Edited version of your written advice

Authorisation Number: 1051423243702

Date of advice: 31 August 2018

Ruling

Subject: Claiming GST credit on purchase of equipment.

Question

Are you entitled to claim input tax credits for the acquisition of equipment by your directors’ company by backdating your GST registration?

Answer

No. You are not entitled to claim input tax credit for the acquisition of equipment by your directors’ company as the acquisition will not be a creditable acquisition to you. Please refer to the reasons for decision.

Relevant facts and circumstances

● You carry on an enterprise and were registered for GST since June 20XX

● In September/October 20XX, you spoke to the ATO in relation to lodging business activity statements and were advised that you are not required to be registered for GST if your annual turnover does not exceed $75,000.

● You cancelled your GST registration backdating the cancellation from June 20XX.

● In June 20YY, you realised that your annual turnover has exceeded $75,000 since May 20YY.

● When you contacted the ATO, you were advised to apply for a private ruling in relation to claiming input tax credit for the acquisition of equipment.

● You acquired equipment to be used in your enterprise. However, the equipment was purchased by one your director’s company.

● You did not claim input tax credits for the acquisition of equipment and did not report any sales.

● The director’s company will be selling the equipment to you as you were able to get finance for the equipment.

● You wish to register for GST from May 20YY and wish to purchase the equipment during the month of September 20YY.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 – section 29-10

A New Tax System (Goods and Services Tax) Act 1999 – section 188-25

Reasons for decision

You are entitled to claim input tax credits if you are making creditable acquisitions.

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a creditable acquisition if you acquire anything solely or partly for a creditable purpose; and the supply of the thing to you is a taxable supply; and you provide or are liable to provide consideration for the supply; and you are registered or required to be registered.

You are not registered for GST and the equipment was acquired by your related entity. Therefore, you are not entitled to claim input tax credit for the acquisition of the equipment as the acquisition would not satisfy all of the requirements of section 11-5 of the GST Act.

Annual Turnover Threshold

Under section 23-5 of the GST Act, you are required to be registered for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold. The current registration turnover threshold is $75,000.

Goods and Services Tax Ruling GSTR 2001/7 explains the meaning of GST turnover including the effect of projected turnover under section 188-25 of the GST Act. You reach the GST registration turnover threshold if your:

● current GST turnover (turnover for the current month and the previous 11 months) totals $75,000 or more; or

● projected GST turnover (total turnover for the current month and the next 11 months) is likely to be $75,000 or more.

To calculate your annual turnover you need to calculate the total value of any supplies you make or are likely to make over a 12 months period. This 12 months period covers the period of the current month and the preceding 11 months, known as your current annual turnover, and the current month and the following 11 months, known as your projected annual turnover.

Paragraph 16 of GSTR 2001/7 states:

16. Whether you have a GST turnover that meets or does not exceed a particular turnover threshold depends on an objective assessment of your projected GST turnover and current GST turnover. An ‘objective assessment’ is one that a reasonable person could be expected to arrive at having regard to the facts and circumstances which apply to your enterprise at the relevant time. The Commissioner will accept your assessment of these turnovers unless he has reason to believe that your assessment was not reasonable.

You were registered for GST in June 20XX and in September/October 20XX you decided to cancel your GST registration by backdating the cancellation from June 20XX as you were not required to be registered for GST. However, in June 20YY you realised that you have reached or exceeded the GST registration turnover threshold since May 20YY. You have been carrying on an enterprise and therefore you are required to be registered for GST since May 20YY under section 23-5 of the GST Act.

You may be entitled to claim input tax credits for any acquisition you made in relation to carrying on your enterprise and required to report any taxable supplies you made since May 20YY.

You make a taxable supply if you make the supply for consideration; and the supply is made in the course or furtherance of an enterprise that you carry on; and the supply is connected with the indirect tax zone; and you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The supply you make is not GST-free or input taxed. Therefore, you are required to report any taxable supply you made since May 20YY in your business activity statement.

Attribution of GST

Based on the facts provided, you wish to acquire the equipment from your director’s company in September 20YY as you were able to obtain finance for the acquisition.

Goods and Services Tax Ruling GSTR 2000/29 explains the attribution rules for GST payable, input tax credits and adjustments. Paragraph 35 provides that if you do not account for GST on a cash basis, you attribute all the input tax credit for a creditable acquisition to the earlier of the tax periods in which you provide any of the consideration; or an invoice is issued for the acquisition. This means that you may be entitled to input tax credits before actually paying for the acquisition.

However, if you account for GST on a cash basis, you attribute the input tax credit for a creditable acquisition to the tax period in which you provide consideration for that acquisition, but only to the extent that you provided the consideration in that tax period. This means that if, in a particular tax period, you have paid only part of the total consideration for an acquisition then, you are entitled to an input tax credit only to the extent that you provided the consideration in that tax period.

If you account for GST on a cash basis and the equipment purchased is a creditable acquisition to you, you are entitled to the entire input tax credit in the tax period in which you apply the borrowed funds to make full payment of the equipment at the time of acquisition. And you are required to hold a valid tax invoice to enable you to claim input tax credit.