ATO ID 2002/1: GST and the acquisition of goods to be provided as gifts
Date of decision: 28 September 2001
Business line: Indirect Tax

Issue
Is the entity, a school, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it purchases goods that will be provided to members of the school community?

Decision
Yes, the entity is entitled to an input tax credit under section 11-20 of the GST Act when it purchases goods that will be provided to members of the school community.

Facts
The entity is a school. The entity purchases goods that will be provided to members of the school community. The supply of the goods to the entity is a taxable supply under section 9-5 of the GST Act. Gifts are provided to members of the school community: In this case, the support of parents, past students and friends is fundamental to the school's existence. Gifts are given to encourage such people to support the school, and make donations that lead to the construction of buildings and facilities. The purchase of the goods does not relate to making supplies that would be input taxed. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes. Under section 11-5 of the GST Act, an entity makes a creditable acquisition if: Firstly, it needs to be determined whether the entity acquires the goods for a creditable purpose. According to section 11-15 of the GST Act, an entity acquires a thing for a creditable purpose, to the extent it acquires it in carrying on its enterprise. Activities which foster the fundraising potential of the entity are done so in the carrying on of the entity's enterprise. In this case, gifts are given to encourage parents, past students and friends to support the school by making donations that lead to the construction of buildings and facilities which are essential for the school's progress. As such, by giving the gifts the entity is improving its fundraising potential. Therefore, the goods are purchased in carrying on its enterprise. However, under section 11-5 of the GST Act, an entity does not acquire the goods for a creditable purpose to the extent that: As making gifts is a way for the school to create goodwill amongst the people it deals with, those acquisitions are used for a creditable purpose. That is, the acquisitions of the gifts are not for a private or domestic purpose, nor do the acquisition relate to making supplies that are input taxed. As such, the acquisition satisfies paragraph 11-5(a) of the GST Act. In addition, the entity is registered for GST. The supply of the goods is a taxable supply to the entity and the entity provides consideration for the goods. Therefore, the entity is making a creditable acquisition under section 11-5 of the GST Act. Therefore, the entity acquires the goods for a creditable purpose under section 11-15 of the GST Act. As such, the acquisition satisfies paragraph 11-5(a) of the GST Act. In addition, the entity is registered for GST. The supply of the goods is a taxable supply to the entity and the entity provides consideration for the goods. Therefore, the entity is making a creditable acquisition under section 11-5 of the GST Act. As the entity is making a creditable acquisition, the entity is entitled to an input tax credit under section 11-20 of the GST Act when it purchases goods that will be provided to a member of the school community. Where acquisitions are made for the purpose of an input taxed fundraising event, the acquisition will not be for a creditable purpose, and an entity will not be entitled to an input tax credit under section 11-20 of the GST Act for that acquisition.]

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 11-5 paragraph 11-5(a) section 11-15 section 11-20 section 40-160
Subject references: Goods & services tax GST supplies & acquisitions Creditable acquisition Creditable purposes