Private ruling: Input tax credits
Date of advice: 23 July 2019
Published: September 2019
Ruling period: 1 October 2018 to 30 September 2022

Ruling: Q1: Can the Commissioner confirm that ABC Pty Ltd (you) are not making financial supplies and therefore your business is not subject to reduced input taxed credits? | A1: Yes. You are not making financial supplies and you are able to claim full input tax credits for the creditable acquisitions that your company makes. Summary You would be entitled to claim GST credits for the acquisitions made in relation to your enterprise provided the supply to you is a taxable supply as defined in the GST Act and the acquisitions are acquired in carrying on your enterprise. Detailed reasoning Section 11-20 of the GST Act provides that you are entitled to a GST credit for any creditable acquisition that you make. Section 11-5 of the GST Act states: 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. Under section 11-15 of the GST Act, an entity acquires a thing for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise and the acquisition is neither related to making input taxed supplies nor of a private or domestic nature. Section 11-20 of the GST Act provides that an entity is entitled to the input tax credit for any creditable acquisition that it makes. Section 11-15 of the GST Act states: · 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: (a) the acquisition relates to making supplies that would be *input taxed; (b) the acquisition is of a private or domestic nature. Goods and Services Tax Ruling 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? offers guidance to determine this issue. In particular paragraph 55 of GSTR 2008/1 states: 55. Subsection 11-15(1) requires that you acquire a thing in carrying on your enterprise. It is therefore necessary firstly to identify the enterprise that is being carried on and secondly to determine whether there is a connection between the acquisition and the enterprise being carried on. The meaning of the term 'carrying on an enterprise' is defined by reference to section 195-1 of the GST Act to include ' ... doing anything in the course of the commencement or termination of the enterprise'. The word 'enterprise' is given its meaning by section 9-20 and includes '... an activity or series of activities, done in the form of a business'. The issue of whether or not you are carrying on an enterprise is not in contention. We are satisfied that you are carrying on the business of a managed investments service provider and therefore, satisfy the tests set out in section 9-20 of the GST Act. As such, the next issue that has to be considered is whether there is a connection between the acquisitions made from your suppliers and your enterprise. Paragraphs 69 and 70 of GSTR 2008/1 states: 69. The Commissioner considers that in the GST context it is necessary to make an objective assessment as to whether there is a connection between the thing acquired and the enterprise, based on all the facts and circumstances. Although the subjective purpose of the entity making the acquisition is relevant, it is not determinative. 70. Whether an acquisition is acquired in carrying on an enterprise is a question of fact and degree, making it impractical to provide an exhaustive list of all the factors that may be relevant to determining whether an acquisition is made in carrying on an enterprise. However, some factors that would suggest that an acquisition is made in carrying on an enterprise include that: · the acquisition is incidental or relevant to the commencement, continuance or termination of the enterprise; · the thing acquired is used by the enterprise in making supplies; · the acquisition secures a real benefit or advantage for the commencement, continuance or termination of the enterprise; · the acquisition is one which an ordinary business person in the position of the recipient would be likely to make for the enterprise; · the acquisition does not meet the personal needs of individuals such as partners or directors; · the acquisition helps to protect or preserve the enterprise entity, structure or organisation; and · the acquisition is made by the entity in accordance with, or to satisfy, a statutory requirement imposed on the enterprise. Where your acquisition of goods and services satisfy the criteria above and are made in carrying on your enterprise, it is our view that there would be a relevant connection between the acquisition of those goods and services and the enterprise you carry on. Having determined that an acquisition is made in the course or furtherance of your enterprise, you then need to determine if the acquisition relates to making a supply that would be input taxed. In the current scenario, input taxed supplies include financial supplies. A full list of financial supplies can be found at subsection 40-5.09 of the GST Regulations. Relevant for the question you asked, financial supplies include the provision, acquisition or disposal of an interest in or under securities (item 10). Securities include debenture, shares and the capital in a trust or partnership. Importantly, it does not include advice or management of the same. Based on the information you provided, you do not buy or sell securities or other investments. Rather you provide advice and management services to other entities that may buy, sell or trade in securities. As such, you are not making a financial supply. For completeness, we note that management of assets or liabilities of other entities are specifically excluded from being a financial supply under item 12 of subsection 40-5.12. 12 Management of the assets or liabilities of another entity, including investment portfolio management and administration services for trusts or superannuation, pension or annuity funds Conclusion As you are making acquisitions in the course of your enterprise and you do not make any input taxed supplies you will be entitled to claim full input tax credits where you: · are registered · make an acquisition · provide or are liable to provide consideration for the acquisition, and · the thing acquired is a taxable supply to you.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. · You plan to register ABC Pty Ltd for GST. · The business has advised wholesale clients, in a discretionary portfolio management service, since mid 2017, under its Australian Financial Services Licence. · The company trades through a broker and the client funds are held on trust in an account in ABC Pty Ltd name with the broker. · In the period mid 2017 to mid 2018, ABC Pty Ltd's source of income was revenue from management and performance fees ($X) earned on managing the investor's investments. · The fees are charged as a fixed % on assets and a variable % based on investment performance. GST was not levied. · In addition there was trading income from a portfolio owned by ABC Pty Ltd · Typical expenses were brokerage fees, accounting and audit fees and other general business overheads, some of which you paid GST on. ABC Pty Ltd 's investments were liquidated on the mid 2018. · For the period mid 2018 to early 2019 the only source of income is from management and performance fees earned from managing the wholesale investors investments. · The fees are charged as a fixed % on assets and a variable % based on investment performance. GST was not levied on these fees. Typical expenses include brokerage fees, audit fees, consulting and compliance fees and other general business overheads, some of which ABC Pty Ltd paid GST on. · From the mid, ABC Pty Ltd will also earn fees as investment manager of an external unit trust. The trustee of the trust will pay ABC Pty Ltd, from the trust assets, certain management fees and, potentially, performance fees. The fees are charged as a fixed % on assets and a variable % based on investment performance, and include GST. · Typical expenses incurred by ABC Pty Ltd will be trustee fees, administrative fees, legal and accounting costs as well as general business overheads. Your turnover is not currently forecast to exceed $75,000 until the financial year 2021. · From mid, revenues from the discretionary portfolio management service will cease and ABC Pty Ltd will only earn revenues as manager of the external unit trust.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 : Section 11 | A New Tax System (Goods and Services Tax) Act 1999 : Section 9 | New Tax System (Goods and Services Tax) Regulations 2019, Section 40-5