Private ruling: GST and input tax credit
Date of advice: 12 October 2018
Published: December 2018
Ruling period: From 1 January 20XX to 31 December 20XX

Ruling: Q1: Is the entity entitled to an input tax credit on its acquisition of services in relation to the establishment of its wholesale debt facility? | A1: Yes. The entity is entitled to a reduced input tax credit on its acquisition of services in relation to the establishment of its wholesale debt facility. It is entitled to 75% of the GST payable on the acquisition because the acquisition is a reduced credit acquisition covered by item 11(d) in the table under subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). The entity must hold a tax invoice at the time it lodges the business activity statement in which it claims the input tax credit. Its entitlement to the input tax credit ceases if it is not included in an assessment of a net amount within four years after the due date for lodgement of the activity statement to which the input tax credit is attributable under subsection 29-10(1) or (2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Q2: Is the entity entitled to an input tax credit on the advisory service it acquired in relation to the arrangement of the wholesale debt facility? | A2: No. The entity is not entitled to an input tax credit on the advisory service it acquired in relation to the arrangement of the wholesale debt facility. The acquisition is not a creditable acquisition under section 11-5 of the GST Act because the acquisition relates to financial supplies the entity makes and the acquisition is not a reduced credit acquisition under item 11 in the table in subregulation 70-5.02(2) of the GST Regulations. | Q3: Is the entity entitled to an input tax credit on the legal fees for advice relating to the establishment and set up of the wholesale debt facility? | A3: No. The entity is not entitled to an input tax credit on the legal fees for advice relating to the establishment and set up of the wholesale debt facility. The acquisitions are not creditable acquisitions under section 11-5 of the GST Act because the acquisitions relate to financial supplies the entity makes and the acquisitions are not reduced credit acquisitions under item 11 in the table in subregulation 70-5.02(2) of the GST Regulations.

Relevant facts and circumstances: The entity is a holder of a wholesale debt facility. It lends funds to a related entity, who then establishes loans and extends credit funds as secured loans to external customers. In setting up the wholesale debt facility, the entity incurred the following expenses: 1. Fees for arranging the wholesale debt facility 2. Fees for advisory services 3. Fees for legal advice.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 sections 11-5, 11-15, 40-5, 70-5 and 70-10 | A New Tax System (Goods and Services Tax) Regulations 1999 regulations 40-5.09 and 70-5.02

Reasons for decision: Summary: All legislative references below are to the A New Tax System (Goods and Services Tax) Act 1999 and all references to a regulation are to the A New Tax System (Goods and Services Tax) Regulations 1999. | Detailed Reasoning - What is a creditable acquisition?: Section 11-5 provides that 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, for GST. The meaning of ‘creditable purpose’ is defined in section 11-15, which provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. Section 40-5 provides that a financial supply, which has the meaning given by the regulations, is input taxed. Broadly, the supply of an interest in a debt or credit arrangement is an input taxed financial supply (per item 2 in the table in subregulation 40-5.09(3)). Section 70-10 extends the meaning of creditable purpose. It provides that the fact a reduced credit acquisition relates to making financial supplies does not stop it being for a creditable purpose, to the extent that it relates to making financial supplies. Section 70-5 states that the regulation may provide that acquisitions of a specified kind that relate to making financial supplies can give rise to an entitlement to a reduced input tax credit. Such acquisitions are called reduced credit acquisitions. | Detailed Reasoning - Reduced credit acquisitions: For the purpose of section 70-5, subregulation 70-5.02(2) lists acquisitions and groups them under a particular heading. Relevantly, item 11 lists the following: | Detailed Reasoning - Loan Services: 11 The following supplies by a financial supply facilitator: (a) loan agency services; (b) provision of a loan facility; (c) mortgage broking; (d) arranging syndicated loans; (e) introducing and broking Regulation 40-5.07 states that a financial supply facilitator, in relation to supply of an interest, is an entity facilitating the supply of the interest for a financial supply provider. GSTR 2004/1, which sets out the Commissioner’s views on reduced credit acquisitions, states the following at paragraphs 31, 32 and 35: Paragraph 31: The facilitating of a supply refers to activities that help forward (assist) the supply, rather than those that simply assist the financial supply provider. An entity facilitates the supply of an interest where its activities have the effect of helping forward or assisting the supply. Therefore, the activities must have a sufficient nexus with the supply of an interest by a financial supply provider. Paragraph 32: To have a sufficient nexus, the activities of the entity must have an identifiable association with the supply that goes beyond a mere general association. An identifiable association does not mean that the activities have to be directly linked to the supply, however it does require that there be a substantial connection so as to exclude activities that are only generally related (for example, promotion, advertising, product design, market research or similar types of activities). The activities must relate to and assist a particular supply, not merely contemplated supplies. In the absence of this identifiable association, an entity will not be a financial supply facilitator of the supply of an interest. Paragraph 35: For the purposes of the items in the table in subregulation 70-5.02(2), if a financial supply facilitator does not provide the specific service mentioned, the service is not a reduced credit acquisition. In relation to Item 11(d) in subregulation 70-5.02(2) [arranging syndicated loans], GSTR 2004/1, at paragraph 348, describes a syndicated loan as a large loan made by a group of banks to a single borrower. A syndicate loan originates where a borrower issues a mandate letter in favour of a bank, authorising the bank to arrange the loan on its behalf. Arranging in the context of Item 11(d) must be by the financial supply facilitator. In relation to Item 11(e) in subregulation 70-5.02(2) [introducing and broking], GSTR 2004/1, at paragraph 355, states that a supply of introducing must be by a financial supply facilitator, which requires that the service is directed towards a specific supply. It follows that introducing borrowers to lenders in a general sense is not sufficient to satisfy this requirement. | Detailed Reasoning - How much are the input tax credits for a reduced credit acquisition?: Section 70-15 provides that the amount of an input tax credit for a creditable acquisition of a reduced credit acquisition is an amount equal to the GST payable on the supply of the acquisition multiplied by the percentage of the extent of creditable purpose. Where a reduced acquisition relates solely to making a financial supply, the extent of creditable purpose is reduced by a percentage prescribed for the purpose of subsection 70-5(2). For the purpose of subsection 70-5(2), regulation 70-5.03 provides that, except for item 32 in the table in subregulation 70-5.02(2), for all kinds of reduced credit acquisitions the percentage is 75%. | Detailed Reasoning - Attribution: Section 29-10 sets out the rules for attributing the input tax credit on a creditable acquisition. Subsection 29-10(1) provides that the input tax credit for a creditable acquisition is attributable to the tax period in which the entity provides any of the consideration for the acquisition or, if before any of the consideration is provided, an invoice is issued relating to the acquisition. However, if the entity accounts on a cash basis, subsection 29-10(2) provides that the input tax credit attributable to a tax period is only to the extent that consideration is provided in that tax period. Subsection 29-10(3) provides that an entity must hold a tax invoice at the time it lodges the business activity statement for the tax period in which the input tax credit is claimed. | Detailed Reasoning - Time limit on entitlement to an input tax credit: Section 93-5 provides that an entity’s entitlement to an input tax credit on a creditable acquisition ceases to the extent that it is not taken into account in an assessment of a net amount during the period of four years after the due date for lodgement of the activity statement to which the input tax credit is attributable under subsection 29-10(1) or (2). | Detailed Reasoning - Application to your case: 1. Fees for arranging the wholesale debt facility – the acquisitions are not creditable acquisitions under section 11-5 because they relate to making supplies that would be input taxed. However, the services acquired by the entity helped forward the supply of the syndicated loan facility by its various financiers. As such, the arranger is a financial supply facilitator in relation to the supply of the syndicated loan facility and the service is covered by item 11(d) in the table in subregulation 70-5.02(2). As such, the acquisition is a reduced credit acquisition and the entity is entitled to 75% of the GST payable on the acquisition. The entity must hold a tax invoice at the time it lodges the business activity statement in which it claims the input tax credit. The entity’s entitlement to the input tax credit ceases if it is not included in an assessment of a net amount within four years after the due date for lodgement of the activity statement to which the input tax credit is attributable under subsection 29-10(1) or (2). 2. Fees for advisory services – the acquisitions are not creditable acquisitions under section 11-5 because they relate to making supplies that would be input taxed. The supplier of the service is a financial advisor with regard to the entity’s proposed funding arrangements, and as such, is not a financial supply facilitator. In any event, even if the supplier of the service is a financial supply facilitator, its provision of advisory service is not mentioned under item 11 of subregulation 70-5.02(2). According to paragraph 35 of GSTR 2004/1, if a financial supply facilitator does not provide the specific service mentioned in an item in subregulation 70-5.02(2), the acquisition is not a reduced credit acquisition. Therefore, the entity’s acquisition is not a reduced credit acquisition under item 11 in the table in subregulation 70-5.02(2). 3. Fees for legal advice – the acquisitions are not creditable acquisitions under section 11-5 because they relate to making supplies that would be input taxed. The lawyers are not financial supply facilitators. In any event, even if the lawyers are financial supply facilitators, their provision of legal services is not mentioned under item 11 of subregulation 70-5.02(2). According to paragraph 35 of GSTR 2004/1, if a financial supply facilitator does not provide the specific service mentioned in an item in subregulation 70-5.02(2), the acquisition is not a reduced credit acquisition. Therefore, the entity’s acquisition of legal services is not a reduced credit acquisition under item 11 in the table in subregulation 70-5.02(2).