Edited version of your written advice

Authorisation Number: 1013052239510

Date of advice: 19 September 2016

Ruling

Subject: GST and creditable purpose

Question

Are you entitled to claim input tax credits (ITCs) for legal and accounting expenses for the tax periods from 1 October 2011 to a current tax period?

Answer

No, you are not entitled to claim ITCs for the legal and accounting expenses.

Relevant facts and circumstances

You are a partnership that is registered for GST on a cash basis with quarterly tax periods.

You have incurred legal and accounting expenses due to disputes arising from related businesses of your partners.

You have provided tax invoices and proof of payment to support your claims for the ITCs.

The work schedules attached to the tax invoices showed a mixture of works performed for different related entities.

You confirm that the ITCs in relation to the legal and accounting services that are subject to this private ruling application have not been previously or otherwise claimed.

ATO records show you reported limited amount of income and expenses since your GST registration.

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 11-15

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 184-5(1)

Taxation Administration Act 1953 Schedule 1 subsection 105-55(1)

Reasons for decision

Subsection 105-55(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a taxpayer is not entitled to a GST refund, other payment or credit unless within four years after the end of the tax period the taxpayer has notified the Commissioner of its entitlement.

In your case, the tax period ended 31 December 2011 is outside of the four-year time limit and as such, there is no entitlement to an ITC for this tax period.

However, we accept that the information you lodged which contained details of the proposed ITC claims constitutes a valid notification for the purposes of subsection 105-55(1) of Schedule 1 to the TAA. Therefore, the four-year time limit will not apply to your claim for ITCs for other tax periods.  

For tax periods starting on or after 1 July 2012, self-assessment will apply. This means that ITCs must be claimed within four years of the due date for lodgment of the BAS in which the ITCs were first attributable. Otherwise, the entitlement to those ITCs will cease.

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to an ITC for any creditable acquisition that you make.

Section 11-5 of the GST Act states that 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.

(* denotes a term defined in section 195-1 of the GST Act)

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

In this case, you are registered for GST as a partnership. It follows that supplies and acquisitions made by, or on behalf of, partners in their capacities as partners are taken, under subsection 184-5(1) of the GST Act, to be supplies or acquisitions made by the partnership.

Subsection 184-5(1) of the GST Act is a provision for the avoidance of doubt. It seeks to confirm the position that only the transactions entered into by a partner in the capacity of a partner, are transactions of the partnership.

From the assessment of information provided by you, the legal expenses are related to services provided by the legal firms for disputes between different entities associated with your partners.

It is apparent that the legal issues that required resolution did not arise from circumstances whereby you were a party to the transaction. Where the matters involved your partners, it is also clear from the evidence that they acted in their capacity as associates of other related entities.

To satisfy paragraph 11-5(a) of the GST Act, it would require an arrangement between you and the legal firms whereby the legal firms were engaged by you to provide legal services to your partners, and by doing so, provided legal services to you for the purpose of carrying on your enterprise.

From the documentation, it is reasonable for the Commissioner to conclude that the legal firms were not retained by the individuals in their capacity as your partners.

Also, based on our records of the BAS lodged, you hardly made any sales since your GST registration and the enterprise activities appear to have ceased on or about the same time when the legal services were engaged by the individuals who are also your partners.

Accordingly, the legal expenses incurred do not satisfy the requirements of a creditable acquisition contained in section 11-5 of the GST Act because the legal expenses were not acquired by you as part of running your partnership's business.

As such, you are not entitled to claim ITCs in relation to the tax invoices issued by for the legal services provided.

In relation to the accounting expenses, the documentation showed a mixture of accountancy works performed for different entities. In light of this, the Commissioner is of the view that you may have been entitled to claim the GST applicable to these expenses but only to the extent of the consideration paid for the works that related to your enterprise.

However, as stated previously, the tax period ended 31 December 2011 is outside of the four-year time limit and as such, there is no entitlement to an ITC for this tax period.