Edited version of private advice

Authorisation Number: 1052317837366

Date of advice: 6 February 2025

Ruling

Subject: GST - apportionment

Question 1

Is Entity B's proposed apportionment methodology for the tax period from DD MM YYYY to DD MM YYYY (Period 1) a fair and reasonable method to determine the extent of creditable purpose (ECP) of its acquisitions under subsection 11-30(3) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer 1

Yes.

Question 2

Is Entity B's proposed apportionment methodology for the tax period from DD MM YYYY to DD MM YYYY (Period 2) a fair and reasonable method to determine the ECP of its acquisitions under subsection 11-30(3) of the GST Act?

Answer 2

Yes.

Question 3

Is Entity B's proposed apportionment methodology for the tax period from DD MM YYYY to DD MM YYYY (Period 3) a fair and reasonable method to determine the ECP of its acquisitions under subsection 11-30(3) of the GST Act?

Answer 3

Yes.

Question 4

Is Entity B's proposed apportionment methodology for the tax period from DD MM YYYY to DD MM YYYY (Period 4) a fair and reasonable method to determine the ECP of its acquisitions under subsection 11-30(3) of the GST Act?

Answer 4

Yes.

This ruling applies for the following period:

DD MM YYYY to DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

Entity A and Entity B are registered for GST.

Entity A is the representative member of the GST group which includes Entity B.

The GST Group exceeds the financial acquisitions threshold.

Entity B makes taxable and input taxed financial supplies.

Entity B has proposed 4 apportionment methodologies for specific tax periods.

Relevant legislative provisions

A New Tax System (Goods and Service Tax) Act 1999 section 11-5

A New Tax System (Goods and Service Tax) Act 1999 section 11-15

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

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

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

Reasons for decision

Question 1

Generally, you are entitled to an input tax credit for any creditable acquisition that you make.[1] Section 11-5 of the GST Act provides that 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.

Subsection 11-15(1) 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, subsection 11-15(2) of the GST Act provides that you do not acquire a 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.

Section 11-25 of the GST Act provides that the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount is reduced if the acquisition is only partly creditable.

Subsection 11-30(1) of the GST Act provides that an acquisition is partly creditable if one or both of the following applies:

(a)           you make the acquisition only partly for a *creditable purpose;

(b)           you provide, or are liable to provide, only part of the *consideration for the acquisition.

Subsection 11-30(3) of the GST Act specifies that the amount of input tax credit on an acquisition that is partly creditable is determined as:

Full input tax credit x Extent of creditable purpose x Extent of consideration

Entity B makes taxable supplies and input taxed financial supplies in the course of its enterprise. Where it is not possible to identify acquisitions that relate solely to making taxable supplies, any acquisitions made will be partly for a creditable purpose to the extent that they relate to making taxable supplies.

Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies (GSTR 2006/3) provides guidance on methods that can be used for calculating input tax credits by providers of financial supplies.

Paragraph 42 of GSTR 2006/3 states that if an acquisition is partly creditable, apportionment is required.

Paragraphs 26 and 27 of GSTR 2006/3 states:

26.          The input tax credits you claim have a direct effect on the net amount reported on your Business Activity Statement (BAS), and therefore on the amount payable by you to, or refundable to you by, the Australian Taxation Office for the relevant tax period. The fundamental requirement is that whatever method you adopt to calculate your input tax credits must be fair and reasonable, and appropriately reflect the intended use of your acquisitions (or in the case of an adjustment, the actual use) in calculating the net amount.

27.          To calculate the amount of your input tax credits, you will need to make a fair and reasonable estimate of the extent of creditable purpose for your acquisitions and importations. The requirement that your estimation is fair and reasonable is a prerequisite for any decision you make.

Paragraph 33 of GSTR 2006/3 sets out the principles for choosing an apportionment method:

33.          Following the principles set out by the High Court, the method you choose to allocate or apportion acquisitions between creditable and non-creditable purposes needs to:

•                     be fair and reasonable^[8A];

•                     reflect the intended use of that acquisition (or in the case of an adjustment, the actual use); and

•                     be appropriately documented in your individual circumstances.

Paragraph 81 of GSTR 2006/3 provides that the Commissioner considers the use of a direct method, where possible, best accords with the principles set out in paragraph 33 of GSTR 2006/3.

If it is not possible or practicable to use a direct method, an indirect estimation method may be appropriate. Paragraph 102 and 103 of GSTR 2006/3 provides:

102.        Indirect methods attempt to estimate the use of acquisitions and importations for creditable purposes by taking into account factors or characteristics that are not directly referable to the use of the particular acquisition. For this reason they may not give as accurate a measure of the creditable purpose of the acquisition or importation as direct methods. Paragraph 155 of the Ruling gives an example (Example 10) of the different extents of creditable purpose potentially available from the use of indirect estimation methods and the factors to take into account in choosing the appropriate method.

103.        Indirect estimation methods may be appropriate in circumstances where there are overhead expenses that are not directly referable to particular supplies or activities. They may also be appropriate if the direct methods do not apportion acquisitions or importations to the level of supplies, or groups of supplies, that require different treatment for GST purposes. It may also be the case that the direct attribution of a large number of small acquisitions or importations is not cost effective. In all cases where indirect methods are used, the method chosen should be fair and reasonable in the context of your enterprise.

Paragraph 104 of GSTR 2006/3 lists examples of indirect estimation methods which may be appropriate in certain circumstances, including non-revenue-based indirect estimation methods. Paragraph 119 of GSTR 2006/3 provides that some indirect measures other than revenue such as number of transactions, may provide a fair and reasonable outcome.

Based on the information provided, we consider that the proposed apportionment methodology for Period 1 is fair and reasonable.

Question 2

Similar to the reasoning under question 1 and based on the information provided, we consider the proposed apportionment methodology for Period 2 is fair and reasonable.

Question 3

Similar to the reasoning under question 1 and based on the information provided, we consider the proposed apportionment methodology for Period 3 is fair and reasonable.

Question 4

In addition to the reasoning under question 1, paragraph 104 of GSTR 2006/3 lists revenue-based formulas as an example of an indirect estimation method which may be appropriate in certain circumstances.

Based on the information provided, we consider the proposed apportionment methodology for Period 4 is fair and reasonable.

[1] GST Act, section 11-20.