Edited version of private ruling

Authorisation Number: 1011771426346

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Ruling

Subject: GST and share trading

Question

Can the Trustees for the Family Trust claim input tax credits for expenses such as brokerage, Business Traders course, airfares, taxis, meals and accommodation while carrying on the Family Trust share trading business?

Advice

The Trustees for the Family Trust can claim a reduced input tax credit (RITC) of 75% of the GST paid on the acquisition of brokerage services.

However, the Trustees for the Family Trust cannot claim input tax credits or RITCs for the acquisitions of the Business Traders course, taxis, airfares, meals and accommodation.

Relevant facts

The Trustees for the Family Trust (you) carry on a share trading business which is registered for the goods and services tax (GST).

You purchased a business traders course. The purpose of this course is to enable you to carry on the share trading business. As part of the course, you had to go to attend a two days face to face training. To attend these two days training, you incurred expenses such as airfares, taxis, accommodation and meals. All these expenses included GST and were in connection to the share trading business.

You advised you will be buying and selling shares for the Family Trust and you will acquire the services of stock brokers in order to carry on this share trading business. The stock brokers will include GST in their price for their services.

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 input tax credits for any creditable acquisitions that you make.

Creditable acquisition

Section 11-5 of the GST Act sets out the requirements that must be satisfied for an acquisition to be a creditable acquisition.

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

· you acquire anything solely or partly for a creditable purpose; and

· the supply of the thing to you is a taxable supply; and

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

· you are registered, or required to be registered.

One of the requirements for a creditable acquisition is that it is made solely or partly for a creditable purpose. Section 11-15 of the GST Act provides the meaning of creditable purpose.

Under subsection 11-15(1) of the GST Act, you acquire a thing for a creditable purpose to the extent you do so in carrying on your enterprise.

However, under subsection 11-15(2) of the GST Act, 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

· the acquisition is of a private or domestic nature.

Accordingly, you will be entitled to claim an input tax credit for the GST paid on an acquisition if it is used in your enterprise, but not to the extent that you use the acquisition to make input taxed supplies, or if the acquisition is of a private or domestic nature.

Input taxed supply - financial supply

Division 40 of the GST Act provides a list of supplies that are input taxed and includes financial supplies.

Section 40-5 of the GST Act provides that a financial supply is input taxed and has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

The GST Regulations identify the supplies that are financial supplies by inclusion and exclusion under regulations 40-5.09 and 40-5.10 of the GST Regulations, respectively.

The provision, acquisition or disposal of an interest in shares is a financial supply under item 10 in the table in subregulation 40-5.09(3) of the GST Regulations.

From the information received, you carry on a share trading business and you have acquired a business traders course in order to enable the trustees to do the share trading activities and incurred expenses such as air fares, taxis, accommodation and meals when the trustees were receiving the face to face training on share trading.

Since you are registered for GST and will buy or sell shares in the course or furtherance of an enterprise you carry on, you will make financial supplies which are input taxed supplies under Division 40 of the GST Act. Therefore as you make input taxed supplies, any goods or services you acquire in relation to those input taxed supplies are not for creditable purposes due to the operation of paragraph 11-15(2)(a) of the GST Act. Accordingly, you are not entitled to input tax credits for the expenses you have incurred under section 11-20 of the GST Act.

For further guidance on what is a financial supply, please refer to Goods and Services Tax Ruling GSTR 2002/2 which is available at www.ato.gov.au

Exceptions to general rule

However, an exception to the non-entitlement to input tax credits under paragraph 11-15(2)(a) of the GST Act is provided for in subsections 11-15(3), 11-15(4) and 11-15(5) of the GST Act.

Relevant to you is the exception outlined in subsection 11-15(4) of the GST Act which applies only if an entity does not exceed the financial acquisitions threshold.

Subsection 11-15(4) of the GST Act

Under subsection 11-15(4) of the GST Act, an acquisition is not treated, for the purposes of paragraph 11-15(2)(a) of the GST Act, as relating to making supplies that would be input taxed if:

· the only reason it would (apart from this subsection) be so treated is because it relates to making financial supplies; and

· you do not exceed the financial acquisitions threshold.

The requirements for the financial acquisitions threshold are provided in sections 189-5 and 189-10 of the GST Act. These sections provide that you exceed the financial acquisitions threshold if you make or are likely to make financial acquisitions where the input tax credits related to making those acquisitions would exceed the lesser of either:

· $50,000 or such other amount specified in the regulations (first limb test); or

· 10% of the total amount of input tax credits to which you would be entitled (second limb test).

You determine whether you exceed the financial acquisition threshold in a given month based on your acquisitions in:

· that month and the previous 11 months; and

· that month and the next 11 months.

If either or both of these levels are exceeded, you will have exceeded the financial acquisitions threshold.

Based on the information received, we cannot ascertain if you exceed the first limb test.

However, as your only activity is share trading which is an input taxed activity and you have advised that all the input tax credits you will be entitled relates to the share trading enterprise, you will exceed the second limb test (that is 10% of the total amount of input tax credits to which you would be entitled). The consequence of this is that you will not be entitled to claim input tax credits on your acquisitions used to make financial supplies.

For more information on financial acquisitions threshold, please refer to the Goods and Services Tax Ruling GSTR 2003/9 which is available at www.ato.gov.au

Division 70 of the GST Act

Division 70 of the GST Act deals with reduced credit acquisitions. When an acquisition is not for a creditable purpose under paragraph 11-15(2)(a) of the GST Act because it relates to making supplies that would be input taxed financial supplies, the acquisition may be a reduced credit acquisition.

The table in regulation 70-5.02 of the GST Regulations (the table) provides an exhaustive list of items that are reduced credit acquisitions. Regulation 70-5.03 of the GST Regulations provides that the reduced input tax credit entitlement is 75%.

Where an entity exceeds the financial acquisition threshold, that entity:

· can claim 75% of the input tax credits of any GST paid on an acquisition that relates to making financial supplies and that is listed as a reduced credit acquisition under Division 70 of the GST Regulations; and

· is not entitled to any input tax credits on acquisitions that are not reduced credit acquisitions.

Accordingly, where you make financial supplies, and you exceed the financial acquisitions threshold, you may be entitled to reduced input tax credits if the acquisitions are listed as reduced credit acquisitions in regulation 70-5.02 of the GST Regulations.

For more information on reduced credit acquisitions please refer to the Goods and Services Tax Ruling GSTR 2004/1 and the fact sheet 'GST and financial supplies - claiming reduced GST credits' (NAT 715512) which are available at www.ato.gov.au

Further, our view on brokerage is expressed in the publication Financial Services Questions and Answers (available at www.ato.gov.au) and states at item 4.4:

4.4. If I buy or sell shares in the course or furtherance of an enterprise I carry on, will I be entitled to input tax credits for GST paid on brokerage?

If you are registered for GST and buy or sell shares in the course or furtherance of an enterprise you carry on, you make financial supplies and you are not entitled to input tax credits.

However, if you do not exceed the financial acquisitions threshold, you may be entitled to a full input tax credits.

If you exceed the financial acquisition threshold, you may still be entitled to reduced input tax credits on brokerage, as it is a reduced credit acquisition under item 9 in the table in regulation 70-5.02 of the GST regulations. The amount of reduced input tax credit is 75% of the GST included in the brokerage fees (regulation 70-5.03 of the GST regulation).

From the information received, you will be entitled to a reduced input tax credit equivalent to 75% of the GST to be incurred on brokerage fees under item 9 of regulation 70-5.02 and regulation 70-5.03 of the GST Regulations.

The other acquisitions (Business Traders course, taxis accommodation, air fares and meals) are not acquisitions of a specific kind that fall within the GST Regulations and are not reduced credit acquisitions. Therefore they do not attract RITC.