Edited version of private advice

Authorisation Number: 1051784342739

Date of advice: 25 November 2020

Ruling

Subject: GST and claiming input tax credits

Question

Is Entity A Pty Ltd entitled to claim an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the acquisition of the copyright under the Agreement?

If the response to question 1 is 'yes', to what tax period is the input tax attributed?

Answer

Yes. Entity A is entitled to claim an input tax credit in respect of its acquisition of the copyright under the agreement as it is considered to make the acquisition for a creditable purpose.

Goods and Services Tax Ruling 2008/1, Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? (GSTR 2008/1) explains that there are several factors that determine whether an acquisition has a connection to supplies that would be input taxed. Relevantly, paragraph 119 of this ruling explains that a sufficient connection is established between acquisitions and supplies that would be input taxed if, on an objective assessment of the surrounding facts and circumstances, the acquisition is used, or is intended to be used, solely or to some extent for the making of supplies that would be input taxed.

Based on the terms of the Agreement it is acknowledged that the funds to be advance by Entity A is an input taxed supply. However, the Agreement also identifies that the Creator will make a taxable supply of the copyright to Entity A upon completion of the Product. Further the Agreement provides that the amount payable for the assignment is equal to the amount of the advanced funds under the Agreement and the Creator is fully acquitted of any monies advanced under the Agreement against the amount due (by Entity A) for the assignment of the copyright.

Therefore, on an objective assessment of the facts and circumstances, in this case the Commissioner accepts that the acquisition of the copyright does not have a direct connection with the input taxed supply of the funds advance by Entity A. Accordingly, the acquisition is not within the scope of 11-15(2)(a) and is made for a creditable purpose.

Section 29-10 of the GST Act provides the attribution rules for input tax credits for your creditable acquisitions. It states:

29-10 Attributing the input tax credits for your creditable acquisitions

(1)  The input tax credit to which you are entitled for a *creditable acquisition is attributable to:

(a)  the tax period in which you provide any of the *consideration for the acquisition; or

(b)  If, before you provide and consideration, an *invoice is issued relating to the acquisition--the tax period in which the invoice is issued.

Accordingly, in this case as Entity A is on a non-cash basis of accounting and reports on a quarterly basis, it will attribute its GST for the acquisition of the copyright upon holding the relevant tax invoice.

This ruling applies for the following periods:

1 July 20XX to quarter ending 30 December 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Entity A Pty Ltd carries on an enterprise and is registered for GST.

Entity A and Entity B (the Creator) entered into an agreement (Agreement) under which Entity A agreed to advance the Creator the sum of money. A copy of the Agreement has been provided as part of this ruling request.

The Agreement provides that in consideration for Entity A investing in the Creator the Creator undertakes to assign to Entity A the copyright in the product created (Product) in accordance with the relevant terms of Agreement.

Effectively the Agreement provides that there is a supply of:

•         the funds advanced by Entity A to the Creator, which are not subject to GST, and

•         an assignment of copyright by the Creator which is a taxable supply.

The Creator has issued a tax invoice to Entity A in respect of the supply of the copyright, a copy of which has been provided as part of this ruling request. This invoice is dated after the monies where advanced by Entity A.

The Agreement provides that the amount owed by Entity A to the Creator for the copyright will be offset against the amount owed by the Creator to Entity A (the advanced funds).

Upon acquiring the copyright Entity A will commence earning its income through its exploitation of holding the copyright. Relevantly under the Agreement a collection agent has been appointed to collect and/or distribute the gross receipts generated from the exploitation of the rights in the Product and ensure that Entity A is a beneficiary. Entity A also acknowledging that the collection agent will deduct a commission (plus GST) for their services.

Entity A is on a non-cash method of accounting and reports its GST liability on a quarterly basis.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

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