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Ruling

Subject: GST and input tax credits

Question

Are you entitled to input tax credits for your acquisition of automated teller machines (the machines)?

Answer

No, you are not entitled to input tax credits for your acquisition of the machines.

Relevant facts and circumstances

You are not registered for GST.

You are not carrying on an enterprise.

You purchased machines from another entity (the supplier) for investment purposes. At the time of purchase, you were not carrying on an enterprise and thus were not registered or required to be registered for GST.

Upon payment, you received a tax invoice from the supplier which indicated the GST amount payable on the supply and installation of machines.

The tax invoice specified the serial number of each of the machines.

You did not take physical possession of the machines as they were supposed to be installed and operated in particular sites.

You entered into an ATM Agreement (the agreement) with another entity.

You are referred to in the agreement as the 'ATM Operator' conducting the business of operating ATMs. The other entity is referred to in the agreement as the 'Deployer' conducting the business of installing, servicing and maintaining ATMs.

The Deployer agreed to arrange the installation of the machines pursuant to the agreement.

Under the agreement, you and the Deployer will jointly supply ATM services which include:

· withdrawal from an account

· deposit into an account

· an electronic transfer from an account, and

· advice of the balance of an account.

The agreement provides that each month during the term, you are entitled to receive the greater of:

· $0.X0 per transaction from the income stream generated by the machines, or

· Y% of the total transactions fees generated by the machines, or

· the minimum ATM proceeds of $Z per machine.

After two months, you stopped receiving income from the investment. You found out that the Deployer was placed in liquidation and that the machines that you purchased have not been actually deployed.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20,

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 23-5 and

A New Tax System (Goods and Services Tax) Act 1999 section 40-5.

Reasons for decision

Entitlement to input tax credits arises from creditable acquisitions and creditable importations.

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

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 for GST.

(* denotes a term defined in section 195-1 of the GST Act).

All the requirements above must be satisfied for an acquisition to be a creditable acquisition.

To make an acquisition, you have to be the recipient of the supply of the thing that you are acquiring. The term 'recipient' is defined in section 195-1 of the GST Act as the entity to which the supply was made. This definition suggests that there is a supplier, a recipient and that something is passed from the supplier to the recipient.

Was there a supply made?

Generally, a supply is made when something is passed from the supplier to the recipient. For a supply of goods, the supply occurs when there is a transfer of ownership or physical possession of the goods.

The tax invoice from the supplier specified the serial number of each of the machines that you purchased. You did not take physical possession of the machines as they were meant to be installed in particular sites.

Based on the information provided, the machines were never installed or deployed in particular sites. However, it is unclear whether the machines with the specified serial numbers did not actually exist or they existed but were just not installed or deployed. It is also unclear whether the transfer of ownership occurred at some point in time.

For the purpose of this ruling, we will consider that there was a supply of machines as evidenced by the tax invoice issued to you by the supplier. The installation or deployment of the machines did not occur but it was the Deployer who would have arranged it pursuant to the agreement.

Creditable purpose

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature.

According to section 9-20 of the GST Act, an enterprise includes an activity, or series of activities done in the form of a business; or in the form of an adventure or concern in the nature of trade.

Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree.

You advised that you purchased the machines for investment purposes and that you were not carrying on an enterprise at that time. Therefore, you did not acquire the machines in carrying on your enterprise.

Under the agreement, you and the supplier will jointly supply ATM services which include:

· withdrawal from an account

· deposit into an account

· an electronic transfer from an account, and

· advice of the balance of an account.

Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed. Under subregulation 40-5.09(4A) of the A New Tax System (Goods and Services Tax) Regulations 1999, the supply ATM services that you and the Deployer will make under the agreement is a financial supply.

Therefore, had you purchased the machines in carrying on you enterprise, the acquisition would still not be for a creditable purpose as it relates to making input taxed supplies.

The requirement in paragraph 11-5(a) of the GST Act is not satisfied.

Taxable supply

Based on the information provided, the supply of the machines to you was a taxable supply. As such, the requirement in paragraph 11-5(b) of the GST Act is satisfied.

Consideration

You provided consideration for the supply of the machines. Therefore, the requirement in paragraph 11-5(c) of the GST Act is satisfied.

Registered or required to be registered

You advised that you were not registered for GST at the time of purchase of the machines. And as you were not carrying on an enterprise, you were not required to be registered for GST. The requirement in paragraph 11-5(d) of the GST Act is not satisfied.

Conclusion

As you did not satisfy the requirements in paragraphs 11-5(a) and 11-5(d) of the GST Act, your acquisition of the machines was not a creditable acquisition. Consequently, you are not entitled to input tax credits for the acquisition.