Edited version of your written advice

Authorisation Number: 1012663680160

Ruling

Subject: GST and input tax credits

Question

1. Is Entity 1 entitled to claim an input tax credit of the GST included in the options fees paid?

2. If the answer to the above question is "No", can the Commissioner use the discretion provided under section 29-70(1B) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to determine the tax invoices issued to entity 2 and other evidence available, as a tax invoice issued to Entity 1 to enable Entity 1 to claim input tax credits included in the options fees.

Advice/Answers

1. No, Entity 1 is not entitled to claim an input tax credits of the GST included in the options fees paid as there is no evidence of Entity 1 making a creditable acquisition.

2. No, the Commissioner cannot use his discretion to treat the tax invoices and other evidence available as a tax invoice to enable Entity 1 to claim input tax credits.

Relevant facts

• Entity 2 is a subsidiary of Entity 1 (the parent company).

• Entity 2 (instead of Entity 1) was used to enter into options Agreements to purchase properties.

• The Option Fee was paid by another entity.

• It is the view of the office bearers of both Entity 2 and Entity 1, that Entity 2 was used in error as the purchaser of the property instead of Entity 1.

• The options fees have been paid to the Grantor and the options agreements have lapsed. Attempts have been made to correct the error of including Entity 2 (and not Entity 1) in the options agreement. However, the Grantor of the options (Grantor) is not willing to change the contract to include Entity 1 as the grantee as the options agreement has lapsed.

• Entity 1 wishes to claim the relevant amount of input tax credits attributable to the options agreements despite not having Entity 1 show up on the relevant options agreement or the tax invoices.

• The tax invoices issued for the options agreement in relation to the purchase of a property indicate Entity 2 as the recipient of the supply.

• Tax invoices issued for the options agreement in relation to the purchase of another property indicate Entity 2 as a trustee of a trust as the recipient of the supply.

• The options agreements were not 'assigned' to Entity 1.

Reasons for decision

An entity is entitled to claim input tax credits on creditable acquisitions they make.

Therefore, what needs to be determined here is whether Entity 1 has made a creditable acquisition of the things supplied under the relevant options agreements.

A creditable acquisition is defined in section 11-5 of the GST Act as follows:

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.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

In order for paragraph 11-5(a) of the GST Act to be satisfied, the entity that wishes to claim the input tax credits must acquire the thing . For instance, paragraph 11-5(a) states, you acquire anything…..Therefore, in order for Entity 1 to satisfy paragraph 11-5(a), they must have acquired the things supplied under the options agreement.

Paragraph 54 of goods and services ruling, Goods and services tax: supplies (GSTR 2006/9) provides the following regarding the meaning of 'acquisition'.

54. To make an acquisition you have to be the 'recipient' of the supply of the thing you are acquiring. Although the term 'recipient' does not appear in Division 11, it is defined in section 195-1 to mean 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.

Whilst it is acknowledged that Entity 2 was used in error in the options agreement there is no evidence of Entity 1 actually making the acquisitions under the options agreements.

All the evidence provided to us only indicates that Entity 1 should have been used in the options agreement. Therefore, in the absence of legal documents that provide evidence that it was in fact Entity 1 that made the acquisitions under the relevant options agreements and not Entity 2, we are of the view that Entity 1 has not made any acquisitions under these options agreements. Just the mere indication that Entity 1 should have been used in the options agreement does not make Entity 1 the 'acquirer' of the things under the options agreement. All the evidence supplied thus far suggests that it was Entity 2 that made the acquisitions. Therefore, as Entity 1 does not meet paragraph 11-5(a) of the GST Act, they have not made a creditable acquisition of the relevant supplies made under the options agreements and therefore is not entitled to claim any input tax credits.

Tax invoice discretion

As mentioned before, whether or not an entity is entitled to claim an input tax credit is dependent on whether or not that entity has made a creditable acquisition.

The requirement to hold a valid tax invoice to attribute the relevant amount of input tax credit on the creditable acquisition made is a secondary requirement.

Therefore, as Entity 1 has not made a creditable acquisition of the supplies made under the relevant options agreements, it is not necessary to decide whether to exercise the discretion under subsection 29-70(1B) of the GST Act.