Edited version of private ruling

Authorisation Number: 1051541492763

Date of advice: 15 August 2019

Ruling

Subject: GST, extent of creditable purpose, apportionment, creditable acquisitions and enterprise

Question 1

If you purchase an asset for the purpose of making it available on your app on a regular basis, are you carrying on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

If you are carrying on an enterprise, is your proposed methodology to calculate the extent of creditable purpose under section 11-15 of the GST Act considered fair and reasonable?

Answer

Yes.

Question 3

If you are carrying on an enterprise, once actual data is gathered, can the methods you have proposed be considered fair and reasonable bases to calculate the extent of creditable purpose under section 11-15 of the GST Act?

Answer

Yes.

This ruling applies for the following period:

12 August 20XX onwards

Relevant facts and circumstances

About you

You are an individual currently not registered with an ABN and not registered for GST purposes.

You are work for the entity developing the app.

At the time of launch, the app will only be available for use in Australia. By taking part on the app, you intend to:

·                    Make a profit from doing this;

·                    Expand your enterprise if your venture is profitable;

·                    Conduct this on a regular basis in a systematic, organised and business-like manner;

·                    You will ensure relevant records are kept; and

·                    You have the relevant knowledge and skills to operate the app.

You proposed a methodology to calculate extent of creditable purpose.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, Section 9-5

A New Tax System (Goods and Services Tax) Act 1999, Section 9-20

A New Tax System (Goods and Services Tax) Act 1999, Division 11

A New Tax System (Goods and Services Tax) Act 1999, Section 23-5

Reasons for decision

Detailed reasoning

GST is payable on the taxable supplies you make. Section 9-5 of the GST Act provides that you make a taxable supply if:

·                    you make the supply for consideration

·                    the supply is made in the course or furtherance of an enterprise that you carry on

·                    the supply is connected with the indirect tax zone, and

·                    you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Carrying on an enterprise

The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done: on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property (paragraph 9-20(1)(c))

The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the ATO view on the meaning of 'entity' and 'enterprise' for the purposes of entitlement to an ABN.

Goods and Services tax Determination GSTD 2006/6 Goods and Services Tax: does MT 2006/1 have equal application to the meaning of 'entity' and enterprise' for the purposes of A New Tax System (Goods and Services Tax) Act 1999, provides that the discussion in MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

Paragraph 26(a) of MT 2006/1 includes an individual in the definition of an entity.

The A New Tax System (Australian Business Number) Act 1999 does not define an 'activity, or series of activities'. In the absence of a statutory definition these terms take their ordinary meaning. An activity is essentially an act or series of acts that an entity does. Entities can undertake a wide range of activities with varying degrees of interrelationship. The meaning of the term 'activity, or series of activities' for an entity can range from a single undertaking, including a single act, to groups of related activities, or to the entire operations of the entity (paragraph 153 MT 2006/1).

In the form of a lease

Paragraphs 303 - 306 of MT 2006/1 discuss the following:

Paragraph 9-20(1)(c) of the GST Act includes in the definition of an 'enterprise', 'an activity, or a series of activities, done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property'. The term 'property' covers all types of property. It includes tangible assets such as land, cars and boats.

To be an enterprise the grant of a lease, licence or other grant of an interest in property must be done on a regular or continuous basis. The grant need not be done on both a regular and a continuous basis. An activity will be 'continuous' if there is no significant cessation or interruption to the activity. An activity is 'regular' if it is repeated at reasonably proximate intervals. The intervals need not be fixed. Whether an activity is repeated over time on a regular basis is a question of fact and degree.

Application in your case

Given the facts of this case, we consider that the activities will be in the nature of carrying on an enterprise.

Entitlement to GST credits

You are entitled to GST credits for any creditable acquisition that you make (section 11-20 of the GST Act). Section 11-5 of the GST Act provides that you make a creditable acquisition if:

·                    you acquire anything solely or partly for a creditable purpose

·                    the supply of the thing to you is a taxable supply

·                    you provide, or are liable to provide, consideration, and

·                    you are registered or required to be registered for GST.

Creditable purpose

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) of the GST Act provides that 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 and domestic nature.

Subsection 11-30(3) says the amount of the input tax credit on an acquisition that you make that is partly creditable is as follows:

Full input tax credit x extent of creditable purpose x extent of consideration

Extent of creditable purpose

Goods and Service Tax Ruling 2006/4 (GSTR 2006/4) provides guidance on how to determine the extent of your creditable purpose in making acquisitions to enable you to claim the correct amount of GST credits.

GSTR 2006/4 explains that you may choose your own apportionment method, but the method you choose needs to:

·                    be fair and reasonable;

·                    reflect the planned use of that acquisition (or in the case of an adjustment, the actual use); and

·                    be appropriately documented in your individual circumstances.

As stated within paragraph 45 of GSTR 2006/4, it is the taxpayer's planned use of the thing for a creditable purpose that is relevant in working out their input tax credit. The taxpayer may estimate the planned use of the acquisition based on:

·                    records they already have available from a previous period;

·                    records kept since they made the acquisition or importation, but before they lodge their BAS for the tax period in which they made the acquisition or importation including their actual use (full or partial) of the acquisition;

·                    records kept for some other purpose, for example, income tax, management accounting, profitability analysis, intra-entity charging or cost accounting;

·                    their previous experience concerning the usage of similar acquisitions;

·                    your business plan; or

·                    any other fair and reasonable basis.

Direct method

Apportionment methods explained in GSTR 2006/4 can be broadly categorised as direct or indirect methods. Where a direct method is available to you, the Commissioner's view is that such a method would best reflect the intended or actual use of your acquisitions.

Paragraphs 108-109 of GSTR 2006/4 state that direct methods seek to identify a direct measure of the use of the acquisition or importation. Measures based on inherent characteristics of, or factors directly connected with, the acquisition usually give a fair reflection of the use of the thing. These factors are sometimes referred to in management accounting and costing systems as 'drivers'.

These factors or characteristics indicate a direct link between the acquisition or importation and its use. Some examples of these factors and characteristics are:

(i) distance, for example, kilometres travelled by a motor vehicle as evidenced by a logbook;

(ii) time, for example, computer processing time spent on various input taxed and other activities, as evidenced by a time sheet;

You can use any method to determine the percentage of business purpose, provided it gives a fair and reasonable representation of the use, or planned use, of your vehicle.

Record keeping - general requirements

GSTR 2006/4 states that for tax periods from 1 July 2012, you are required to retain the records for the longest of:

·                    five years after the completion of the transactions or acts to which they relate; and

·                    the period of review for any assessment of a net amount to which those records, transactions or acts relate. In practical terms this means four years from the day after you lodge your GST return that takes into account the relevant acquisition, importation or entitlement unless the period of review is extended in the circumstances set out in subsections 155-35(3) and (4) of Schedule 1 to the TAA; and

·                    where an assessment has been amended under Subdivision 155-B of Schedule 1 to the TAA, the refreshed period of review that applies to the latest amendment. That is, four years after the day on which the Commissioner gave notice of the last of the amendments.

130A. If you make any election, choice, estimate, determination or calculation under the GST Act, you must keep records containing particulars of the election, choice, estimate, determination or calculation as well as the basis on which, and the method by which, the estimate, determination, or calculation was made. You are required to retain these records for at least 5 years after the election, choice, estimate, determination or calculation was made unless a provision specifies when it ceases to have effect. In these cases, you are required to retain the records for at least 5 years after it ceases to have effect.

130B. As your allocation or apportionment method is used for the purposes of subsection 11-30(3) to calculate the 'extent of creditable purpose' of an acquisition, you must keep records containing particulars of the method for at least five years after the calculation was made.

130C. The records need to be such as to enable your liability and entitlements under the GST Act to be readily ascertained. Records you normally keep as part of carrying on your enterprise may be sufficient to support the method adopted. If this is not the case, you should keep additional records.

Your proposed methodology

You proposed a methodology to determine the extent of creditable purpose to apportion your GST credits.Your proposed methodology will be considered a fair and reasonable method until actual data is collected.

Future methodology

The formulas which you propose to use, depending on whichever produces the most fair and reasonable outcome, once you have actual data are will be considered fair and reasonable to determine extent creditable purpose, however only one method can be applied for each BAS period.

Please note if your actual use of the thing acquired varies over time from your planned use, there is a change in the extent of your creditable purpose. If this occurs, you may need to make an adjustment to the amount of input tax credits you claimed. In this event, your net amount for the adjustment period is increased or decreased by the resulting adjustment. The amount of the adjustment depends on the change in the extent of your creditable purpose.

GST registration

Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). Miscellaneous Taxation Ruling 2006/1 (MT 2006/1) discusses the meaning of enterprise.

You advised even though you may not exceed the threshold, you will still voluntarily register. This means you will make taxable supplies and creditable acquisitions.