. Each piece of advice has been edited to avoid disclosing the identity of the person or entity on whose behalf advice was sought and published advice may therefore not disclose all the relevant facts or circumstances on which the advice was based. For these reasons, advice published in this Register cannot be relied upon as precedent for any other person or entity.