Edited version of private ruling

Authorisation Number: 1011668448154

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Ruling

Subject: Goods and services tax and acquisitions

Question

Are you entitled to input tax credits for acquisitions relating to activities you conduct as part of your ministry to members and adherents where the suppliers charge GST?

Answer

You are entitled to input tax credits for acquisitions relating to activities you conduct as part of your ministry to members and adherents where the suppliers charge GST and the acquisitions are not non-deductible entertainment expenses under paragraph 69-5(3)(f) of the GST Act.

You are not entitled to input tax credits for acquisitions relating to activities you conduct as part of your ministry to members and adherents where the acquisitions are non-deductible entertainment expenses under paragraph 69-5(3)(f) of the GST Act.

Relevant facts and circumstances

You are a church.

You have tax concession status as a charitable institution.

You are registered for GST.

In addition to conducting services of public worship and religious teaching and training, you extend your activities designed to proclaim the Christian gospel.

These activities include social functions to build fellowship to established members and to extend invitations of the Christian gospel to members of the community generally. The activities include general functions for all groups and from time to time specifically for children, young people and adults (young and seniors). These activities include camps; visits to places of interest, including sightseeing tours; rallies organised by Christian organisations and overseas short-term mission outreach.

You pay for your acquisitions relating to the activities mentioned above.

Sometimes the suppliers of the things you acquire in relation to the activities mentioned above charge GST and sometimes they do not.

Reasons for decision

Summary

Where the suppliers of the things in question, which you acquire charge GST and the expenses are not non-deductible entertainment expenses under paragraph 69-5(3)(f) of the A New Tax System (Goods ands Services Tax) Act 1999 (GST Act), you are entitled to input tax credits for the acquisitions, as all of the requirements of section 11-5 of the GST Act are satisfied and the expenses are not non-deductible expenses under subsection 69-5(1) of the GST Act.

Where the acquisitions in question are non-deductible entertainment expenses under paragraph 69-5(3)(f) of the GST Act, you are not entitled to input tax credits for the acquisitions, as subsection 69-5(1) of the GST Act provides that such acquisitions are not creditable acquisitions.

Detailed reasoning

You are entitled to input tax credits for your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states:

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.

(*Denotes a term defined in section 195-1 of the GST Act)

However, in accordance with subsection 69-5(1) of the GST Act, an acquisition is not a creditable acquisition to the extent that it is a *non-deductible expense.

In accordance with paragraph 69-5(3)(f) of the GST Act, an acquisition is a non-deductible expense if is not deductible under Division 8 of the Income Tax Assessment Act 1997 (ITAA 1997) because of Division 32 of the ITAA 1997 (entertainment expenses).

Subsection 69-5(4) of the GST Act provides that if the entity making the acquisition is an *exempt entity, the acquisition is a non-deductible expense if it would have been a non-deductible expense under subsection 69-5(3) or subsection 69-5(3A) of the GST Act had the entity not been an exempt entity. Therefore, the fact that you are an exempt entity does not prevent subsection 69-5(1) of the GST Act from operating to deny you input tax credits.

In accordance with section 32-5 of the ITAA 1997, to the extent that you incur a loss or outgoing in respect of providing entertainment, you cannot deduct it under section 8-1 of the ITAA 1997. However, there are exceptions, which are set out in Subdivision 32-B of the ITAA 1997.

Entertainment is defined in section 32-10 of the ITAA 1997 as entertainment by way of food, drink or recreation or accommodation or travel to do with providing entertainment by way of food, drink or recreation. Entertainment includes social functions.

Section 32-35 of the ITAA 1997 (which is part of Subdivision 32-B of the ITAA 1997), provides that section 32-5 of the ITAA 1997 does not stop you deducting a loss or outgoing for providing food, drink, accommodation or travel to an individual that is reasonably incidental to the individual attending a seminar that goes for at least 4 hours. This exception does not apply where the seminar's main purpose is to provide entertainment at, or in connection with, the seminar.

Taxation Ruling TR 97/17 (please see enclosed) provides guidance to determine whether the provision of food or drink to a recipient results in the entertainment of that person.

Creditable purpose

Subsection 11-15(1) of the GST Act states:

You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed;

or

(b) the acquisition is of a private or domestic nature.

In accordance with paragraph 9-20(1)(f) of the GST Act, the activities of a religious institution are an enterprise.

You are a religious institution.

Therefore, you acquire the things in question in carrying on your enterprise.

These acquisitions in question do not relate to making supplies that would be input taxed.

The acquisitions in question are not of a private or domestic nature.

Hence, you acquire the things in question for a creditable purpose. Therefore, the requirement of paragraph 11-5(a) of the GST Act is satisfied.

Taxable supply

You advised that the suppliers sometimes charge GST and sometimes do not charge GST. GST is payable on taxable supplies. Hence, where the suppliers charge GST, they make taxable supplies, and therefore, the requirement of paragraph 11-5(b) of the GST Act is satisfied under such circumstances.

Consideration

You provide consideration for the supplies of the things in question. Therefore, the requirement of paragraph 11-5(c) of the GST Act is satisfied.

GST registration

You are registered for GST. Therefore, the requirement of paragraph 11-5(d) of the GST Act is satisfied.

Conclusion

Your acquisitions of the things in question are creditable acquisitions where the suppliers of the things acquired charge GST and the acquisitions are not non-deductible entertainment expenses under paragraph 69-5(3)(f) of the GST Act, as under such circumstances, all of the requirements of section 11-5 of the GST Act are satisfied and subsection 69-5(1) of the GST Act does not apply. Under such circumstances, you are entitled to input tax credits for these acquisitions, as they are creditable acquisitions.

Your acquisitions of the things in question are not creditable acquisitions where they are non-deductible entertainment expenses under paragraph 69-5(3)(f) of the GST Act, due to the operation of subsection 69-5(1) of the GST Act. Therefore, you are not entitled to input tax credits for these acquisitions.