Private ruling: Apportionment
Date of advice: 14 November 2022
Published: 16 January 2023
Ruling period: 1 November 20XX to 1 November 20XX
Date scheme commenced: 1 November 20XX

Ruling: Q1: Is your proposed apportionment methodology a fair and reasonable method to determine the extent of creditable purpose of your acquisitions under section 11-15 and subsection 70-(2) of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes.

Relevant facts and circumstances: You are registered for GST and the representative member of a GST group. The supplies made by your group may be taxable, GST-free or input taxed supplies and acquisitions made by your group can relate directly and indirectly to any of these supplies or a combination of supplies. You expect that less than 5% of all acquisitions that you make will be attributable via a direct method. This is because most acquisitions do not directly relate to any particular transaction(s). As representative member of your group, you propose to use a 3-step method to determine the extent of creditable purpose ("ECP") that will be applied to acquisitions that are taxable supplies made to your group. The process is as follows: Step 1 To the extent that direct attribution is possible, taxable acquisitions will be directly attributed to the making of input taxed supplies, or the making of GST-free/taxable supplies, as applicable. Taxable acquisitions directly attributed to the making of input taxed supplies will not be treated as being acquired for a creditable purpose. Taxable acquisitions directly attributed to the making of taxable or GST-free supplies will be treated as being acquired for a creditable purpose. Step 2 Where direct attribution is not possible, the extent of creditable purpose for taxable acquisitions booked or attributable to revenue generating business units will be calculated with a variety of indirect methods, both revenue and non-revenue-based. Step 3 The extent of creditable purpose for taxable acquisitions booked or attributable to non-revenue generating business units will be calculated via direct attribution to a revenue generating business unit if possible, or calculated with a non-revenue-based indirect method if not. Data Collection Generally, data that is used in the apportionment methodology is to be generated from the preceding year's activities. Full year data will be used where it is available. Where full year data is not available, data from a period of no less than 3 months which reasonably reflects the full year data will be used. From 2022 onwards, the ECP calculation will be undertaken at least once for each year. However, if you choose to update the ECP rate more frequently, then the most current data available will be used. For taxable acquisitions incurred in 2019 to 2022, using the preceding year's data may produce a result which is not fair and reasonable. As such, the ECP calculation for these years will be undertaken once sufficient data is available to provide a fair and reasonable result which is expected to include data over multiple years rather than solely the preceding year.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 11 -15 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-25 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-30

Reasons for decision: Summary: Under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered or required to be registered. Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) goes on to clarify that you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. Section 11-25 of the GST Act provides that the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount is reduced if the acquisition is only partly creditable. Subsection 11-30(1) of the GST Act provides that an acquisition is partly creditable if one or both of the following applies: (a) you acquire the thing only partly for a creditable purpose (b) you provide, or are liable to provide, only part of the consideration for the acquisition. As you've indicated that you make taxable, GST-free & input taxed supplies, where it is not possible to identify acquisitions relating solely to making taxable or GST-free supplies, any acquisitions made will be partly for creditable purpose to the extent that they relate to making taxable or GST-free supplies. Paragraph 42 of Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies (GSTR 2006/3) states that if an acquisition made in carrying on an enterprise relates partly to the making of an input taxed supply, apportionment is required. Paragraph 26 of GSTR 2006/3 states that 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 in calculating the net amount. Paragraph 73 of GSTR 2006/3 elaborates upon this, listing three key principles set out by the high court that the method you choose to allocate or apportion acquisitions between creditable and non-creditable purpose must adhere to, it must: • 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 81 of GSTR 2006/3 provides that the Commissioner considers the use of a direct method, where possible, best accords with the principles set out above. If it's not possible or practicable to use a direct method, you may use some other fair and reasonable basis, including an indirect estimation method. Paragraph 89 of GSTR 2006/3 elaborates, a combination of different methods might be required for the various acquisitions or importations made by an entity. As you've stated, per the facts, at step one of your proposed method you will seek to directly attribute acquisitions to creditable or non-creditable purpose. You will only proceed to step two where it is not possible to employ direct attribution. Paragraph 103 of GSTR 2006/3 provides that indirect estimation methods may be appropriate in circumstances where there are overhead expenses that are not directly referable to particular supplies or activities. This mirrors your circumstances where a particular acquisition may be used for both creditable or non-creditable purpose by a business unit, or by your group as a whole. Paragraph 104 lists some examples of indirect methods which may be appropriate in various circumstances, most relevantly: • Revenue - based formulas which are more narrowly targeted than the entity-based general formula; • A combination of revenue-based formulas with direct methods; and • Non-revenue-based indirect estimation methods. In steps 2 & 3 of your proposed methodology, you will employ a number of indirect methods encompassing all three types listed above. For the reasons that you have provided, these methods are considered fair and reasonable in your particular circumstances. You have taken the necessary steps to manage distorting factors and each step of your methodology reflects the intended use of the acquisitions to which they relate. Paragraph 88A of GSTR 2006/3 states, when the method you use includes factors or characteristics that change over time, those factors or characteristics must be periodically updated and applied to the method to determine intended use. The frequency of these updates will have regard to the frequency with which that source data is refreshed or recalculated within the enterprise. You've indicated that you will opt to use a full year's worth of data where possible, sampling a period of no less than 3 months which reasonably reflects the full year otherwise. Where using data from one year prior may not accurately reflect your ITC entitlement, you will use multiple years of data once that data has been made available. You may use as much data as you require in order to produce a fair and reasonable estimation, there is no upper limit. As established previously within this ruling, each step of your proposed methodology is considered to be fair and reasonable, and provides an accurate reflection of the intended use of your acquisitions. Likewise, the frequency with which you will collect, refresh and store the data that forms the basis for your calculations is sufficient to meet the documentation requirements. In short, this means that your proposed three step methodology is considered a fair and reasonable method for determining the extent of creditable purpose for your acquisitions.