Edited version of private advice

Authorisation Number: 1051696598589

Date of advice: 25 June 2020

Ruling

Subject: GST and attributing input tax credits

Question 1

Is the entity entitled to claim GST included in the purchase price of the asset under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 upon securing the ownership of the boat?

Answer

Given that the entity will not hold a valid tax invoice prior to payment of the fourth and final instalment and delivery of the asset the entity is not entitled to attribute any input tax credits that it is entitled to claim until the final instalment is made.

Question 2

Can the entity claim 50% of the net asset cost (the gross value less the GST) as depreciation up front?

Answer

Yes. Under the new accelerated depreciation measures introduced in March 2020, the entity's business with an aggregated turnover less than $XXX million can deduct 50% of the net cost of the asset on installation with the existing depreciation rules applying to the balance. Refer to reference QC 61924 on our website for further information.

Relevant facts and circumstances

The entity was established for the purpose of carrying on an enterprise.

The entity is registered for GST.

The entity has aggregated turnover of less than $XXX million in the income year ending 30 June 20XX.

The entity wishes to purchase an asset for the purposes of carrying on an enterprise.

The entity's enterprise amounts to the carrying on of a business.

The entity is using the asset (or holding it) mainly for letting it on hire in the ordinary course of that business.

The asset will be new and not previously held by another entity (other than as trading stock).

The asset will be held on or after 12 March 20XX.

The entity is not committed to acquiring the asset before 12 March 20XX.

The asset will be first used or first installed ready for use for a taxable purpose on or after 12 March 20XX but before 30 June 20XX.

The asset will not be an asset to which the entity has applied the instant asset write-off rules.

The entity uses the cash basis for accounting GST and lodges quarterly Business Activity Statements (BAS).

The entity will not be using the simplified depreciation rules for capital allowances for small businesses (not be depreciating assets under the general small business pool rules).

The entity will be in receipt of a valid tax invoice at the time of delivery of the asset and will pay for the asset in instalment.

Assumption

For the purpose of this ruling it is assumed that all proposed and anticipated events occur during the period of the ruling.

Relevant legislative provisions

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999

Section 195-1 of the A New Tax System (Goods and Services Tax) Act 199

Division 40 of the Income Tax Assessment Act 1997

- Subdivision 40-BA of the Income Tax (Transitional Provisions) Act 1997

Further issues for you to consider

We have limited our ruling to the questions raised in your application. There may be related issues that you should consider including:

·         There may be limits to the to the expenses you can claim if the entity's enterprise is not a business (which this ruling does not examine). Refer to Taxation Ruling TR 2003/4 Income tax: boat hire arrangements and refer to reference QC 19010 and QC 19016 on our website for the information required to process a private ruling application about whether or not the entity is carrying on a specific business.

·         There may be limits to claiming a loss from the enterprise if it is a business under the non-commercial loss rules. Refer to reference QC 45040 on our website.

·         A balancing adjustment event may occur if you cease to use the asset for a taxable purpose. Refer to reference QC 16294 on our website for more information.

You may apply for another ruling on these or any other matters.

Reasons for decision

QUESTION 1

What can you claim input tax credits on?

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

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

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

What is a creditable acquisition?

Section 11-15 of the GST Act provides:

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.

·         Creditable purpose

Generally, a thing is acquired for a creditable purpose if the thing is for the purposes of carrying on an enterprise of the entity and the thing is not in relation to making an input taxed supply.

Given that the entity will be purchasing the asset for the purpose of carrying on an enterprise that does not make financial supplies, the asset will be for a creditable purpose.

·         Taxable supply

We have been advised that the supply is a taxable supply.

·         Consideration

the entity will be liable to provide consideration for the supply of the asset.

·         GST registration

The entity is registered for GST.

Given the purchase of the asset meets the requirements of section 11-15 of the GST Act the acquisition of the asset is a creditable acquisition. Accordingly, the entity is entitled to claim input tax credits included in the purchase price of the asset.

When can the entity claim the input tax credits?

When an entity can claim the amount of input tax credits it is entitled to claim is dependent on the accounting method used by the entity.

Given the entity accounts for GST on the cash basis method the relevant provision to consider is subsection 29-10(2) of the GST Act which states as follows:

2. However, if you * account on a cash basis , then:

(a)  if, in a tax period, you provide all of the * consideration for a * creditable acquisition - the input tax credit for the acquisition is attributable to that tax period; or

(b)  if, in a tax period, you provide part of the consideration - the input tax credit for the acquisition is attributable to that tax period, but only to the extent that you provided the consideration in that tax period; or

(c)   if, in a tax period, none of the consideration is provided - none of the input tax credit for the acquisition is attributable to that tax period.

Goods and services tax ruling, GSTR 2006/2, Goods and services tax: deposits held as security for the performance of an Obligation provides the Commissioners' views in relation to attributing input tax credits on instalment payments (including deposits paid under contracts) as follows:

Can a recipient of a supply claim an input tax credit at the time the security deposit is paid?

Purchase contracts

160. Under the ordinary rules, a recipient that makes a creditable acquisition is entitled to claim an input tax credit for that acquisition when the consideration is paid. A security deposit, when paid, may ordinarily meet the definition of consideration for a taxable supply. This would mean that a recipient is entitled to claim input tax credits under the ordinary attribution rules at the time a security deposit is paid. However, under Division 99, a security deposit is not treated as consideration for a supply until it is applied as consideration for that supply. Payment of the security deposit does not, therefore, trigger attribution of an input tax credit under paragraph 29-10(1)(a) or paragraph

29-10(2)(b). Therefore, a recipient is not entitled to claim an input tax credit when the security deposit is paid.

161. When the security deposit is forfeited and is treated as consideration for a taxable supply, the recipient is entitled to claim an input tax credit for the creditable acquisition for which the security deposit is consideration. The recipient attributes the input tax credit to

the tax period in which the deposit is forfeited but must hold a valid tax invoice if the forfeited amount is greater than $82.50.

Example 20: Purchase contract - claiming input tax credits

162. Assume the facts from Example 13A at paragraph 128B of this Ruling where the contemplated supply is a taxable supply of cardboard boxes. The forfeited deposit is consideration for a creditable acquisition. Jo-Anne can make a claim for an input tax credit of $10 in the tax period in which the deposit is forfeited.

163. The recipient may attribute an input tax credit for the security deposit under the ordinary attribution rules in section 29-10 if:

·         an additional payment is made to the supplier; or

·         the recipient who accounts on a non-cash basis or obtains an invoice from the supplier.

164. Accordingly, if the recipient makes a further payment in addition to the initial deposit, or obtains an invoice, and the recipient accounts on a non-cash basis, the recipient may attribute an input tax credit for a creditable acquisition under the basic rules. This includes

the input tax credit applicable to the security deposit despite the fact that it has not yet been forfeited or applied.

165. If the recipient accounts on a cash basis, the recipient may attribute an input tax credit to the extent that the consideration is paid in the relevant tax periods. The security deposit is not treated as consideration until it is applied as consideration or forfeited. This can be a time other than when the further payment is made.

The instalments amount (including the deposit) is part consideration for the supply of the asset. Accordingly, the entity can attribute 1/11^th of the amount of each instalment as the input tax credits in the tax period each instalment amount (including the deposit) is paid provided the entity holds a valid tax invoice.

Tax invoice requirements

In order to include an amount of input tax credit in a Business Activity Statement (BAS) pursuant to subsection 29-10(3) of the GST Act an entity must hold a tax invoice.

Subsection 29-10(3) of the GST Act states as follows:

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 input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:

(a)  the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and

(b)  the input tax credit (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.

However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.

Accordingly, given that the entity will not hold a valid tax invoice prior to payment of the fourth and final instalment and delivery of the asset the entity is not entitled to attribute any input tax credits until the final instalment is made.

QUESTION 2

A short form answer has been provided for Question 2.