Edited version of private ruling

Authorisation Number: 1011809016150

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and entitlement to Input Tax Credits

Questions

1. Is the entity entitled to be registered for Goods and Services Tax (GST)?

2. If yes, can it claim input tax credits (ITCs) in relation to fees paid?

3. What is the entity's Australian Business Number (ABN)?

Answers

1. No

2. No

3. There is no ABN registered in the name of entity.

Relevant facts and circumstances

The entity is not registered for GST.

You, advised that the entity is only in receipt of interest income.

You have been lodging Instalments Activity Statements making PAYG payments in relation to the interest income received.

You have paid your lawyers amount of money inclusive of GST.

You wish to claim the amount as ITCs.

You requested a Private Binding Ruling on asking whether you can claim the ITCs.

With the same correspondence you asked to be provided with the entity's ABN.

Reasons for decision

Question 1

Summary

The entity is not carrying on an enterprise and therefore is not entitled to be registered for GST and claim ITCs.

Detailed reasoning

According to section 23-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity may be registered for GST if it is carrying or intending to carry on an enterprise.

The term enterprise as defined in subsection 9-20(1) of the GST Act and can include an activity or a series of activities done:

(a) In the form of a business, or

(b) in the form of an adventure or concern in the nature of trade.

Miscellaneous taxation ruling MT 2006/1 provides guidance on the meaning of whether an entity is carrying on an enterprise for the purposes of an entitlement to an ABN. This is normally considered a question of fact. The receipt of a passive investment income does not come under the meaning of an enterprise.

Example 24 of MT 2006/1 lists the following investment activities as not being an enterprise:

206. A trust is set up in respect of 12,000 blue chip shares and term deposits of $100,000 from which dividends and interest are received. The total portfolio is worth $350,000 to be held for the benefit of the trustee's children and grandchildren. The trustee incurs expenses including bank fees, accountancy fees and brokerage associated with the management of the portfolio. The net income of the trust is distributed to the beneficiaries of the trust. The shares are held for investment purposes.

207. Once or twice a year small parcels of underperforming shares in one or two of the companies in the portfolio are sold and the proceeds reinvested in other shares or deposits. The trustee has no other activities.

208. The trustee for the trust is not entitled to an ABN. The activities undertaken are insufficient to amount to an enterprise. ⁷⁰

Further, the difference between trade and investment assets is explained in paragraph 258 of MT 2006/1. United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes. This is applicable to money invested in the bank with the only intention of holding it and earning interest. Thus, as the only income received by the entity is from the interest earned on the money received, it will be passive income and not classed as an enterprise.

Since the entity is not carrying on an enterprise, it is not entitled to be registered for GST.

Question 2

Detailed reasoning

Section 11-1 of the GST Act, states that you are entitled to claim ITCs for your creditable acquisitions. An explanation of what is a creditable acquisition is given by section 11-5 of the GST Act:

(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 able to provide, consideration for the supply; and

(d)    You are registered or required to be registered.

Further, the definition of a creditable purpose is provided under section 11-15 of the GST Act. You are considered to have acquired a thing for a creditable purpose if: 

(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 supplies that would be input taxed; or

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

Since the entity is not carrying on an enterprise it did not acquire the legal services for creditable purpose and thus has no entitlement to claim ITCs in relation to the fees paid.

Question 3

Summary

The entity does not have an ABN.

Detailed reasoning

Applying for an ABN is not compulsory. An entity that only receives interest income does not need an ABN to pay its tax instalments because it is not carrying on an enterprise. An entity will pay its Pay As You Go (PAYG) instalment using a Business Activity Statement (if it is registered) or an Instalment Activity Statement (if it is not registered), which is the case with this entity.