Edited version of private advice

Authorisation Number: 1051926757654

Date of advice: 10 December 2021

Ruling

Subject: GST and input tax credits

Question 1

Is the entity making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 from the supplier under the agreement?

Answer

Yes, the acquisition is a creditable acquisition.

Question 2

Is the entity entitled to the input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 for the acquisition made from the supplier under the agreement?

Answer

Yes, as the entity has made a creditable acquisition, it is entitled to the input tax credit.

Question 3

What is the amount of input tax credit that the entity is entitled to under section 11-25 of the A New Tax System (Goods and Services Tax) Act 1999 for the acquisition made from the supplier under the agreement in relation to the 2017 service fee?

Answer

The entity is entitled to input tax credits of $AAA.

This ruling applies for the following periods:

Tax periods ending on or after 17 September 20XX

Relevant facts and circumstances

The entity is registered for GST. The entity carries on an enterprise and is part of an economic group known as the Group.

The entity and others in the Group entered in the agreement with the supplier. The agreement provides, amongst other things, that the supplier will services to the Group.

Under the agreement, the supplier is entitled to be paid a service fee annually in arrears.

There is a dispute between the supplier and the Group in about the correct calculation of the service fee payable to the supplier.

The agreement was terminated and the amount of the 20XX service fee continues to be in dispute.

In August 20XX, the supplier issued a document to the entity which purports to be a tax invoice, The amount in the document is for $ZZZ (plus GST) which is for the 20XX service fee as calculated by the supplier. The entity believes that this document was issued notwithstanding that no final determination has been made in relation to the 20XX service fee.

The entity determined that an amount of $XXX (plus GST) was correctly payable to the supplier as this amount of the 20XX service fee was not in dispute. The entity paid this amount to the supplier in July 20XX. The total amount of the 20XX service fee payable to the supplier is yet to be determined.

In June 20XX, the entity requested a tax invoice in respect of the payment made to the supplier for the undisputed amount of the 20XX service fee however, the supplier has not complied with this request.

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 11-25

A New Tax System (Goods and Services Tax) Act 1999 section 11-30

Reasons for decision

Generally, an entity makes a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where:

•         the entity makes an acquisition; and

•         the acquisition is made for a creditable purpose; and

•         the supply of the thing is a taxable supply; and

•         the entity provides or is liable to provide consideration for the supply; and

•         the entity is registered for required to be registered for GST.

The agreement is a contract entered into between the entity and other related parties (the Group) and the supplier. The agreement provides that the supplier will provide a range of services to the Group.

There are a number of entities that are in the Group which are party to the agreement and, as such, the services provided by the supplier are provided, in part, to each of these entities. As a party to the agreement, the entity has acquired part of the services provided by the supplier.

Section 11-15 of the GST Act provides that an entity makes an acquisition for a creditable purpose to the extent that it is acquired in carrying on an enterprise and (generally) doesn't relate to supplies that are input taxed (eg residential premises and financial supplies). The entity carries on an enterprise and, as the services provided by the supplier directly relate to that enterprise, the acquisition by the entity is made for a creditable purpose.

As the supplier is registered for GST and the supply of its services satisfy the requirements of section 9-5 of the GST Act, the supply of its services under the agreement is a taxable supply.

The agreement does not provide specific details about which party from the Group is required to pay the service fee to the supplier, only that the Group is required to pay the fee. However, as the entity paid $XXX (plus GST) to the supplier in July 20XX as part payment for the 20XX service fee, the entity has provided consideration for its acquisition.

Finally, as the entity is registered for GST, it has made a creditable acquisition under section 11-5 of the GST Act.

Section 11-20 of the GST Act states that any entity which makes a creditable acquisition is entitled to the input tax credit for that acquisition. Sections 11-25 and 11-30 of the GST Act provide that the amount of the input tax credit on a creditable acquisition is equal to the GST payable unless the acquisition is made only partly for a creditable purpose or the recipient provides or is liable to provide only part of the consideration for the acquisition. The GST on the supply is 10% of the value of the supply. The value of the supply is defined by section 9-75 of the GST Act by reference to the consideration payable on the supply.

Although the supplier has issued a document that claims to be a tax invoice for $ZZZ (plus GST), it is clear that the Group is not liable to pay this amount. This is because the dispute has not been finalised and the final amount owing for the 20XX service fee has not been determined. Therefore, this amount is not the consideration payable for the supply made by the supplier.

The amount of $XXX (plus GST) paid by the entity is part payment of the 20XX service fee and is the consideration for the supply made by supplier. Accordingly, the GST payable and input tax credit is $AAA.

Should the entity make a further payment for the 20XX service fee, the payment will be an adjustment event under section 19-10 of the GST Act as the consideration for the supply will have changed.