Private ruling: Whether you are entitled to input tax credits in relation to legal expenses
Date of advice: 10 August 2016
Published: September 2016

Ruling: Q1: Are you entitled to input tax credits (GST credits) on all payments made to your barrister for legal expenses, including payments made by you and payments made by third parties? | A1: No, you are not entitled to any amount GST credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because the legal expenses you incurred were not creditable acquisitions under section 11-5 of the GST Act because the relevant enterprise was not being carried on.

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 registered for an Australian Business Number (ABN). You were registered for GST. You, account for GST on a cash basis. You have been on the Roll of Barristers and Solicitors since a certain date in Year A. Admission to the legal profession does not entitle you to engage in legal practice. You must also hold a current practising certificate. You began carrying on an enterprise as a sole trader lawyer from an unknown date but by a particular year and also carrying on a solicitor's nominee specific practice. The Secretary of the Solicitors Board gave notice of their intention to cancel your practising certificate for Year B and to refuse your application for a practising certificate for the Year C. On various dates in Year D proceedings were brought before the Solicitors Board against you for numerous offences of statutory misconduct including wilful or reckless non-compliance with rules relating to professional conduct and relating to X and trust accounts and also charges of misconduct at common law including breaches of trust. The Solicitors Board ordered that you were entitled to re-apply for a practising certificate only a certain number of years. Your practising certificate was cancelled on or around a particular date in Year E. On a certain date in Year E a receiver was appointed by order of the court, who, assumed possession and control of the trust property and commenced to conduct your solicitor's nominee specific practice. You executed a deed under Part X of the Bankruptcy Act 1966 (Cth) on a certain date in Year D. This is also known as a Personal Insolvency Agreement (PIA). You were discharged from the PIA on a date in Year F. You obtained a practising certificate again on or around a certain date in Year G carrying on a practice as an Australian current legal practitioner (with 'no trust moneys"). You were sued by a former client in Year H in relation to acting as the client's trustee of trust moneys held in trust in your solicitors nominee specific practice for the period of approximately ten years prior to Year D and also from around a certain date in Year C as trustee of a particular trust. You have been issued tax invoices in relation to the litigation initiated in Year H and which continued to Year I totalling a particular amount for legal services provided to you by a barrister. Your barrister was registered for GST at the time you incurred the legal expenses. You, your former client who sued you in Year H and other parties to the litigation entered into Deed of Settlement on a certain date in Year I. One of the things agreed to under the Deed of Settlement was the application of funds arising from the liquidation of a particular entity. You have provided to us an undated and unsigned copy of this Deed of Settlement but not an executed Deed of Settlement. You, your barrister and various other parties entered into a Deed (deed) on another certain date in Year I. Under the deed any monies payable to some of those other parties arising from the liquidation of a particular entity would be placed in trust. The first tranche of funds paid by the liquidator would be divided equally between your barrister and another lawyer as consideration for legal fees for you and some of the other parties. Under the deed, your barrister and other lawyer agreed that if each received a specified amount that sum would discharge all their fees for acting for their clients. You have provided to us a dated and signed copy of this Deed You have been given a Statement of Selected Accounts as at a certain date in the current year from a barrister accounting firm which lists amounts charged and paid to your account in relation to your barrister. This lists fees totalling a particular amount. On a certain date in the current year your barrister received a different and lesser particular amount in relation to the deed. You have not notified the Commissioner under section 105-55 of Schedule 1 to the Tax Administration Act 1953 (TAA) of an entitlement to a refund or credit in relation to any GST credit for the legal expenses for your barrister except by lodgment of the activity statement for the relevant tax period. You have submitted an application for a private ruling in this current year asking if you are entitled to an amount of GST credit in relation to all payments your barrister has received for your legal expenses, including payments made by third parties. A check of the Register of Legal Practitioners & Law Practices of the specific Australian states Legal Services Board shows you listed as a legal practitioner currently.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • Section 11-5 | • Section 11-15 | • Section 11-20

Reasons for decision: Summary: You cannot claim any amount of input tax credits (GST credits) in relation to the particular amount of legal expenses incurred by you for legal services provided to you by your barrister between Year H and Year I in relation to litigation by a former client. The legal expenses were not creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because they did not relate to an enterprise that was being carried on. The relevant enterprise had ceased. | Detailed Reasoning - Detailed reasoning: Section 11-20 of the GST Act, states that you are entitled to the GST credit for any creditable acquisition that you make. Section 11-5 of the GST Act states 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. Under section 11-15 of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise but not to the extent that the acquisition • relates to making supplies that would be input taxed, or • is of a private or domestic nature. You incurred a particular amount in legal expenses between Year H and Year I in relation to litigation brought by a former client for breach of trust while carrying on your enterprise of a solicitor's nominee practice. This person was your client for several years prior to Year B. As a consequence of: • your practising certificate being cancelled on a certain date in Year B; • the Solicitors Board order in Year D that you were not entitled to reapply for a practising certificate until after a certain date in Year G (a period of approximately ten years), and • you entering a Personal Insolvency Agreement on or about a certain date in Year D. your enterprise of a solicitor's nominee practice had ceased and in control of a court appointed receiver from a date in Year B. You did obtain a practising certificate on or about certain date in Year G and commenced an enterprise as a sole trader lawyer (with 'no trust moneys'). The Year H to Year I litigation was not related to the carrying on of your enterprise as a sole trader lawyer from a certain date in Year G. It was related to your enterprise of a solicitor's nominee specific practice carried on prior to Year D but that enterprise had ceased so it was no longer being carried on in the period Year H to Year I. The legal expenses were not things acquired for a creditable purpose under section 11-15 of the GST Act. The legal expenses were not creditable acquisitions under section 11-5 of the GST Act and you are not entitled to any GST credit (input tax credit) under section 11-20 of the GST Act for those legal expenses.