Edited version of private advice

Authorisation Number: 1052351982284

Date of advice: 17 January 2025

Ruling

Subject: Creditable acquisition of legal expenses

Question 1

Are your acquisitions of legal services a creditable acquisition under section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes, but only to the extent that those legal services incurred relate to the trustee of the Trust (the Trust) enterprise activities. The legal expenses of the Trust are creditable acquisitions for the purposes of section 11-15 of the GST Act.

You, as an individual, do not meet the requirements of section 11-15 of the GST Act and are not entitled to input tax credits for the legal expenses.

This ruling applies for the following period:

XX January 20XX to XX January 20XX

The scheme commenced on:

XX January 20XX

Relevant facts and circumstances

As an individual, you had an ABN until DD Month 20XX but were not registered for GST.

You also carried out a business of supplying and servicing widgets through the company XYZ Pty Ltd, however the company was shut down in Month 20XX. Before closing down the company established a trust (the Trust) and transferred all intellectual property from the company to the Trust and continued the business activity within the Trust.

The Trust has been registered for GST since DD Month 20XX.

You as an individual are the sole trustee of the Trust.

The Trust's products and their services are taxable for GST purposes.

You have incurred substantial legal expenses as a result of defending a lawsuit over the past X years made by a competitor relating to intellectual property they claim belongs to them and they have attempted to shut your business down through this legal action.

The legal expenses have been invoiced to you as the individual representing the entities which are the parties to the lawsuit. Both you as an individual and as trustee of the Trust are parties to the court case.

Without defending the case you will have no business and derive no income.

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 29-70

Reasons for decision

Entities that are registered for GST are entitled to claim input tax credits for creditable acquisitions they make.

Under Section 11-5 of the GST Act 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.

You, as an individual, are not carrying out an enterprise and are not registered for GST. You ceased your enterprise under your individual ABN in 20XX. As you are not carrying on an enterprise, you do not acquire the legal expenses for a creditable purpose, even though you may have provided consideration (paid) for the supply.

The trustee for the Trust, from the trust's registration date on DD Month 20XX, acquired and continue to acquire legal services which are a taxable supply. The trustee for the Trust provided consideration for the legal services.

To establish the creditable purpose of the legal expenses we need to consider the connection of the costs to your enterprise and the type of supplies your enterprise makes for GST purposes.

Section 11-15 of the GST Act states:

(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.

[...]

Subsection 11-15(1) states that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. It is necessary to identify the enterprise that is being carried on and to determine whether there is a connection between the acquisition and the enterprise being carried on.

The term 'enterprise' is defined in section 9-20. Subsection 9-20(1) states:

An enterprise is an activity, or series of activities, done:

(a) in the form of a business; or

(b) in the form of an adventure or concern in the nature of trade; or

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

...

As provided in the facts, the trustee for the Trust is carrying out an enterprise involving the sale and service of widgets as a business activity.

Applying section 11-15 of the GST Act, the trustee for the Trust has provided that all supplies the Trust makes are taxable supplies and not input taxed supplies, nor are the supplies private or domestic in nature. There is a direct connection between the acquisition of legal services used to defend the Trust's ability to carry on the enterprise of making taxable supplies of widgets and widget servicing.

The legal services are acquired for a creditable purpose, they are taxable, they are supplied for consideration, and the trustee for the Trust is registered for GST. You will be entitled to input tax credits (GST) as long as invoices provided fulfill the requirements of section 29-70 of the GST Act which provides:

Tax invoices

(1) A tax invoice is a document that complies with the following requirements:

(a) it is issued by the supplier of the supply or supplies to which the document relates, unless it is a recipient created tax invoice (in which case it is issued by the recipient);

(b) it is in the approved form;

(c) it contains enough information to enable the following to be clearly ascertained:

(i) the supplier's identity and the supplier's ABN;

(ii) if the total price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient--the recipient's identity or the recipient's ABN;

(iii) what is supplied, including the quantity (if applicable) and the price of what is supplied;

(iv) the extent to which each supply to which the document relates is a taxable supply;

(v) the date the document is issued;

(vi) the amount of GST (if any) payable in relation to each supply to which the document relates;

(vii) if the document was issued by the recipient and GST is payable in relation to any supply--that the GST is payable by the supplier;

(viii) such other matters as the regulations specify;

[...]

Conclusion

As an individual, you do not carry on an enterprise and are not registered for GST. Acquisitions of legal services to you personally are not creditable acquisitions and you are not entitled to input tax credits.

As the trustee for the Trust your legal expenses are creditable acquisitions for the purposes of section 11-15 of the GST Act. The acquisition of the legal services occurred as a result of the litigation for the Trust enterprise and is connected to a taxable supply the Trust makes. The requirements for a creditable acquisition have been met because the acquisition was for a creditable purpose. Therefore, the Trust is entitled to input tax credits in relation to the legal expenses incurred from the registration date of DD Month 20XX provided the legal services invoices meet the requirements of section 29-70 of the GST Act.