ATO ID 2010/198: GST and agricultural managed investment scheme - pre-establishment acquisitions
Date of decision: 26 October 2010
Business line: Indirect Tax

Issue
Is the entity entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for acquisitions made to set-up and promote a forestry managed investment scheme, prior to the establishment of the scheme?

Decision
Yes. The entity is entitled to input tax credits under section 11-20 of the GST Act, for acquisitions made to set-up and promote the forestry managed investment scheme, prior to the establishment of the scheme.

Facts
The scheme: The scheme constitution establishes the scheme and in relation to the participants provides: Under the scheme documents the participants do not acquire an interest in the land and do not enter into an agreement for the management of the plantation. The contributions of money by the participant to the scheme, and the property acquired (directly or indirectly) with the contributions of money, are 'scheme property' as defined by the Corporations Act. Under subsection 601FC(2) of the Corporations Act, the RE holds such scheme property on trust for the participants. Under paragraph 184-1(1)(g) of the GST Act such a trust is an entity for GST purposes ('trust entity'). A trust (and therefore a trust entity) logically comes into existence when subsection 601FC(2) of the Corporations Act operates to create a trust over the scheme property. The scheme's documentation does not provide for a trust coming into existence at an earlier point in time, and therefore there is a trust entity established at the time there is scheme property (as defined in the Corporations Act). The constitution provides: Prior to there being scheme property (as defined in the Corporations Act), the entity makes acquisitions to set up and promote the scheme, including acquisitions of: After there is scheme property (as defined in the Corporations Act), the entity makes acquisitions that relate solely to the management of the participants' interests in the scheme, including the necessary accounting and legal services. The entity also makes acquisitions (after the scheme is established) that relate solely to carrying on the agricultural enterprise, including:

Reasons for decision
Summary: Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisitions that it makes. Under section 11-5 of the GST Act, an entity makes a 'creditable acquisition' if: 'Creditable purpose' is defined in section 11-15 of the GST Act as follows: Goods and Services Tax Ruling GSTR 2008 / 1 Goods and services tax : when do you acquire anything or import goods solely or partly for a creditable purpose (GSTR 2008/1) explains the Commissioner's approach to determining whether an acquisition relates to the making of supplies that would be input taxed. GSTR 2008/1 states at paragraph 119: For the purposes of paragraph 11-15(2)(a) of the GST Act a sufficient connection is established if, on an objective assessment of the surrounding facts and circumstances, the acquisition is used, or intended to be used, solely or to some extent for the making of supplies that would be input taxed. Paragraph 128 of Miscellaneous Tax Ruling MT 2006 / 1 Miscellaneous Tax : the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number states that activities undertaken to establish an entity, for example drawing up a trust deed and the settlement of trust property are not commencement activities. This is because the trust cannot commence activities until it is in existence. By reason of the scheme documentation, the Corporations Act and paragraph 184-1(1)(g) of the GST Act, there is scheme property held on trust, and therefore a trust entity for the GST, at the time the trust relationship is established under subsection 601FC(2) of the Corporations Act. Consequently, for the purposes of section 11-5 of the GST Act, any acquisitions made prior to there being a trust entity can only be made by the entity in its corporate capacity, that is, the acquisitions cannot be made by the entity in its capacity as trustee of the trust entity, as the trust entity does not yet exist. For the purposes of 11-15(1) of the GST Act, these acquisitions are acquired by the entity in carrying on its enterprise. Although the trust entity (once it exists) will make input taxed supplies to participants, the entity in its corporate capacity does not make input taxed supplies in relation to the establishment of the scheme. Therefore, for the purposes of paragraph 11-15(2)(a) of the GST Act, the acquisitions made by the entity do not relate to making input taxed supplies. Because the acquisitions made to set-up and promote the scheme are made by the entity in carrying on its enterprise, and the acquisitions do not relate to the entity making input taxed supplies, the acquisitions are made for a creditable purpose. Provided the other requirements of section 11-5 of the GST Act are met, the entity will be entitled to input tax credits under section 11-20 of the GST Act for such acquisitions.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 11-5 section 11-15 subsection 11-15(1) paragraph 11-15(2)(a) section 11-20 subsection 184-1(1)(g)
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2008/1 | Miscellaneous Tax Ruling MT 2006/1
Related ATO interpretative decisions: ATO ID 2010/129 | ATO ID 2010/196 | ATO ID 2010/197 | ATO ID 2010/199
Subject references: Goods and services tax Input taxed supplies GST financial supplies GST input tax credits & creditable acquisitions