Edited version of private ruling

Authorisation Number: 1011627824401

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Ruling

Subject: GST and enterprise

Question:

1. Are you carrying on an enterprise for goods and services tax (GST) purposes?

2. Are you entitled to claim input tax credits in relation to your activities?

Answers:

1. Yes, you are carrying on an enterprise for GST purposes.

2. Yes you are entitled to claim input tax credits in relation to your enterprise if those acquisitions are creditable acquisitions and you hold a valid tax invoice

Relevant facts:

You purchased a property prior to July 2000.

You purchased some small farming equipment and livestock subsequently.

Over time, there has been substantial capital expenditure on fencing, weed control, pasture improvement, soil conditioning, fertilising and watering facilities. Livestock have been bought and sold since the purchase of the property with future prospects of increased sales.

You have prior guidance from experienced graziers.

You do not reside on the property.

You kept a separate bank account to record transactions relating to this activity.

You have a registered business name for your activity.

Reasons for decision

Enterprise

Section 9-20 of the A New Tax system (Goods and Services Tax) Act 1999 (GST Act) defines 'enterprise' to include, amongst other things, 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.

There is no definition of the phrase 'in the form of an adventure or concern in the nature of a trade' in the GST Act. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business. Without other factors being present, such activities will not be considered as an adventure or concern in the nature of trade.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Generally whether an enterprise is carried on is determined on the basis of the overall impression gained after examining the activities as a whole and the intention of the taxpayer undertaking the activity. In accordance with paragraph 159 of MT 2006/1, whether or not an activity, or series of activities, constitutes an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Section 195-1 of the GST Act defines carrying on an enterprise to include, doing of anything in the course of the commencement or termination of the enterprise.

At paragraph 122, MT 2006/1 states:

122. Given this definition, it follows that activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise.

Paragraph 123 of MT 2006/1 states:

123. The ultimate outcome of the activities and whether or not an ongoing enterprise eventuates is not a determinative factor. An entity has to determine its entitlement to an ABN from the time of its first activities.

(Also refer to paragraphs 124 and 125)

Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in, or on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business.

In order to determine if an activity or series of activities amount to a business, the activity needs to be considered against the indicators of a business established by case law. In that regard, at paragraph 178 MT 2006/1 refers to the indicators discussed in Income Tax Ruling TR 97/11.

Based on that discussion the indicators of a business include:

§ a significant commercial activity

§ a purpose and 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 carried on in a similar manner to that of other businesses in the same or similar trade

§ activity is systematic, organised and carried on in a businesslike manner and records are kept

§ the activities are of a reasonable size and scale

§ a business plan exists

§ commercial sales of product, and

§ the entity has relevant knowledge or skill.

As explained in TR 97/11, MT 2006/1 and GSTD 2006/6, there is no single test which determines the existence of a business. Paragraph 12 of TR 97/11 states whilst each case might turn on its own facts, the determination of the question is generally the result of a process of weighing all the relevant indicators. In particular, the nature of the activity, entity's intention and the method of operation helps determine whether a business being carried on.

In your case, the property was purchased before July 2000 and has been developed to improve the property to make the activity more profitable. There has been substantial capital expenditure on fencing, weed control, pasture improvement, soil conditioning, fertilising and watering facilities. Livestock have been bought and sold since the purchase of the property with future prospects of increased sales in the near future.

There has been regularity and repetition in all aspects of the activity. There have been regular purchases and sales of livestock. Time was spent proving the best livestock suitable for the local conditions.

The activity has been carried on in a similar manner to others in the field. Livestock have been sold through the local livestock sale yards. This will keep transport costs to a minimum and you would not normally advertise the sale of livestock. The activity is on a small scale but the methods are similar to normal businesses.

The activity does appear to be conducted in a planned organised manner. You have gained experience from other graziers.

The activity is on a small scale, but it is possible to breed. The activity does appear to have a significant commercial purpose.

You did not live on the property and it is only used for the livestock raising activity.

Given consideration to the above facts, we are of the view that there are sufficient indicators to conclude that you are carrying on an enterprise for GST purposes.

Input tax credits

You are entitled to claim input tax credits on creditable acquisitions that you make.

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

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 are liable to provide, *consideration for the supply; and

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

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

Because we are of the view that you carry on an enterprise, any acquisition that you make in relation to this venture is for a creditable purpose. You are registered for GST and you will be providing the consideration for the relevant acquisitions. Therefore, where the acquisitions that you make are taxable supplies to you, you will be making a creditable acquisition of those acquisitions. Therefore, provided you hold a valid tax invoice, you are entitled to claim input tax credits in relation to those acquisitions.