Edited version of your private ruling

Authorisation Number: 1012588757117

Ruling

Subject: Input tax credits

Question

Are you entitled to claim input tax credits after the cancellation of GST registration on acquisitions made in relation to a legal dispute which originated whilst carrying on the enterprise and is still continuing after the cessation of the enterprise?

Answer

To have an entitlement to input tax credits you must, among other requirements, be registered for the GST and be carrying on an enterprise. See below for more details.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

· You were a sole trader engaged in an enterprise in the communication industry.

· You were registered for the goods and services tax (GST) while carrying on your enterprise.

· During the course of carrying on your enterprise, you had a legal dispute with one of your suppliers.

· As a consequence of this dispute, you eventually ceased to trade and discontinued your GST registration.

· The legal dispute is continuing and you are acquiring legal services which are taxable supplies in your hands.

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 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Subsection 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You are entitled to the input tax credit for any * creditable acquisitions that you make.

(Item marked with an asterisk is defined in the GST Act at section 195-1)

For you to have an entitlement to an input tax credit, your acquisition of legal services must be a creditable acquisition.

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.

In this case you are acquiring legal services which include GST and you provided, or are liable to provide, considerations for these services. Your acquisition of legal services satisfies two of the conditions of making creditable acquisitions. However for your acquisition to be creditable your acquisition must be solely or partly for a creditable purpose and you must be registered or required to be registered.

Subsection 11-15 of the GST Act states that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

You inform us that you ceased your enterprise in 2010. Thus, you are neither carrying on an enterprise nor are you registered for the GST. Therefore, you have no entitlement to the input tax credits for the taxable supplies of legal services you acquire.

However, you may be able to claim input tax credits if you re-register for the GST and satisfy other requirements as specified in the GST legislation.

The term "carrying on" of an enterprise is defined in section 195-1 of the GST Act to include doing anything in the course of commencement or termination of the enterprise.

Miscellaneous Taxation Ruling 2006/1 (MT 2006/1) provides the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. Goods and Services Tax Ruling 2006/6 (GSTR 2006/6) states that MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999.

Paragraph 143 to 147 of MT 2006/1 states:

144. In circumstances where assets have been sold or where they are no longer used in the enterprise there may still be some other activities undertaken to terminate the enterprise. These activities may include the preparation of final accounts, activity statements and income tax returns and the cancellation of the ABN and GST registration.

145. An enterprise is also considered to terminate where outstanding obligations cannot be satisfied and other activities have ceased.

146. However, an entity is still entitled to an ABN where it has ended some activities that themselves would constitute a separate enterprise but it is still running at least one enterprise. This is because an entity is entitled to an ABN while it is carrying on an enterprise. The entity is also entitled to an ABN where the only activities performed are those that it does in terminating the enterprise, for example the sale of its business premises. Those activities are done in carrying on an enterprise.

147. The question of whether the activities are done in terminating the enterprise or at some later point (and do not have a connection with the termination activities) is one of fact and degree depending on the circumstances of each particular case.

In your case the dispute you have with the supplier and the ligation commenced whilst you were carrying on your enterprise and continued after you ceased to trade. We consider that the current litigation is an activity that could be deemed as one that was undertaken in the termination of an enterprise. Thus, it is an acquisition made in the course of carrying on an enterprise.

However, you are no longer registered for the GST. Under subsection 25-5(1) of the GST Act, the commissioner must register you if:

(a) you have applied for registration in an *approved form; and

(b) the Commissioner is satisfied that you are *carrying on an *enterprise, or you intend to carry on an enterprise from a particular date specified in your application.

Provided you re-register for the GST and back date the registration to the date of the cancellation and your acquisitions are creditable acquisitions as explained above, you may be able to claim input tax credits on the acquisition of legal services.