Private ruling: GST and input tax credits
Published: July 2013

Ruling: Q1: Can you claim GST input tax credits in relation to each of the initiatives provided as part of the Program in the 2013 FBT year? | A1: To the extent that you are either liable to pay or have paid consideration for the relevant acquisition you may claim an input tax credit. | Q2: Can you claim GST input tax credits in relation to the Reward Program (Awards) in the 2013 FBT year? | A2: Yes.

Relevant facts and circumstances: You are registered for GST. You have income tax exempt status.

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 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 69-5 | Income Tax Assessment Act 1997 Division 32 | Fringe Tax Benefits Assessment Act 1986 Division 58 | Fringe Tax Benefits Assessment Act 1986 section 136

Reasons for decision: Summary: You can claim GST input tax credits in relation to each of the initiatives provided as part of the Program and the Awards in the 2013 FBT year where the supply acquired is a taxable supply and you have either paid or is liable to pay for the relevant acquisition. | Detailed Reasoning - Detailed reasoning: Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to the input for any creditable acquisitions it makes. Creditable acquisition is defined in section 11-5 of the 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. You have paid or are liable to pay either partly of fully for the acquisitions you make under the Program and Awards and are registered for GST, thus satisfying paragraphs (c) and (d) above. Whether your acquisition is the acquisition of a taxable supply will be matter for you to determine, in consultation with each supplier, at the time of supply. For the purposes of this ruling we will presume that all supplies acquired by you will be taxable supplies (paragraph (b)). You will make an acquisition for a creditable purpose as per paragraph (a) above where the requirements of subsection 11-15(1) of the GST Act are met: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. An employer acquires a thing for a creditable purpose if the employer makes the acquisition in carrying on the employer's enterprise. If an employer acquires something to provide a fringe benefit, health and well being program, reward program or similar in respect of employment in the employer's enterprise, the employer has acquired it in carrying on the employer's enterprise and therefore acquired it for a creditable purpose. Therefore as your acquisitions in relation to the Program and the Awards meet the requirements of paragraphs (a), (c) and (d) of section 11-20 of the GST Act and are presumed to meet the requirements of paragraph (b), you are entitled to claim the resultant input tax credits. It is noted that you will not pay and will not be liable to pay consideration for a component of acquisitions in all circumstances; at times employees will make contributions towards the acquisitions. You will not make creditable acquisitions for these components of your acquisitions as the requirements of paragraph 11-5(c) of the GST Act will only be met where you are the payer or the entity liable to pay. Section 69-5 of the GST Act precludes certain acquisitions from being creditable acquisition on the basis that the acquisition is not creditable to the extent that it is a non-deductible expense. Subsection 69-5(3) of the GST Act lists various non-deductible expenses some of which relate to entertainment expenses as described in Division 32 of the Income Tax Assessment Act 1997 (ITAA 1997) . We note that section 32-5 of the ITAA 1997 denies an income tax deduction for entertainment expenses. 'Entertainment' is defined in subsection 32-10(1) of the ITAA 1997 to mean: · entertainment by way of food, drink or recreation; or · accommodation or travel to do with providing entertainment by way of food, drink or recreation. 'Recreation' is defined in subsection 995-1(1) of the ITAA 1997 to include 'amusement, sport or similar leisure-time pursuits'. As part of the Program operated by you, an employee (or their associate) may attend a group exercise class, or participate in a fun run, both of which come within the definition of 'recreation' in subsection 995-1(1) of the ITAA 1997. However section 32-20 of the ITAA 1997 states that the main exception to section 32-5 of the ITAA 1997 is the provision of entertainment by way of providing a fringe benefit: Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing * entertainment by way of * providing a * fringe benefit. 'Fringe benefit' is defined in section 136 of the Fringe Tax Benefits Assessment Act 1986 (FBTAA 1986), the definition states in part: fringe benefit , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; or …… The group exercise classes and fun run are provided as fringe benefits and expenditure on these items is therefore generally deductible. Note that the issue as to whether entertainment expenses are non-deductible expenses turns on the effect of the phrase 'not deductible under Division 8 of the ITAA 1997 because of … (f) Division 32 of the ITAA 1997 (Entertainment expenses)' in subsection 69-5(3) of the GST Act. We take the view that the words 'under Division 8 of the ITAA 1997' are a reference to the general deductibility provisions of the ITAA 1997 rather than the particular circumstances of a taxpayer's case. This means that when section 69-5 of the GST Act refers to an expense being not deductible under Division 8 because of one of the specified statutory provisions, it is referring to the requirements specified in the statutory provision and not to whether the claimant for an input tax credit would have been entitled to a deduction for income tax but for the statutory provision. It follows that where an amount is generally deductible under Division 8, the claimant (if satisfying all requirements of section 11-5 of the GST Act) is able to claim the relevant input tax credit despite the amount not being specifically deductible in the hands of the claimant. It is the Australian Taxation Office view that section 69-5 of the GST Act incorporates the income tax provisions into the GST Act only for the purpose of identifying non-deductible expenses which will not form part of a creditable acquisition or importation. In this case as section 32-20 of the ITAA 1997 overrides section 32-5 of the ITAA 1997, any income tax paying employer could claim a deduction for such entertainment expenditure under this provision. It follows that the corresponding input tax credits for Fun Run registration and exercise classes are therefore claimable by you under Division 69 of the GST Act, despite you being exempt from income tax.