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Edited version of your written advice
Authorisation Number: 1012700871354
Ruling
Subject: GST and creditable acquisition
Question 1
Is the acquisition of legal advice and various experts opinions relating to a matter before the Family Court (FCA) a creditable acquisition for the purpose of A New Tax System (Goods and Services) Act 1999 (GST Act)?
Answer
Yes
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
• You are a company registered for goods and services tax (GST).
• You acquired a farming property prior to the year 2000.
• The farming property was used by you for livestock grazing and feed lots.
• Following the death of a founding shareholder of your company the property was used by their child's entity.
• The use of the property was facilitated under a family arrangement and no formal lease was prepared. The entity used the property as a farming property and also sublet the farm from time to time.
• The child passed away in early 20XX and following this death a dispute arose over the ownership of the farming property.
• Your financial statements for the years 2010 to 2012 shows Income from-leasing Farm Equipment.
• The farm equipment leased is the entire equipment shown on each year's depreciation schedule as the amount of each year's lease income is equal to the depreciation charge total for each year.
• You also received additional rent of $xx,xxx for lease of a portion of the farm land which is reported in the 20XX financial statements.
• The rent received covers a number of years in advance.
• The dispute before the FCA relates to the ultimate ownership of a farming property and you carried on an enterprise of leasing assets affixed to the farming land.
• The assets being leased comprise Buildings, Stock Yards, Fencing and Machinery and in relation to the lease, a portion of the land. The majority value of the assets being leased (buildings, stock yards & fences) are affixed to the land.
Your contentions
• You contend that the rental activity of assets owned by you is considered carrying on an enterprise of leasing. The activity is done on a regular and continuous basis as per MT 2006/1.
• It is the connection to the assets to the land - which is the subject of a legal dispute - which directly provides the link to enable you to treat the legal fees relating to the ownership dispute of the land as creditable acquisitions.
• The leasing enterprise being carried on by you would be non-existent if there was an absence of land. Accordingly the taxable supplies relating to the defence of ownership of the land are creditable acquisitions for the purposes of the leasing enterprise.
Relevant legislative provisions
All references are to the A New Tax System (Goods and Services Tax) Act 1999:
Section 11-5
Section 11-15
Section 11-20
Reasons for decision
Question
Summary
Your acquisition of legal advice and various experts opinions relating to a matter before the Family Court (FCA) is a creditable acquisition and you are entitled to an input tax credit under section of 11-20 of the GST Act provided you hold a valid tax invoice for the provision of the services.
Detailed reasoning
Under section 11-20 of the GST Act, you are entitled to an input tax credit for any creditable acquisition that you make. Provided in part, that you acquire the thing solely or partly for a creditable purpose.
Section 11-15 of the GST Act explains the meaning of creditable purpose, and provides that 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 supplies that would be input taxed; or the acquisition is for a private or domestic nature.
Paragraph 64 of Goods and Services Tax Ruling GSTR 2008/1 provides that whether something is acquired in carrying on an enterprise requires a connection or link between the thing acquired and the enterprise.
You acquired legal services in carrying on your enterprise of leasing farm assets under a family arrangement to an entity who used the property as a farming property and also sublet the farm from time to time. Additionally you also leased of a portion of the farm land.
The litigated dispute you have is in relation to the ownership of the land and as a consequence would also impact on the leasing arrangement you have with the lessee. The leasing enterprise is not input taxed. It is also not one of a private or domestic nature. Therefore, your acquisition of legal services is for a creditable purpose. Thus, paragraph 11-5(a) of the GST Act is satisfied.
As you have satisfied all of the conditions in section 11-5 of the GST Act, your acquisition is a creditable acquisition.
Section 11-20 of the GST Act states that you are entitled to the input tax for any creditable acquisition that you make.
Therefore, as you made a creditable acquisition of legal services, you are entitled to input tax credits.