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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012670001917

Ruling

Subject: GST and creditable acquisitions

Question

Are you entitled to claim an input tax credit (ITC) under section 11-20 of the A New Tax System (Goods and Services) Act 1999 (GST Act)?

Answer

No

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You operated a business and acquired services from entity X.

No contract or agreement was entered into between you and entity X for the provision of these services.

There was no evidence of how the fee for the services was determined or calculated.

All communications of advice occurred verbally and there was no written advice or report provided.

Relevant legislative provisions

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

Reasons for decision

All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Under section 11-20, you are entitled to an ITC for any creditable acquisition that you make. You make a creditable acquisition if, amongst other things, you acquire anything for a creditable purpose and the supply of the thing to you is a taxable supply.

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Goods and Services Tax Ruling GSTR 2006/4 provides guidance on determining the extent of creditable purpose for claiming ITC's. Paragraph 55 states:

    55. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. The acquisition needs to be made in the course of the activities that constitute your enterprise. An acquisition is made 'in carrying on your enterprise' if it is made for the purposes of that enterprise, but not if it is made for some other purpose. You could engage in an activity that is usually done by the enterprise, but is not for the purposes of that enterprise.

Goods and Services Tax Ruling GSTR 2008/1 provides guidance on when you acquire anything for a creditable purpose. Paragraph 70 states:

    70. Whether an acquisition is acquired in carrying on an enterprise is a question of fact and degree, making it impractical to provide an exhaustive list of all the factors that may be relevant to determining whether an acquisition is made in carrying on an enterprise. However, some factors that would suggest that an acquisition is made in carrying on an enterprise include that:

      • the acquisition is incidental or relevant to the commencement, continuance or termination of the enterprise;

      • the thing acquired is used by the enterprise in making supplies;

      • the acquisition secures a real benefit or advantage for the commencement, continuance or termination of the enterprise;

      • the acquisition is one which an ordinary business person in the position of the recipient would be likely to make for the enterprise;

      • the acquisition does not meet the personal needs of individuals such as partners or directors;

      • the acquisition helps to protect or preserve the enterprise entity, structure or organisation; and

      • the acquisition is made by the entity in accordance with, or to satisfy, a statutory requirement imposed on the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian business number. Goods and Service Tax Determination GSTD 2006/6 provides that it has equal application for the purposes of the GST Act. Paragraph 170A of MT 2006/1 states:

    170A. In FCT v. Swansea Services Pty Ltd at paragraph 99, McKerracher J. observed that the words 'in the form of' do not support a suggestion that form alone may prevail over substance. However, he said that they do 'have the effect of extending the reach of 'enterprise' to those activities which are in the form of a business but would not, in the ordinary meaning of 'business' be considered such. But the activity must still be reasonably intended to be profit making in the case of an individual…

After considering all of the relevant information, we consider that there is insufficient evidence that you acquired the services for a creditable purpose. Consequently, you have not made a creditable acquisition under section 11-20.

Therefore, you are not entitled to claim an ITC.


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