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Ruling

Subject: GST and acquisitions

Question 1

Are you entitled to claim input tax credits for acquisitions which are purchased solely for use in a partnership business and which are not recouped back to you by that partnership?

Answer

No you are not entitled to claim input tax credits for acquisitions which are purchased solely for use in a partnership business and which are not recouped back to you by that partnership.

Relevant facts and circumstances

You are registered for GST.

Your tax agent has supplied the following information:

You are a partner in a partnership called X.

Partnership X conducts an electrical installation business.

The partnership pays all expenses except for the acquisition of work utilities and tools.

The arrangement between the partners of the partnership is that each partner must supply his own work vehicle and tools.

The work vehicle and tools are acquired with your funds, in your name and are recorded in your accounting records.

This arrangement is to avoid conflict over the standard of quality of the vehicle and tools each partner chooses to employ and any resulting damage, wear or loss is directly attributable to the entity who owns the equipment.

Additionally the partners may incur some small incidental expenses such as stationery and materials which are not recouped by the partnership.

The items purchased are for the sole purpose of conducting the partnership enterprise.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20.

A New Tax System (Goods and Services Tax) Act 1999 Section 11-25.

Reasons for decision

You are entitled to the input tax credit for any creditable acquisition that you make pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act').

Section 11-5 of the GST Act provides that 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.

In your case you are registered for GST and you provided consideration for the acquisition therefore if the supply of the thing to you was a taxable supply and you acquired it for a creditable purpose then it will be a creditable acquisition.

Creditable purpose

Section 11-15 of the GST Act provides the meaning of creditable purpose. Under section 11-15, an entity acquires a thing for a creditable purpose to the extent that the entity acquires the thing in carrying on its enterprise. However, an acquisition is not for a creditable purpose to the extent that the acquisition is of a private or domestic nature.

Goods and Services Tax Ruling GSTR 2008/1 provides additional clarity on what it means to acquire anything or import goods solely or partly for a creditable purpose.

Paragraph 64 of GSTR 2008/1 provides that in order to conclude that a thing was acquired for the enterprise it requires a connection or link between the thing acquired and the enterprise.

Paragraphs 98 to 100 of GSTR 2008/1 confirm that it is the relationship between the acquisition and the enterprise of the particular entity that must be considered.

98. A thing may be acquired by one entity (the recipient) but be provided to another entity. This concept is discussed at paragraphs 123 to 176 of GSTR 2006/9.

99. As explained in that Ruling, it is the recipient entity that acquires the thing. Consequently, it is the recipient entity that must satisfy the creditable purpose requirements in section 11-15.

100. If a thing is acquired by one entity but provided to another entity, the acquisition is not necessarily made in carrying on the first entity's enterprise. For example, if advice concerning share value is acquired by a private company and provided to its individual shareholders to enable those individuals to secure private finance, the advice provides no benefit to the company and is not acquired in carrying on its enterprise. The acquisition relates to each individual's shareholding rather than the enterprise that is being carried on. It satisfies the personal needs of the shareholders rather than the company

The example at paragraph 100 demonstrates the requirement for the acquisition to be used in the enterprise of the entity that has made the acquisition in order to satisfy the connection between the thing acquired and the enterprise.

From the facts you have supplied, the acquisitions of the motor vehicle and tools have been acquired by you, from your funds and are recorded in your accounts however these acquisitions will not be used in your enterprise. The motor vehicle and tools are to be used by another entity. Even though you are a partner in the entity that is using these acquisitions in carrying on its enterprise, this does not establish the necessary connection between the acquisition and your enterprise to satisfy section 11-15 of the GST Act.

As the acquisitions made in these circumstances are not made for the purpose of carrying on your enterprise these acquisitions are not for a creditable purpose. As you do not satisfy subsection 11-5(a) of the GST Act, you are not entitled to claim any input tax credits for these acquisitions.