Edited version of private advice

Authorisation Number: 1051670540056

Date of advice: 4 June 2020

Ruling

Subject: Creditable acquisitions

Question

Are the supplies that you acquire from Australian Suppliers creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Where the Australian Suppliers are not registered for GST and not required to be registered for GST, or they make their supplies as a hobby, their supplies to you are outside the scope of GST. In this instance your acquisitions from these Australian Suppliers are not creditable acquisitions under section 11-5 of the GST Act as paragraph 11-5(b) is not satisfied.

Where the Australian Suppliers are registered or required to be registered for GST and their supplies are made in the course or furtherance of an enterprise that they carry on, their supplies to you are GST-free under paragraph (b) of item 4 in the table in subsection 38-190(1). In this instance, your acquisitions from these Australian Suppliers are not creditable acquisitions under section 11-5 as paragraph 11-5(b) is not satisfied.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 11-5

Section 38-190

Reasons for decision

Summary

Where the Australian Suppliers are not registered for GST and not required to be registered for GST, or where they make their supplies as a hobby, their supplies to you are outside the scope of GST. In this instance, your acquisitions from these Australian Suppliers are not creditable acquisitions under section 11-5 of the GST Act as paragraph 11-5(b) is not satisfied.

Where the Australian Suppliers are registered or required to be registered for GST and their supplies are made in the course or furtherance of an enterprise that they carry on, their supplies to you are GST-free under paragraph (b) of item 4 in the table in subsection 38-190(1). In this instance, your acquisitions from these Australian Suppliers are not creditable acquisitions under section 11-5 as paragraph 11-5(b) is not satisfied.

Detailed reasoning

Creditable acquisition

You are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 defines creditable acquisition:

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.

Based on the information that you have provided, requirements (a), (c) and (d) are met.

Paragraph 11-5(b)

A supply is a taxable supply where the requirements of section 9-5 are met.

Section 9-5 states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) 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.

Australian Suppliers not registered for GST or making supplies as a hobby

Where the Australian Suppliers are not registered for GST and are not required to be registered for GST, or they make their supplies as a hobby, their supplies are outside the scope of GST. Your acquisition in these instances are not creditable acquisitions as paragraph 11-5(b) is not satisfied.

Australian Suppliers registered, or required to be registered, for GST and make supplies in the course or furtherance of an enterprise that they carry on

Where the Australian Suppliers are registered, or required to be registered, for GST and make their supplies in the course or furtherance of an enterprise that they carry on, paragraphs 9-5(a) to (d) are satisfied as:

(a)  they make the supplies for consideration; and

(b)  the supplies are made in the course or furtherance of an enterprise that they carry on; and

(c)   the supplies are connected with Australia as they are made through an enterprise that they carry on in Australia; and

(d)  they are registered or required to be registered for GST.

However, the supplies are not taxable supplies to the extent that the supplies are GST-free or input taxed.

There is no provision in the GST Act that makes the Australian Suppliers' supplies input taxed. We have considered below whether the Australian Suppliers' supplies are GST-free under Division 38.

However, before the GST treatment of the Australian Suppliers' supplies can be determined under Division 38, it is necessary to determine what is being supplied to you by the Australian Suppliers.

Characterisation of supply

The Australian Suppliers make a single supply to you, being a supply of rights. Consequently, the GST treatment of the Australian Supplier's whole supply, which comprises of a supply of rights and a supply of information, is determined by the GST treatment of the supply of rights.

Item 4

Relevant to the supply of rights made by the GST registered Australian Suppliers is item 4 in the table in subsection 38-190(1) of the GST Act.

A supply of anything other than goods or real property is a GST-free supply where the requirements of item 4 are met. Item 4 provides:

(1)  The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or real property):

Only paragraph (a) or paragraph (b) of item 4 needs to be satisfied in order for a supply to be GST-free under item 4. We have first considered whether the Australian Suppliers' supplies are GST-free under paragraph (b) of item 4.

The first requirement of paragraph (b) of item 4 is that the supply is made to an entity that is not an Australian resident. 'Non-resident' is defined in section 195-1 as an entity that is not an Australian resident. Therefore 'an entity that is not an Australian resident' is a non-resident. You are a company established outside Australia. You are an entity that is not an Australian resident for item 4 purposes.

The second requirement of paragraph (b) of item 4 is that the non-resident is outside Australia when the thing supplied is done. In our view, this requirement means that the non-resident is not in Australia in relation to the supply when the thing supplied is done. This means that a non-resident or other recipient of a supply may satisfy the 'not in Australia' requirement if that entity is in Australia but not in relation to the supply.

InGoods and Services Tax Ruling GSTR 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999: when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'? when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'?, we provide guidance in paragraph 241 of when a non-resident company is in Australia for the purposes of paragraph (b) of item 4:

241. We consider, therefore, that a non-resident company is in Australia for the purposes of item 2 and paragraph (b) of item 4 if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

(a)  at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

(b)  through an agent at a fixed and definite place for a sufficiently substantial period of time.

If a non-resident company is determined to be in Australia on the basis of the above criteria, it is then necessary to determine if the company is in Australia 'in relation to the supply'. A non-resident is in Australia in relation to the supply if:

·         the supply is for the purpose of the Australian presence of the company; or

·         the presence of the company in Australia is involved in the supply unless the involvement is minor.

In this instance, we do not consider that AusCo is carrying on your business as your agent in Australia. AusCo does not make you 'in Australia' in relation to the Australian Suppliers' supplies as it is not carrying on your business as agent at a fixed and definite place for a sufficiently substantial period of time.

You also do not have your central management and control in Australia. Your board of directors meets in outside Australia. You do not have your voting power controlled by shareholders who are residents of Australia. Therefore, besides your employees in Australia, you do not otherwise carry on a business or activities at or through a fixed and definite place of your own for a sufficiently substantial period of time.

As neither test contained in paragraph 241 of GSTR 2004/7 is satisfied, we consider that you are not in Australia for the purposes of paragraph (b) of item 4. Consequently, the Australian Suppliers are making supplies of rights to an entity that is not an Australian resident and is outside the indirect tax zone when the things supplied are done. Therefore, paragraph (b) of item 4 is satisfied and the Australian Suppliers' supplies of rights are GST-free under this provision.

However, the GST-free treatment of a supply under paragraph (b) of item 4 may be negated by subsections 38-190(2) and 38-190(2A). Based on the information provided, subsections 38-190(2) and (2A) do not apply to the supplies made by the Australian Suppliers to you.

Consequently, your acquisitions of the Australian Suppliers' supplies are not creditable acquisitions under section 11-5 of the GST Act as paragraph 11-5(b) is not satisfied.