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Edited version of private ruling
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Ruling
Subject: GST credit entitlement for GST paid on legal fees
Question 1
Are legal services subject to the goods and services tax (GST)?
Answer
Yes, where all the elements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.
Question 2
Are you entitled to claim GST credits for the GST that you paid for the legal services that you received in relation to the settlement of your motor vehicle accident claim?
Answer
No.
Relevant facts and circumstances
You are a sole trader and you are registered for GST.
You were injured in a motor vehicle accident and lodged a motor vehicle accident claim under your compulsory third party insurance policy. Your claim was settled.
You advised that you have not claimed any GST credits in relation to the GST included in your insurance premiums.
You also advised that you were using your private vehicle in a private capacity when you were injured in the motor vehicle accident.
You engaged a solicitor and barrister to act on your behalf in making the insurance claim. You paid GST for the legal services that you received.
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 11-20
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)
Reasons for decisions
Question 1
Detailed reasoning
Under section 9-5 of the GST Act, a supply is a taxable supply if:
· the supply is made for consideration
· the supply is made in the course or furtherance of an enterprise
· the supply is connected with Australia, and
· the supplier is registered or required to be registered for GST.
However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.
The supply of legal services is neither GST-free under Division 38 of the GST Act or input taxed under Division 40 of the GST Act.
As such, the supply of legal services will be taxable where all the elements of section 9-5 of the GST Act, as stated above, are satisfied.
Question 2
Detailed reasoning
Pursuant to section 11-20 of the GST Act, you are entitled to claim GST credits on 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.
All of the requirements of section 11-5 of the GST Act must be satisfied for a creditable acquisition.
The first requirement is that you must acquire the thing solely or partly for a creditable purpose.
The term creditable purpose is defined in subsection 11-15(1) of the GST Act to mean that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) of the GST Act provides that you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed, or to the extent that the acquisition is of a private or domestic nature.
You advised that you were using your private vehicle in a private capacity when you were injured in the motor vehicle accident. You acquired legal services to assist you in your insurance claim. As you did not acquire the legal services in carrying on your enterprise, your acquisition was of a private nature. As such, your acquisition of the legal services was not for a creditable purpose and the first requirement in section 11-5 of the GST Act is not satisfied. Therefore, you did not make a creditable acquisition of the legal services.
Consequently, you are not entitled to claim GST credits for the GST that you paid for the legal services that you received in relation to the settlement of your motor vehicle accident claim.