Edited version of private advice

Authorisation Number: 1052042292488

Date of advice: 22 November 2022

Ruling

Subject: GST and reduced input tax credits

Question 1

Does the acquisition by the Scheme from the Responsible Entity of services to which the subject fee relates (Relevant Acquisition) fall within item 24(c) in the table in section 70-5.02 of A New Tax System (Goods and Services Tax) Regulations 2019 GST Regulations)and is therefore excluded from the operation of item 32 in the Table in section 70-5.02 of the GST Regulations?

Answer

No.

Question 2

If the Relevant Acquisition does not fall within item 24(c) of the Table in section 70-5.02 of the GST Regulations (item 24(c)), does the Relevant Acquisition fall within another item in the Table such that it is excluded from the operation of item 32 of the Table in section 70-5.02 of the GST Regulations (item 32)?

Answer

No. The percentage rate of the RITC to which the Relevant Acquisition relates is 55% under item 32.

Relevant facts and circumstances

The Trustee of the Scheme is carrying on an enterprise and is registered for goods and services tax (GST).

Entity A is the Responsible Entity of the Scheme.

The Scheme is a managed investment scheme as defined in section 9 of the Corporations Act 2001 (Cth). It is not a securitisation entity or mortgage fund as defined in subsection 70-5.02(4) of the GST Regulations.

The Scheme is a fixed trust and is governed by a constitution (Deed) (provided).

Entity A carries on an enterprise in its own capacity that includes making taxable supplies to the Scheme.

The Scheme generally makes financial supplies that exceed the financial acquisitions threshold under section 189 of the GST Act.

Entity A provides services to the Scheme, which in this private ruling are referred to as the 'Relevant Acquisition'.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 11

A New Tax System (Goods and Services Tax) Act 1999 subsection 70-5(1)

A New Tax System (Goods and Services Tax) Act 1999 section 189

A New Tax System (Goods and Services Tax) Regulations 2019 section 70-5.02

A New Tax System (Goods and Services Tax) Regulations 2019 section 70-5.03

Reasons for decision

Question 1

Paragraph 721 of Goods and Services Tax RulingGSTR 2004/1 Goods and services tax: reduced credit acquisitions (GSTR 2004/1)describes a recognised trust scheme as:

For the purposes of item 32, a 'recognised trust scheme' is defined in subregulation 70-5.02(4) to mean a trust that has the following features:

(a)  the entity that acts in the capacity as trustee or responsible entity of the trust, is carrying on, in its own capacity, an enterprise that includes making taxable supplies to the trust; and

(b)  the trust is:

(i)a managed investment scheme, or part of a managed investment scheme, other than a securitisation entity or a mortgage scheme; or

Legislation

Division 11 deals with an entity's entitlement to input tax credits. Section 11-20 provides that an entitlement to an input tax credit arises for any creditable acquisition made by an entity. The term creditable acquisition is defined by section 11-5 which 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.

Relevantly, a creditable acquisition is one which is acquired solely or partly for a creditable purpose. Subsections 11-15(1) and (2) state:

(1)  You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2)  However, you do not acquire the thing for a creditable purpose to the extent that:

(a)  the acquisition relates to making supplies that would be *input taxed; or

(b)  the acquisition is of a private or domestic nature.

Accordingly, the Scheme acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise.However, it does not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed, unless the acquisition relates to making financial supplies and the entity does not exceed the Financial Acquisition Threshold (FAT).

The Scheme makes supplies that are input taxed and has the exceeded the FAT.

Therefore, notwithstanding that the Scheme is registered for GST and acquired the things in the course of an enterprise it carries on, it did not acquire the services from Entity A for a creditable purpose to the extent that the acquisitions relate to making supplies that would be input taxed.

Furthermore, as the Scheme has exceeded the FAT, the exception set out in subsection 11-15(4) does not apply, and therefore, the Scheme does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed financial supplies.

Subsection 70-5(1) establishes that the Scheme may be entitled to a reduced input tax credit (RITC) where the acquisitions qualify as a reduced credit acquisition (RCA) listed in the GST Regulations.

Application of Division 70 of the GST Act and Section 70 of the GST Regulations

For the purposes of subsection 70-5(1), subsection 70-5.02(2) of the GST Regulations lists the RCAs which give rise to an entitlement to an RITC. Section 70-5.03 of the GST Regulations specifies that the percentage to which input tax credits are reduced is 75% for all RCAs other than those made by a 'recognised trust scheme' covered by item 32; in which case the rate will be 55% unless an exclusion applies.

Is the Relevant Acquisition covered by item 32

Item 32 applies, with effect from 1 July 2012 to certain supplies acquired by recognised trust scheme. A recognised trust scheme is defined in section 196-1.01 of the GST Regulations as a trust that has a trustee or responsible entity carrying out in its own capacity an enterprise that includes making taxable supplies to the trust. Further, the trust must be a managed investment scheme under the Corporations Act 2001 or part of a managed investment scheme other than a securitisation entity or a mortgage scheme as defined in section 196-1.01 of the GST regulations. Based on the information provided, the Relevant Acquisition is covered by item 32.

Item 32 applies to a supply acquired on or after 1 July 2012 excluding a supply by way of sale of goods or supply of real property of certain kinds. Further, item 32 excludes acquisitions to the extent that the acquisitions are covered by the following items:

•         brokerage services covered under items 9 or 21;

•         investment portfolio management functions under item 23 excluding acting as a trustee or single responsible entity under paragraphs (c) and (d) of that item;

•         administrative functions in relation to investment funds under item 24 excluding services under paragraph (h) of that item;

•         custodial services covered under item 29;

•         master custody services covered under item 30;

•         monitoring and reporting services (other than taxation and auditing services) under item 33.

Item 24

Item 24 provides an exhaustive list of administrative functions in relation to investment funds. Of relevance in this case is item 24(c).

The following administrative functions in relation to investment funds, including those functions for superannuation schemes:

...

c) processing transfer between funds and trusts;

...

Paragraph 540 of GSTR 2004/1 provides that in the context of funds management services, item 24 gives an exhaustive list of administrative functions in relation to investment funds (including superannuation schemes). An acquisition of a service that falls within items 24(a) to 24(i) is a reduced credit acquisition.

Paragraphs 568 to 571 of GSTR 2004/1 in relation to item 24(c) provides:

568. The processing of transfer(s) between funds and trusts is the carrying out of actions necessary to effect a transfer of assets between funds or between trusts.

569. A particular investment fund or superannuation scheme may have members' contributions invested with a number of different fund managers. Where assets are transferred between different funds, the acquisition of processing the transfer is a reduced credit acquisition under item 24(c).

570. Item 24(c) also includes the processing of transfers between trusts of members' entitlements.

571. As discussed in relation to items 24(a) and 24(b), acquiring the means to perform these functions 'in-house' (for example, acquiring application software) is not a reduced credit acquisition under item 24(c).

Application to your circumstances

The facts provided establish that the Scheme is a recognised trust scheme and exceeds the FAT.

In this case, it is fundamental to assess the character of the Relevant Acquisition and whether the acquisition meets the description of any of the exclusions to item 32. Where an acquisition meets the requirements of an item that is excluded by item 32, the percentage rate of the RITC is 75%. It has already been established that item 32 applies in this case.

You consider that the Relevant Acquisition is covered by item 24(c) and, therefore, falls within the exclusions set out in item 32.

The Commissioner does not consider the Relevant Acquisition is covered by Item 24(c).

Question 2

Based on the facts provided, the services to which the Relevant Acquisition relates is not covered by the exclusions to item 32.