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Authorisation Number: 1012403120856

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Ruling

Subject: Carrying on an enterprise

Questions:

1. Do the yacht charter activities that you intend to undertake amount to the carrying on of an enterprise for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Are you entitled to claim input tax credits (ITC's) on the acquisition of the yacht?

Answers:

1. Yes, the yacht charter activities that you intend to undertake amount to the carrying on of an enterprise for the purposes of the GST Act.

2. Yes, you are entitled to claim ITC's on the acquisition of the yacht.

Relevant facts and circumstances

Your advice is based on the following facts:

You have an Australian Business Number (ABN).

You hold a Marine Engine Driver Grade 2 (MED2) certificate, which allows you to drive a vessel with engine power up to 750 kilowatts (kW) or 1000 horsepower (hp).

You hold a Master Class 4/Skipper 2 Certificate, which allows you to drive a vessel up to 80 metres in length.

You previously had a catamaran which was put in charter.

The vessel you intend to buy requires the operator to have both certificates.

You will purchase a yacht which you will use to ferry passengers.

You booked a flight for an overseas destination and expect to bring the boat back to Australia in 2013.

You intend to provide high-end luxury transportation service to customers, including overnight stays, weddings, etc

Your yacht will have a capacity of up to 40 people.

You will finance the yacht by obtaining low interest loans from two sources and a small amount of capital contribution on your own.

You have drawn up a business plan with expected profits each income year.

You incurred necessary expenses between July 2012 and December 2012 such as international registration (once off Australian Government fee) and mooring fees (paid to the state Government) to secure the mooring site for the vessel.

You will put the yacht in state survey once it is in Australia.

You have clients interested in booking with you and you will receive income once you've been handed the keys to the yacht from the seller.

You will market your yacht with boat hire companies as well as on several websites.

You will have appropriate insurances in place.

Relevant legislative provisions

A New Tax System Goods and Services Tax) Act 1999.

Reasons for decision

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 that 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.

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

Section 9-20 of the GST Act defines enterprise to include, amongst other things, 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.

There is no definition of the phrase 'in the form of an adventure or concern in the nature of trade' in the GST Act. 'An adventure or concern in the nature of trade' includes a commercial activity that does not amount to a business, but which has the characteristics of a business. Without other factors being present, such activities will not be considered as adventure or concern in the nature of trade.

Miscellaneous Tax Ruling MT 2006/1 (MT 2006/1) provides guidance on the meaning of 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Generally, whether an enterprise is being carried on is determined on the basis of the overall impression gained after examining the activities as a whole and the intention of the taxpayer undertaking the activity. In accordance with paragraph 159 of MT 2006/1 whether or not an activity or series of activities constitutes an enterprise is a question of fact or degree having regard to all of the circumstances of the case.

In order to determine if an activity or series of activities amount to an enterprise, the activity needs to be considered against the indicators of a business as established by case law. In that regard, paragraph 178 of MT 2006/1 refers to the indicators discussed in Income Tax Ruling TR 97/11. Based on that discussion the indicators of a business include:

· a significant commercial activity

· a purpose and intention of the taxpayer to engage in commercial activity

· an intention to make a profit from the activity

· the activity is or will be profitable

· the recurrence or regularity of the activity

· the activity is organised, systematic and carried on in a similar manner to that of other businesses in the same or similar trade

· the activity is of reasonable size and scale

· a business plan exists and record are kept

· commercial sales of product

· the entity has relevant knowledge or skill.

Paragraph 12 of TR 97/1 states that while each case might turn on its own facts, the determination of the question is generally the result of a process of weighing up all the relevant indicators. In particular, the nature of the activity, entity's intention and the method of operation helps determine whether an enterprise is being carried on.

The intention of the entity in engaging in the activity is an important indicator. It is necessary to consider whether there is an intention to make a profit or whether the activity can be better described as a hobby, recreational pursuit or sporting activity.

An activity is more likely to be an enterprise when it is carried on in a similar manner to that of other participants in the same industry. In this regard the sort of expenses incurred and the amount invested in capital assets can be considered as similar to that of other businesses in the same or similar industries.

The repetition and regularity is often a strong indicator and similar activities are repeated on a regular basis.

Given consideration of the facts provided in your request for a private ruling we are of the view that there are sufficient indicators to conclude that you have commenced to carry on an enterprise. This is consistent with the analysis and conclusion reached for income tax purposes in your case.

Consequently, as you are carrying on a business, we consider that the purchase of the yacht is for a creditable purpose. As such you will be making a creditable acquisition of the yacht and you will be able to claim GST that you will pay on the acquisition of the yacht.