ATO ID 2012/6: GST and representative of an incapacitated entity acting as both supplier and recipient of the representative's administration services
Date of decision: 20 January 2012
Business line: Indirect Tax

Issue
Is Entity A, an administrator acting in its capacity as a representative for an incapacitated entity, entitled to input tax credits (ITCs) under section 58-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for its payment of administration fees imposed by Entity B, the administrator in its capacity as an insolvency practitioner, even though Entity A and Entity B are the same legal person?

Decision
Yes, Entity A, as the representative of the incapacitated entity, is entitled to ITCs under section 58-10 of the GST Act for its payment of administration fees imposed by Entity B, even though Entity A and Entity B are the same legal person.

Facts
Entity A and Entity B are the same legal person, an administrator, acting in two different capacities. Entity A is an administrator acting in its capacity as the representative for the incapacitated entity that makes only taxable supplies. Entity B is the administrator acting in its capacity as an insolvency practitioner for the incapacitated entity. The legal person is registered twice for goods and services tax (GST). Once as Entity A pursuant to Division 58 of the GST Act and once as Entity B under Division 23 of the GST Act. The incapacitated entity is also registered for GST. Entity B performs administration services for Entity A and issues an invoice to Entity A. Entity A pays the invoice. The supply made by Entity B is a taxable supply under section 9-5 of the GST Act. The acquisition by Entity A is a creditable acquisition, under section 11-5 of the GST Act. (None of the activities of the incapacitated entity are of a private or domestic nature. None of the activities of the incapacitated entity involve the making of input taxed supplies. The acquisition by the incapacitated entity (while under administration) of administration services (paid for by the administration fees) is in the course of the activities of the incapacitated entity.) The acquisition of Entity B's services is within the scope of Entity A's responsibility or authority for managing the incapacitated entity's affairs.

Reasons for decision
Summary: Under subsection 184-1(3) of the GST Act a legal person can have a number of different capacities. In each of these capacities, the legal person is taken to be a different entity for GST purposes. Entity A and Entity B are the same legal person acting in two different capacities and are treated as two separate entities for the purposes of the GST Act. As a result, Entity A, the administrator in its capacity as the representative of the incapacitated entity, can make acquisitions from Entity B, the administrator in its capacity as an insolvency practitioner. Subsection 58-5(1) of the GST Act ensures that any acquisitions made by the representative of the incapacitated entity are taken to be acquisitions made by the incapacitated entity. As stated in the facts, the acquisition is a creditable acquisition under section 11-5 of the GST Act. However, under paragraph 58-10(1)(b) of the GST Act, a representative of an incapacitated entity is entitled to any ITCs that the incapacitated entity would be entitled to for a creditable acquisition to the extent that the making of the acquisition is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. This is despite section 11-20 of the GST Act, which is about who is entitled to ITCs. Accordingly, Entity A as the representative of the incapacitated entity is entitled to any ITCs under paragraph 58-10(1)(b) of the GST Act in relation to the fees paid to Entity B, and not the incapacitated entity. The fees are paid for a creditable acquisition of Entity B's services, that is within the scope of Entity A's responsibility or authority for managing the incapacitated entity's affairs. Entity A has the entitlement to the ITCs for the acquisitions. Notes:

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 11-5 section 11-20 Division 23 Division 58 subsection 58-5(1) section 58-10 paragraph 58-10(1)(b) subsection 184-1(3)
Subject references: Goods and services tax GST special rules Representative of incapacitated entities GST supplies & acquisitions Creditable acquisition