Edited version of private advice

Authorisation Number: 1051802737338

Date of advice: 25 February 2021

Ruling

Subject: GST and FBT

Question 1

Are you entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the acquisition of the aircraft?

Answer

Yes.

Question 2

Is the provision of air travel for private use by an employee an in-house period residual fringe benefit whose taxable value is calculated under paragraph 49(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Relevant facts

You are starting a hire business.

You are registered for GST and account on a cash basis.

You entered into the Aircraft Sale Agreement which include the Seller's name, aircraft specification, loose equipment supplied with the aircraft, purchase price inclusive of GST, the delivery location and the amount of the deposit.

The purchase price was paid on settlement of the sale agreement.

The supply to you was a taxable supply. You have a tax invoice issued by the Seller on the settlement date which shows the GST payable as 1/11^th of the purchase price.

You purchased the aircraft with the intention of making it available for lease. You will also make the aircraft available to other parties. You are discussing with the local rural fire brigade to assist in emergency operations. Your related entities also own farms and the aircraft will conduct aerial views of these to ensure all is in order. A logbook will be maintained for all use.

You entered into the Hire Agreement which include the details of the Hirer, the period of the contract of 12 months, the hire rate calculated on a per hour of usage basis. The Hire Agreement provides that you will arrange and fund all maintenance costs.

You are currently contacting local businesses directly rather than advertising. If you are unable to generate enough business by this means, you will consider advertising.

The aircraft will also be available for private use of directors when not being hired in business operations. The extent of the private use will depend greatly on the market. At the moment, with COVID, there is not a lot of international tourists which is hurting the industry. Ideally the private use would be kept to a minimum but this will depend on the tourism industry in the Whitsundays.

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 11-15.

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-25.

Fringe Benefits Tax Assessment Act section 45.

Fringe Benefits Tax Assessment Act section 49.

Fringe Benefits Tax Assessment Act subsection 136(1).

Reasons for decision

Question 1 - GST

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisitions that you make.

You make a creditable acquisition if all of the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met. Section 11-5 of the GST Act states:

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.

(* denotes a term defined in section 195-1 of the GST Act)

As listed in paragraph 11-5(a) of the GST Act, to make a creditable acquisition you must acquire the thing solely or partly for a creditable purpose.

Section 11-15 of the GST Act provides that 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 input taxed supplies or the acquisition is of a private or domestic nature.

The definition of 'enterprise' includes an activity or series of activities done in the form of a business, or the regular or continuous leasing or granting of an interest in property.

Additionally, 'carrying on' an enterprise is defined to include doing anything in the course of the commencement of the enterprise and therefore it is also relevant to have regard to those activities.

In relation to determining creditable purpose, paragraph 52 of GSTR 2001/3 on how GST applies to supplies of fringe benefits states:

52. An acquisition or importation you make to provide a fringe benefit in respect of employment in your enterprise is made in carrying on the enterprise and is not of a private or domestic nature for the purposes of section 11-15 and section 15-10. It is your purpose at the time of making the acquisition or importation that is relevant to whether the acquisition or importation is for a creditable purpose. For example, an acquisition made to provide a car for the private use of your employee is made for a creditable purpose.

Application to your case:

You acquired the aircraft to be used in your hire business. You entered into the Hire Agreement making the aircraft available to the Hirer for 12 months on a hire rate calculated on a per hour of usage basis.

You are currently contacting local businesses directly making the aircraft available for hiring purposes. You are discussing with the local rural fire brigade to assist in emergency operations. If you are unable to generate enough business by this means, you will consider advertising.

We consider that by engaging in these activities, you are carrying on an enterprise.

The aircraft will also be available for private use of the directors when not being hired in business operations. Ideally the private use would be kept to a minimum but this will depend on the tourism industry.

The aircraft is acquired in carrying on your hire business. Furthermore, the provision of the aircraft to directors for private use is a fringe benefit. We consider that the acquisition of the aircraft is made in carrying on your enterprise. The acquisition does not relate to making input tax supplies nor is it of a private or domestic nature. Hence, the requirement of paragraph 11-5(a) of the GST Act that the acquisition is for a creditable purpose is satisfied.

Furthermore, the other requirements of section 11-5 of the GST Act are met as follows:

• the supply of the helicopter to you is a taxable supply
• you provided consideration for the acquisition and
• you are registered for GST.

Therefore, as all the requirements of section 11-5 of the GST Act are satisfied, you are entitled to input tax credits under section 11-20 of the GST Act on the acquisition of the helicopter.

Attribution of input tax credit

Section 29-10 of the GST Act provides the rules that are used to determine to which tax period an input tax credit for a creditable acquisition is attributable.

The purchase price was paid on 15 December 20XX. Hence, as you account for GST on a cash basis and you hold a tax invoice for the purchase, you attribute the input tax credit in the tax period ending 31 December 20XX.

Question 2 - FBT

Is there a fringe benefit?

A 'benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to include any right, privilege, service or facility provided in relation to the performance of work. A 'fringe benefit' is defined in subsection 136(1) of the FBTAA to be a benefit provided to an employee, or an associate of an employee, by an employer, or an associate of the employer, or in an arrangement between the employer and the arranger, with respect to the employment of the employee.

The provision of a helicopter to an employee for private use is a fringe benefit being a benefit provided to an employee by an employer.

The fringe benefit will be a residual fringe benefit under section 45 of the FBTAA if it is not a fringe benefit by virtue of Subdivision A of Divisions 2 to 11 (inclusive). The fringe benefit of helicopter travel is not covered in Subdivision A of Divisions 2 to 11 (inclusive). The fringe benefit is therefore a residual fringe benefit.

Type of residual fringe benefit

The company intends to hire the helicopter for firefighting and tourism operations at a flat rate of $XXX per hour. The helicopter will also be available to employees or their associates, for private use.

The fringe benefit will be provided for more than one day and will therefore be a period fringe benefit.

An 'in-house residual fringe benefit is defined in subsection 136(1) of the FBTAA to mean:

in relation to an employer, means a residual fringe benefit in relation to the employer:

(a)  where both of the following conditions are satisfied:

(i)    the provider is the employer or an associate of the employer;

(ii)   at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; ...

The provider of the helicopter for private use by an employee will be the employer. The hiring out of the helicopter is principally to fire fighting and tourism operations, or outsiders, defined in subsection 136(1) of the FBTAA, as not being an employee of the employer, or an employee of an associate of the employer. The benefit is therefore an in-house period residual fringe benefit.

Valuation of fringe benefit

Section 49 of the FBTAA states how to calculate the taxable value of in-house period residual fringe benefits:

Subject to this Part, the taxable value of an in-house period residual fringe benefit in relation to a year of tax is:

(aa)if the benefit was provided to the recipient under a salary packaging arrangement - an amount equal to the notional value of the benefit at the comparison time; or

(ab) if paragraph (aa) does not apply and the benefit is an airline transport fringe benefit - an amount equal to 75% of the stand-by airline travel value of the benefit at the comparison time; or

(a)  if neither paragraph (aa) nor (ab) applies and, at or about the comparison time, identical overall benefits were provided by the provider:

(i)    in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and

(ii)   in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit;

an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit in relation to an identical overall benefit so provided; or

(b)  in any other case - an amount equal to 75% of the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

Paragraphs (aa) and (ab) do not apply. The provider provided identical overall benefits in the ordinary course of its business to members of the public, fire fighters and tourism operators, under an arm's length transaction, and in similar circumstances and subject to identical terms and conditions as those that applied in relation to the provision of the recipient's overall benefit, the provision of the use of the helicopter for private use by an employee, or an associate of the employee.

The taxable value of the residual fringe benefit is therefore 75% of the lowest amount paid by a member of the public, less any amount paid by an employee.