Edited version of your written advice

Authorisation Number: 1051458772361

Date of advice: 6 December 2018

Ruling

Subject: GST and creditable acquisitions relating to reimbursements.

Question 1

Are you entitled to input tax credits (ITCs) for making creditable acquisitions the consideration for which is a reimbursement to your volunteer under Division 111 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the cost of a thing by the volunteer that is directly related to their activities as volunteers?

Answer

You are entitled to ITCs for making creditable acquisitions the consideration for which is a reimbursement to your volunteer under Division 111 of GST Act for the cost of a thing incurred by the volunteer that is directly related to their activities as volunteers.

However, you are not making a creditable acquisition giving rise to an entitlement to ITCs in relation to reimbursing the volunteer for the cost of the thing directly related to their activities where the following circumstances under subsection 111-15(3) of the GST Act apply:

● the volunteer is entitled to an ITC for acquiring the thing

● the acquisition of the thing would not be a creditable acquisition because of Division 69 of the GST Act (if it is non-deductible expenses under the Income Tax Assessment Act 1997)

● the supply of the thing to the volunteer was not a taxable supply; or

● you are not entitled to an ITC if you had made the acquisition of the thing that the volunteer made because of Division 71 of the GST Act (in relation to fringe benefits provided by input taxed suppliers).

Question 2

Can you claim an ITC in relation to your creditable acquisitions the consideration for which is a reimbursement to your volunteer under Division 111 of GST Act for the cost of the thing incurred by the volunteer that is directly related to their activities as volunteers?

Answer

Yes, you can claim an ITC for your creditable acquisition in a GST return if you hold a tax invoice where the cost is more than $82.50 (inclusive of GST).

Question 3

Is there a time limit on entitlements to ITCs?

Answer

Yes, under subsection 93-5(1) of the GST Act you cease to be entitled to an ITC for a creditable acquisition to the extent that the ITC has not been taken into account, in an assessment of a net amount of yours, during the period of 4 years after the due date for lodgement of the GST return for the tax period to which the ITC would be attributable under subsection 29-10(1) or (2) of the GST Act.

Relevant facts and circumstances

You are registered for goods and services tax (GST) and you account for GST in quarterly tax periods on a non-cash basis.

You are registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). You are also endorsed by the Australian Taxation Office as:

● an entity that can access GST concessions

● income tax exempt, and

● deductible gift recipient (DGR) covered by Item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997.

You are a charity that provides services to people to access services that would otherwise be unavailable to them.

All services provided by you are free. You will only accept service requests from certain professionals.

Services are conducted by volunteers using their own facilities. The volunteers provided services to people as a volunteer in carrying out activities for your organisation. They volunteered their time, skill and do not receive any remuneration from you other than being reimbursed by you for the cost of the thing acquired. The cost of the thing acquired is incurred directly in relation to activities that the volunteers carry out for your organisation as a volunteer.

Once the volunteer completes the services, the volunteer will forward service reports and documents detailing the cost of the thing acquired while undertaking missions along with a request for reimbursement. This can be in the form of a picture showing the price, an invoice or receipt. The volunteer retains original tax invoices and receipts. Some of the supporting documents provided to you by the volunteers include tax invoices that indicate an amount of GST in relation to the supply of the thing.

You check the details from your database and advised the volunteer that they are not entitled to claim ITCs for the cost of the thing relating to their volunteer activities and then reimburse the exact amount of the cost that the volunteer incurred as per the substantiation document submitted.

You have not previously claimed ITCs for your reimbursement of the cost of the thing acquired by the volunteer. You have retained copies of the substantiation documents provided by the volunteer in respect of the cost of the thing incurred by them while they carry out activities as a volunteer for your organisation.

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 29-10

A New Tax System (Goods and Services Tax) Act 1999 section 29-70

A New Tax System (Goods and Services Tax) Act 1999 section 93-5

A New Tax System (Goods and Services Tax) Act 1999 section 111-5

A New Tax System (Goods and Services Tax) Act 1999 section 111-15

A New Tax System (Goods and Services Tax) Act 1999 section 111-18

Reasons for decision

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

Question 1 Creditable acquisition and entitlement to ITCs

You are entitled to ITCs for your creditable acquisitions. Section 11-5 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.

Please note that *asterisk denotes a defined term in section 195-1.

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 of a private or domestic nature.

Subsection 111-5(1) provides that you may be entitled to ITCs for some reimbursements you make to employees (or associates of employees), agents, officers or partners for expenses they incur. If the requirements under the relevant subsections of Division 111 are satisfied, the reimbursement is treated as consideration for an acquisition that you make from the employee, associate, agent, officer or partner.

Subsection 111-18(1) extends an entitlement to ITCs:

(1) If:

(a) an *endorsed charity, a *gift-deductible entity or a *government school reimburses an individual for an expense he or she incurs; and

(b) the expense is directly related to his or her activities as a volunteer of the endorsed charity, gift-deductible entity or government school;

this Division applies to the endorsed charity, gift-deductible entity or government school as if:

the individual were an employee of the endorsed charity, gift-deductible entity or government school; and

his or her activities in connection with incurring the expense were activities as such an employee.

An endorsed charity is defined as an entity that is an ACNC registered charity, has an Australian Business Number (ABN) and is endorsed by us as a charity (section 195-1 and subsection 176-1(1)).

From the facts provided you are registered for GST and paragraphs 111-18(1)(a) and (b) are satisfied in that:

● you are an endorsed charity that provide services to assist people, and

● you reimburse volunteers the costs of the thing acquired directly related with their activities in providing services as a volunteer of your organisation.

As the requirements of paragraphs 111-18(1)(a) and (b) are satisfied, paragraphs 111-18(c) and (d) will come into operation to allow Division 111 to apply to you as if the volunteer were an employee of yours and his or her activities in connection with incurring the expense were activities as such an employee.

This means that pursuant to subsection 111-5(1) the reimbursement of the costs of the thing acquired by the volunteer in performing the service is treated as consideration for an acquisition that you make from the volunteer. The fact that the acquisition is not a taxable supply to you does not stop the acquisition from being a creditable acquisition (subsection 111-5(2) of the GST Act).

With regards to the other requirements under section 11-5:

● you are registered for GST

● you provided consideration for the supply in the form of a reimbursement, and

● you will acquire the supply for a creditable purpose in carrying on your enterprise and the acquisition does not relate to making supplies that would be input taxed or private or domestic in nature.

It follows that you would be making a creditable acquisition the consideration for which is the reimbursement. This is the case unless subsection 111-15(3) applies to preclude the acquisition from being a creditable acquisition.

Acquisitions that are not creditable acquisitions

Subsection 111-15(3) sets out circumstances, where an acquisition is not a creditable acquisition where:

(a) to the extent (if any) that:

(i) the employee…is entitled to an ITC for acquiring the thing acquired in incurring the expense: or

(ii) the acquisition would not, because of Division 69, be a creditable acquisition if you made it; or

(b) unless the supply of the thing acquired, by the employee…in incurring the expense, was a taxable supply; or

(c) if you would, because of Division 71, not have been entitled to an ITC if you made the acquisition that the employee…made.

In your case you would not be making a creditable acquisition and therefore not entitled to an ITC for reimbursing the volunteer for the cost of the thing acquired directly related to the activities as a volunteer where:

● the volunteer is entitled to an ITC for acquiring the thing

● the acquisition of the thing would not be a creditable acquisition because of Division 69 (if it is a non-deductible expense under Income Tax Assessment Act 1999)

● the supply of the thing to the volunteer was not a taxable supply, or

● you are not entitled to an ITC if you had made the acquisition of the thing that the volunteer made because of Division 71 in relation to fringe benefits provided by input taxed suppliers.

Circumstances where the volunteer would be entitled to an ITC for acquiring the thing include when that acquisition satisfies the requirements of a creditable acquisition under section 11-5, including that the thing is acquired for a creditable purpose and that the volunteer is registered or required to be registered for GST.

It is up to the volunteer to determine whether or not they are making a creditable acquisition and entitled to an ITC in relation to the acquisition of the thing. It is important for you to obtain that information from the volunteer and to keep records to that effect as part of your reimbursement processes. This is because to the extent the volunteer is entitled to an ITC for a creditable acquisition of the thing, you are not entitled to the ITC to that extent for the creditable acquisition. You will also need to consider and determine whether any of the other circumstances set out in subsection 111-5(3) apply.

It is not enough for the purposes of determining whether the volunteer is entitled to ITCs to merely advise the volunteer that they are not entitled to claim an ITC for acquiring the thing related to undertaking the service. As such, whether or not the volunteer is entitled to an ITC is a significant factor that you need to check with each of the volunteers and record prior to reimbursement as it affects your entitlement to ITCs and may also affect the amount which you reimburse the volunteer.

Entitlement to ITCs

Where you have determined that the supply of the thing to the volunteer incurred in undertaking the service is a taxable supply and the volunteer is not entitled to the ITC and none of the other circumstances under subsection 111-5(3) apply, then your reimbursement to the volunteer for the cost of the thing directly related to the activities as your volunteer is treated as consideration for a creditable acquisition made by you. As such, you would be entitled to an ITC to the extent that the thing was directly related to the volunteer’s activities as one of your volunteer’s.

Question 2 Claiming ITCs and Tax Invoices

Section 111-15 provides that you are taken to hold a tax invoice for a creditable acquisition the consideration for which is a reimbursement to which section 111-5 applies if you hold a tax invoice for the taxable supply referred to in subsection 111-5(3).

A tax invoice is a document that complies with the following requirements (subsection 29-70(1)):

(a) it is issued by the supplier of the supply or supplies to which the document relates, unless it is a *recipient created tax invoice (in which case it is issued by the *recipient)

(b) it is in the *approved form

(c) it contains enough information to enable the following to be clearly ascertained:

(i) the supplier’s identity and the supplier’s *ABN;

(ii) if the total *price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient – the recipient’s identity or the recipient’s ABN;

(iii) what is supplied, including the quantity (if applicable) and the price of what is supplied;

(iv) the extent to which each supply to which the document relates is a *taxable supply;

(v) the date the document is issued;

(vi) the amount of GST (if any) payable in relation to each supply to which the document relates;

(vii) if the document was issued by the recipient and GST is payable in relation to any supply – that the GST is payable by the supplier;

(viii) such other matters as the regulations specify;

(d) it can be clearly ascertained from the document that the document was intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax invoice.

Under Division 29, you must hold a tax invoice to claim an ITC for your creditable acquisitions where the cost is more than $82.50 (inclusive of GST). Specifically subsection 29-10(3) provides that if you do not hold a tax invoice for a creditable acquisition when you give to the Commissioner a GST return for the tax period to which the ITC (or any part of the ITC) on the acquisition would otherwise be attributable:

● the ITC (including any part of the ITC) is not attributable to that tax period, and

● the ITC (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.

This means, if you hold a tax invoice for the volunteer’s acquisition of the thing in carrying out his or her activities as a volunteer of your organisation, you may claim an ITC in a GST return for the tax period in which the acquisition of the thing was attributable. Where you do not hold a tax invoice for a creditable acquisition the consideration for which is the reimbursement to the volunteer, you will not be able to claim the ITCs in a GST return.

From the information provided, it appears some of the documents you provided in support of your claim for ITCs do not satisfy all of the requirements of a tax invoice specified above. As such, you cannot claim ITCs in relation to the creditable acquisition the consideration for which is the reimbursements of the volunteer for the costs of the thing.

Question 3 Time limit on entitlement to ITCs

Under subsection 93-5(1) you cease to be entitled to an ITC for a creditable acquisition to the extent that the ITC has not been taken into account, in an assessment of a net amount of yours, during the period of 4 years after the due date for lodgement of the GST return for the tax period to which the ITC would be attributable under subsection 29-10(1) or (2).

As you account for GST on a non-cash basis, subsection 29-10(1) relevantly provides that the ITC to which you are entitled for a creditable acquisition is attributable to:

● the tax period in which you provide any of the consideration for the acquisition or

● the tax period in which an invoice is issued where the invoice is issued relating to the acquisition before you provide the consideration.