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

Ruling: Q1: Are you entitled to claim input tax credits for your acquisitions made in the specified period? | A1: Yes, you are entitled to claim input tax credits for your acquisitions made in the specified period, to the extent that they are creditable acquisitions. You must hold a tax invoice for a creditable acquisition when you lodge your activity statement for the tax period to which the input tax credit is attributable.

Relevant facts and circumstances: · You are registered for the goods and services tax (GST). · You operated a business in Australia for a period of time. The business was not doing well and due to high rental expenses, you decided to close it down and relocate to another place. The rent at the new location was affordable. · You have spoken to other business associates who had indicated that the new area is particularly advantageous for your type of business. Also, your parent had operated a successful business in that area several years ago. Your parent had regular customers who have expressed that they would be keen to use your services if you were to operate in that area. · You rented new premises in that area and paid rent for the specified period. The rent payments included a GST amount. · You planned to start a business at the rented premises. You relocated all the previous existing business equipments and stocks to the new premises. · You purchased business insurance which included limited liability insurance. However, you have only paid insurance for part of the year. You did not pay for any further business insurance cover as the business could not start due to personal reasons at that time. · You purchased some equipments, lighting, flooring and tiles for use in renovations of the business premises. · Due to personal reasons, you have not been able to start operating the business while you kept paying rent for the specified period. · You have incurred the following expenses in the specified period: o Rental expenses o Business insurance o Electricity and gas o Logistics There was an amount of GST included in the above expenses. · You did not carry out any business activities from the rented premises or any other premises during the specified period and until recently. · Recently, you have rented premises for a new proposed business in another location. · You have purchased business insurance policy cover in respect of those premises. · You submit that your willingness to strive and achieve successful business is demonstrated through your persistence with this project. You have spent the past year researching, speaking with business associates and preparing for business at the new location. You have many years of experience in the operation of this business. You see this new project as another attempt at the business and an opportunity to develop a successful business there and to regain the losses that you have incurred over the past years.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-20, | 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 11-20, and | A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision: Summary: You are entitled to claim input tax credits for your acquisitions to the extent that they are creditable acquisitions. | Detailed Reasoning - Detailed reasoning: Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that entities that are registered for GST are entitled to claim input tax credits for creditable acquisitions that they 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. The asterisked terms are defined at section 195-1 of the GST Act. An entity makes a creditable acquisition if it makes an acquisition solely or partly for a creditable purpose and the other requirements of section 11-5 of the GST Act are met. You have advised that you are registered for GST; you have provided consideration or payment for the things acquired by you; these acquisitions were taxable supplies to you and included a GST amount. The remaining issue is whether or not the things that you acquired were purchased solely or partly for a creditable purpose'. Section 11-15 of the GST Act defines the meaning of 'creditable purpose' as follows: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. (2) 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; or (b) the acquisition is of a private or domestic nature. Whether or not input tax credits may be claimed is dependent upon whether or not the activities may be considered to be carried out in the course of an enterprise or not, amongst other factors. It is therefore necessary to determine the enterprise that is being carried on and to determine whether there is a connection between the acquisition and the enterprise being carried on. Section 9-20 sets out the meaning of enterprise. The definition of 'enterprise' refers to an activity or series of activities that is done in the form of a business, an adventure or concern in the nature of trade or the regular or continuous leasing, licensing or granting of an interest in property. It also includes an activity or series of activities done by a trustee of a trust or complying superannuation fund, a charitable institution or charitable fund, a religious institution or a government or an entity established for a public purpose. Additionally 'carrying on' an enterprise is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise. Activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise. Therefore, it is also relevant to have regard to those activities in determining whether the activities of an entity amount to an enterprise. If an entity is not carrying on an enterprise (and does not intend to carry on an enterprise) the entity cannot register and therefore cannot make a creditable acquisition and is not entitled to any input tax credits. Miscellaneous Taxation Ruling MT 2006/1 provides guidance as to activities typically undertaken in the course of commencing or terminating an enterprise. Paragraphs 122 to 139 of MT 2006/1 discuss the activities that form part of commencing an enterprise. In the Commissioner's view the term 'doing anything in the course of the commencement of an enterprise describes the kind of activities undertaken. The ultimate outcome of the activities and whether or not an ongoing enterprise eventuates is not a determinative factor. Notwithstanding that the GST Act provides that carrying on an enterprise includes doing anything in the course of the commencement of an enterprise, it is still a question of fact and degree in each case as to whether or not an enterprise is being carried on. In this case, you advised that you intended to operate a business from premises at a different location. Although your objective intention was always to operate a business from the newly rented premises, you never operated the business at those premises. This was due to personal reasons at the time. The business venture was ultimately unsuccessful as it never started. You have rented premises and you have done renovations to the rented premises in order to make them suitable for use in the enterprise once renovation is completed. You have taken some insurance cover and bought equipment, with the aim to establish a business. The activities have the character of those ordinarily undertaken to commence such an enterprise. Relevant factors for consideration include the absence of a business plan, the insurance payment only for part of the relevant period and your track record and experience in the industry. In your case, you have many years of experience in the operation of such business. Despite your previous failure, you are willing to strive and keep pursuing the business in the future. You have researched on the viability of the business. This was carried out through your connections and in consultation with relatives and business associates who had experience in the business industry. Suitable premises were found and rented; and equipment acquired for the business. We have taken into consideration the fact that you have provided information or evidence of activities that you have undertaken that demonstrate that you had more than an intention to carry on a business at some point in the future. Therefore, having regard to all of the relevant circumstances, although the business never commenced operation at those premises, the renting of the premises, the insurance costs and other renovation and related costs incurred in the specified period can be considered to have been incurred in the course of carrying on an enterprise. It is irrelevant that the preparatory activities did not result in an ongoing enterprise on that occasion. Your acquisitions were for a creditable purpose. The acquisitions would be creditable acquisitions where they were taxable supplies to you, that is, where GST was included in the price of your acquisitions. As such, you are entitled to claim an input tax credit for your acquisitions made in the specified period, to the extent that they are creditable acquisitions. The amount of input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. You must hold a tax invoice for a creditable acquisition when you lodge your activity statement for the tax period to which the input tax credit is attributable.