ATO ID 2013/13: Amount of input tax credits relating to employee reimbursements
Date of decision: 8 March 2013
Business line: Indirect Tax

Issue
Is the entity entitled, under section 111-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), to an amount of input tax credit (ITC) equal to 1/11 of the amount of reimbursement the entity makes to an employee if the reimbursement is consideration for a partly creditable acquisition?

Decision
No. The amount of the ITC for a creditable acquisition under section 111-10 of the GST Act is reduced under section 11-30 of the GST Act if the acquisition is partly creditable.

Facts
The entity is a GST registered financial institution that exceeds the financial acquisitions threshold for the purposes of Division 189 of the GST Act. An employee of the entity has incurred an expense that is related directly to his activities as the entity's employee. The expense was for an acquisition that was a taxable supply to the employee. The entity reimburses the employee for the expense incurred. The reimbursement satisfies subsection 111-5(1) of the GST Act and is taken to be consideration for an acquisition made by the entity from the employee. The fact that the acquisition the entity is taken to have made from the employee is not a taxable supply to the entity does not prevent the acquisition being a creditable acquisition under section 11-5 of the GST Act because of the application of subsection 111-5 (2) of the GST Act. The acquisition taken to have been made by the entity is not precluded from being a creditable acquisition under subsection 111-5(3) of the GST Act. The entity's acquisition is only partly for a creditable purpose under section 11-15 of the GST Act as the acquisition partly relates to the making of input taxed supplies by the entity.

Reasons for decision
Summary: Section 111-10 of the GST Act sets out how an amount of ITC is worked out for a creditable acquisition if the consideration for the acquisition is a reimbursement to which section 111-5 of the GST Act applies: On the other hand, section 11-30 of the GST Act sets out how an amount of ITC is worked out for an acquisition that is partly creditable. Paragraph 11-30(1)(a) of the GST Act provides that an acquisition is partly creditable if it is made only partly for a 'creditable purpose' as defined in section 11-15 of the GST Act. This definition of 'creditable purpose' is not overridden by Division 111 of the GST Act. Therefore, to the extent that the acquisition for the reimbursement relates to making input taxed supplies, the acquisition is not creditable. While section 111-10 of the GST Act has effect despite section 11-25 of the GST Act, there is nothing in the GST Act that provides that that section overrides section 11-30 of the GST Act. Therefore, an amount of ITC worked out under subsection 111-10(1) would be subject to the reduction provided by subsection 11-30(3) of the GST Act if the acquisition is partly creditable. If an acquisition is partly creditable under paragraph 11-30(1)(a) of the GST Act, subsection 11-30(3) of the GST Act relevantly provides that the amount of the ITC is worked out as: 'full input tax credit' x 'extent of creditable purpose' Subsection 11-30(3) of the GST Act defines 'full input tax credit' and 'extent of creditable purpose' as follows: full input tax credit is what would have been the amount of the input tax credit for the acquisition if it had been made solely for a creditable purpose and you had provided, or had been liable to provide, all of the consideration for the acquisition extent of creditable purpose is the extent to which the creditable acquisition is for a creditable purpose, expressed as a percentage of the total purpose of the acquisition In this case, for the purposes of subsection 11-30(3) of the GST Act, the 'full input tax credit' is the amount of the ITC worked out under subsection 111-10(1) of the GST Act. Subsection 11-25 of the GST Act does not apply here. Goods and Services Tax Ruling GSTR 2006/4 determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose provides the Commissioner's view on the meaning of the phrase 'extent of creditable purpose'. Goods and Services Tax Ruling GSTR 2006/3 determining the extent of creditable purpose for providers of financial supplies explains the meaning of that phrase as it applies to providers of financial supplies.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 11-5 section 11-15 section 11-25 section 11-30 subsection 11-30(3) paragraph 11-30(1)(a) Division 111 section 111-5 subsection 111-5(1) subsection 111-5(2) subsection 111-5(3) section 111-10 subsection 111-10(1) subsection 111-10(2) subsection 111-10(3) Division 189
Related public rulings and determinations: GSTR 2006/3 | GSTR 2006/4
Subject references: Goods and services tax Input tax credits Creditable acquisition GST financial supplies Creditable purpose