Edited version of private ruling

Authorisation Number: 1011810305044

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Ruling

Subject: GST and input taxed credits

Question 1

Are you entitled to claim input tax credits on the purchase of a boat for use in your boat and charter operations?

Answer 1

No, you are not entitled to claim input tax credits on the purchase of a boat for use in your boat and charter operations as the supply made to you was a supply of a going concern.

Question 2

Are you entitled to claim input tax credits in respect of ongoing expenses for the operation of your boat and charter operations?

Answer 2

You may be entitled to claim input tax credits in respect of ongoing expenses for the operation of your boat and charter operations provided you satisfy the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts

Some time ago, you purchased a boat with the intention of using it for your boat charter operations. The boat is registered and insured as a charter vessel.

You are registered for GST.

The selling agreement between you and the vendor provides that for consideration of a certain sum, you agree to purchase the boat.

The agreement states that the vendor has agreed to sell and the purchaser has agreed to purchase for the stated price as a going concern. For GST purposes, the boat is sold as a going concern, and you have provided a copy of a document to that effect.

You have received advice from the Tax Office that you are carrying on a business in boat hire.

While conducting your boat charter operations, you will incur ongoing expenses and you have requested advice as to whether you will be entitled to claim an input tax credit on those expenses.

Reasons for decisions

Issues 1 and 2

Under section 11-20 of the GST Act, you are entitled to an input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act 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 for GST.

(* Denotes a defined term in the GST Act)

In your case, you provided consideration for the supply of the boat and are liable to provide consideration for the supply of other expenses relating to the boat and the charter operations. You are also registered for GST. Accordingly, the acquisitions of the boat and expenses relating to the boat and the charter operations meet the requirements of paragraphs 11-5(c) and 11-5(d) of the GST Act.

It remains to be determined if the requirements of paragraph 11-5(a) and 11-5(b) of the GST Act are satisfied.

Creditable purpose

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, pursuant to subsection 11-15(2) of the GST Act, 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.

'Enterprise' is defined in section 9-20 of the GST Act to include, among other things, an activity, or series of activities done:

· in the form of a business

· in the form of an adventure or concern in the nature of trade and

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Miscellaneous Taxation Ruling MT 2006/1 provides the view of the Tax Office on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act.

As the definition of 'business' is identical in the GST Act and the Income Tax Assessment Act 1997, it can be interpreted in a similar manner.

You recently received advice from the Tax office which confirms that you are carrying on a business in boat hire.

As you have acquired the boat for use in your boat hire operations, you have satisfied the requirement of 'creditable purpose' in paragraph 11-5(a) of the GST Act. The only issue to consider is whether the sale of the boat to you was a taxable supply.

Taxable supply

Whether or not a supply is a taxable supply depends on the supplier's circumstance. A supplier will make a taxable supply if all of the requirements of section 9-5 of the GST Act are met.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

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

(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.

Acquisition of the boat

Based on the information provided, the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act will be met. This is because the vendor sells the boat for consideration, the supply is made in the course or furtherance of the enterprise that the vendor carries on, the sale is connected with Australia and the vendor is registered for GST.

The supply of the boat is not input taxed under any provision of the GST Act. Therefore, what is left to consider is whether the sale is GST-free as a supply of a going concern under subdivision 38-J of the GST Act. If the supply of the boat to you was a GST-free supply of a going concern, then it will not be a taxable supply under section 9-5 of the GST Act.

Subdivision 38-J of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement for the supply of a going concern.

Section 38-325 of the GST Act states:

(1) The *supply of a going concern is GST-free if:

(a) the supply is for *consideration; and

(b) the *recipient is *registered or *required to be registered; and

(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.

(2) A supply of a going concern is a supply under an arrangement under which:

(a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and

(b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier).

Goods and Services Tax Ruling GSTR 2002/5 discusses a supply of a going concern for the purposes of section 38-325 of the GST Act and sets out the Tax office's view on the supply of GST-free going concerns.

Paragraphs 72 and 73 of GSTR 2002/5 provide that the term 'necessary' incorporates every attribute of an enterprise that is essential for the continued operation of the identified enterprise. What is necessary for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. A thing is necessary for the continued operation of an enterprise if the enterprise could not be operated by the purchaser in the absence of the thing.

Your agreement with the vendor and the tax invoice they issued indicates that the supply of the boat to you is a going concern for GST purposes. The tax invoice provided by the vendor shows a nil GST amount.

As stated above, one of the requirements of a creditable acquisition is that the supply of the boat to you must have been a taxable supply. In view of the fact that the supply to you was not a taxable supply your acquisition of the boat did not meet the requirements of subsection 11-5(b) of the GST Act.

Consequently, as all the requirements of section 11-5 of the GST Act are not met, your acquisition of the boat is not a creditable acquisition. Hence you are not entitled to an input tax credit on the purchase of the boat.

Other expenses relating to the boat and the charter operations

As explained above, whether you can claim input tax credits on the other acquisitions that you make in respect of the boat and the boat charter operations depends on the extent to which the goods and services are acquired in carrying on your business and whether or not they are GST-free or input taxed, or of a private or domestic nature.

Where GST is included in the price of a supply to you and you have satisfied all the other requirements of section 11-5 of the GST Act, you will be entitled to a GST credit.

For further information, please refer to Goods and Services Tax Ruling GSTR 2006/4 which deals with section 11-5 of the GST Act and lists the requirements that must be satisfied for an acquisition to qualify as a creditable acquisition and thus give rise to an input tax credit entitlement. GSTR 2006/4 is accessible at the Tax office website at www.ato.gov.au