Edited version of private ruling

Authorisation Number: 1011730950736

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Ruling

Subject: Goods and services tax - application of GST to a business relationship

Question

Can you and entity B agree to operate a single business, each making their own separate supplies and remitting GST on their taxable supplies; and each paying for their own expenses and claiming input tax credits on their creditable acquisitions?

Advice

Yes, you and entity B (B) can agree to operate a single business, each making their own separate supplies and remitting GST on their taxable supplies; and each paying for their own expenses and claiming input tax credits on their creditable acquisitions.

Relevant facts

You are a company that is currently not registered for GST.

You plan to enter into an arrangement with entity B to jointly conduct a business of making supplies of the following goods and services:

· currency exchange services

· money transfers, and

· sale of particular items to third parties.

You and entity B will be registered for GST prior to the start of the business.

You do not plan to operate as a partnership and you will each be a separate operating entity, making your own supplies and acquisitions separately.

You will enter into a lease of the business premises. You will on charge entity B for the lease of the space they occupy in your premises. You will only make supplies of the particular items to entity B and to the general public.

Entity B will pay for all the utility costs that the business incurs and will make the supplies of the currency exchange services and money transfers.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

A New Tax System (Goods and Services Tax) Act 1999 Division 11

A New Tax System (Goods and Services Tax) Act 1999 Division 195

Reasons for decision

Can you and entity B agree to operate a single business, each making their own separate supplies and remitting GST on their taxable supplies; and each paying for their own expenses and claiming input tax credits on their creditable acquisitions?

Supplies

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) sets out the requirements that must be met for an entity to make a taxable supply. It provides that you make a taxable supply if:

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia; and

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

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

You will be making supplies of the particular items to external clients and billing entity B for the space it occupies in the business premises.

For these supplies you will be receiving consideration in the course of the enterprise you carry on in Australia. You will be registered for GST. Neither your supplies of the items nor your leasing of a portion of the premises to Entity B will be GST free or input taxed. Therefore you will be making taxable supplies and will be required to report these on your Business activity statement.

Acquisitions

Section 11-20 of the the GST Act provides that an entity is entitled to input tax credits for any creditable acquisition that it makes.

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; 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.

Section 11-15 of the GST Act provides that:

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

(2) 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.

* denotes a term defined in the Dictionary, starting at section 195-1 of the GST Act.

You will be paying consideration to lease premises and buy the particular items. You will use these acquisitions to operate your business of making taxable supplies of the items to third parties and leasing a portion of the premises to entity B. Therefore you will be making creditable acquisitions and will be entitled to input tax credits on these purchases.

Division 29 of the GST Act provides the specific rules around attribution of GST credits to periods, depending on your basis of accounting and whether you hold a tax invoice. In general terms if you account on a non cash basis, you attribute your GST credits to the period in which you hold a valid tax invoice. If you account on a cash basis, you attribute the credits when you hold a valid tax invoice and you have paid for the purchase. You may wish to refer to the publication GST for small business (NAT 3014).

Additional information

Supplies of currency exchange services and money transfer services are taken to be input taxed supplies under item 9 of the A New Tax System (Goods and Services Tax) Regulations1999. Therefore:

· an entity that makes financial supplies does not have a GST liability on these supplies and

· acquisitions acquired for making input taxed supplies are not creditable acquisitions and therefore an entity is not entitled to claim GST credits on any purchases used to make input taxed supplies.