Private ruling: GST apportionment methodology
Date of advice: 6 August 2020
Published: September 2020

Ruling: Q1: Is the transaction-based GST apportionment methodology formula considered by the Commissioner of Taxation to be a fair and reasonable basis for calculating the extent of creditable purpose for your acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the Commissioner of Taxations considers your proposed transaction-based GST apportionment methodology is a fair and reasonable basis for calculating the extent of creditable purpose for your acquisitions under Division 11 of the GST Act.

Relevant facts and circumstances: You are registered for GST. You are an Authorised Deposit taking Institution. You provide banking services overseas and in Australia. You have both resident and non-resident customers. Apportionment Methodology You make financial supplies to both resident clients and non-resident entities. The financial supplies made to non-resident customers are GST-free supplies and therefore acquisitions which relate to making such GST-free supplies are for a creditable purpose under section 11-5 of the GST Act. Financial supplies made to resident customers would be treated as input taxed supplies and would prima facie not be eligible for input tax credits. The calculation of the percentage extent of creditable purpose is to be undertaken on a period-by-period basis. Your internal processing systems can distinguish between resident and non-resident customers. Calculation of apportionment In calculating the appropriate apportionment rate based on the transaction count methodology, you would undertake the following steps:  Identify the split of customers located onshore and offshore from data available for each tax period and obtain the apportionment ratio.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 11.

Reasons for decision: Summary: Generally, an entity is entitled to an input tax credit on any creditable acquisition that it makes. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable. Paragraph 11-30(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) explains that an acquisition is partly creditable if it is made only partly for a creditable purpose, as defined by section 11-15 of the GST Act. Relevantly, paragraph 11-15(2)(a) of the GST Act provides that an acquisition is not made for a creditable purpose to the extent that it relates to making supplies that would be input taxed. Subsection 11-30(3) of the GST Act specifies that the amount of input tax credit on an acquisition that is partly creditable is determined as: Full input tax credit x Extent of creditable purpose x Extent of consideration The Goods and Services Tax Ruling, Goods and services tax: determining the extent of creditable purpose for providers of financial supplies (GSTR 2006/3) outlines a number of methods of apportionment that may be used for the purposes determining the extent of creditable purpose. GSTR 2006/3 states: 26. ... The fundamental requirement is that whatever method you adopt to calculate your input tax credits must be fair and reasonable, and appropriately reflect the intended use of your acquisitions (or in the case of an adjustment, the actual use) in calculating the net amount. 27. To calculate the amount of your input tax credits, you will need to make a fair and reasonable estimate of the extent of creditable purpose for your acquisitions and importations. The requirement that your estimation is fair and reasonable is a prerequisite for any decision you make. As stated in paragraph 26 of GSTR 2006/3, an apportionment method must 'appropriately reflect the intended use' of acquisitions. Paragraph 33 of GSTR 2006/3 provides a succinct set of principles for choosing an apportionment method: 33. Following the principles set out by the High Court, the method you choose to allocate or apportion acquisitions between creditable and non-creditable purposes needs to: ● be fair and reasonable; ● reflect the intended use of that acquisition (or in the case of an adjustment, the actual use); and ● be appropriately documented in your individual circumstances. Paragraph 75 of GSTR 2006/3 states: ... Any apportionment method should aim to achieve an accurate reflection of the input tax credits available for acquisitions or importations acquired in carrying on your enterprise. The criteria used in relation to any expense must therefore recognise the nature of the underlying supply to be made. Paragraph 94 of GSTR 2006/3 advises that the use of such characteristics or factors provides an estimation of a direct link between the acquisition or importation and its (or its intended) application. Examples of these factors and characteristics include volume (for example, numbers of financial transactions of particular types). The method chosen as fair and reasonable would express the relevant use of the acquisition or importation as a percentage of total application (or intended application). Application to your case Based on the information detailed in the 'Relevant facts and circumstances' section of the ruling we accept the proposed transaction count-based apportionment methodology is a fair and reasonable basis for calculating the extent of creditable purpose of your enterprise acquisitions in line with the requirements set out in GSTR 2006/3.