GST issues registers

Financial services - questions and answers

Financial acquisitions threshold

(a) added, (u) updated, (w) withdrawn

7.1. What is the purpose of the financial acquisitions threshold?

Non-interpretative - straight application of the law

The purpose of the financial acquisitions threshold is to allow entities that make a relatively small amount of financial supplies, as compared to their taxable supplies or GST-free supplies, to claim full input tax credits relating to those financial acquisitions.

Hence, if you do not exceed the financial acquisitions threshold, you will be entitled to full input tax credits for your acquisitions relating to financial supplies.

7.2. What is a financial acquisition?

Non-interpretative - straight application of the law

A financial acquisition is an acquisition, to the extent that the acquisition relates to the making of a financial supply (other than a borrowing).

Section 195-1 of the GST Act states that borrowing has the meaning given by section 995-1 of the ITAA 1997. Section 995-1 of the ITAA 1997 states that borrowing means any form of borrowing, whether secured or unsecured, and includes the raising of funds by the issue of a bond, debenture, discounted security or other document evidencing indebtedness.

An example of a financial acquisition that relates to the acquisition or disposal of an interest in shares is brokerage services.

7.3. When do I exceed the financial acquisitions threshold?

For source of ATO view, refer to paragraphs 13-22 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold

Sections 189-5 and 189-10 of the GST Act set out when an entity will exceed the financial acquisitions threshold.

You exceed the financial acquisitions threshold if you make, or are likely to make, financial acquisitions where the input tax credits related to making those acquisitions would exceed the lesser of either:

•

$50,000 (before 1 July 2012) or $150,000 (on or after 1 July 2012), or such other amount specified in the Regulations (first limb test), or

•

10% of the total amount of input tax credits to which you would be entitled (second limb test).

If either or both of these levels are exceeded, an entity will have exceeded the financial acquisitions threshold.

You will determine whether you exceed the financial acquisitions threshold in a given month based on your acquisitions in:

•

that month and the previous 11 months, and

•

that month and the next 11 months.

Example 1 - assessing whether the FAT is exceeded in a tax period before 1 July 2012

Total input tax credit of $40,000 of which:

•

$5,000 relates to acquisitions for making financial supplies

•

$35,000 relates to acquisitions for making taxable supplies.

Question:

Is the entity entitled to claim full input tax credit?

Answer:

No.

Reason:

Although the entity's input tax credit relating to financial acquisitions is less than $50,000 (because it related to a tax period before 1 July 2012), it still exceeds the financial acquisitions threshold because the input tax credit relating to financial acquisitions is more than 10% of the entity's total input tax credit. The entity will not be able to claim the $5,000 credit which relates to acquisitions for making financial supplies.

Example 2 - assessing whether the FAT is exceeded in a tax period after 1 July 2012

Total input tax credit of $1,845,000 of which:

•

$155,000 relates to acquisitions for making financial supplies

•

$1,690,000 relates to acquisitions for making taxable supplies.

Question:

Is the entity entitled to claim full input tax credit?

Answer:

No.

Reason:

Although the entity's input tax credit relating to financial acquisitions is less than 10% of the entity's total input tax credit, it still exceeds the financial acquisitions threshold because the input tax credit relating to financial acquisitions is more than $150,000 (because it relates to a tax period after 1 July 2012). The entity will not be able to claim the $155,000 credit which relates to acquisitions for making financial supplies.

Example 3 - assessing whether the FAT is exceeded in a tax period after 1 July 2012

Total input tax credit of $1,038,000 of which:

•

$100,000 relates to acquisitions for making financial supplies

•

$938,000 relates to acquisitions for making taxable supplies.

Question:

Is the entity entitled to claim full input tax credit?

Answer:

Yes.

Reason:

The entity's total input tax credit relating to financial acquisitions is less than $150,000 (on or after 1 July 2012) and it does not exceed 10% of the entity's total input tax credit.

The entity will be entitled to full input tax credits.

7.4. What is included in the denominator for the second limb calculation in paragraphs 189-5(1)(b) and 189-10(1)(b)?

Non-interpretative - straight application of the law

The denominator used for the calculation of the tests imposed in paragraphs 189-5(1)(b) and 189-10(1)(b) of the GST Act includes all input tax credits relating to creditable acquisitions, creditable importations and financial acquisitions.

7.5. In relation to this test, how should the words '10% of the total amount of input tax credits to which you would be entitled ... (including financial acquisitions)' be interpreted?

For source of ATO view, refer to paragraphs 94 to 106 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold.

The words 'total input tax credits to which you would be entitled' in Division 189 refer to input tax credits for any creditable acquisitions and creditable importations that you make. This does not include amounts of GST incurred on acquisitions to the extent they:

•

relate to making input taxed supplies (other than financial supplies), or

•

are acquisitions that are of a private or domestic nature.

The input tax credits in relation to financial acquisitions are specifically included in the calculation.

Under subsections 11-15(5) and 15-10(5), an acquisition or importation is not treated as being related to making supplies that would be input taxed, if that acquisition or importation relates to making a financial supply consisting of a borrowing and the borrowing relates to supplies that are not input taxed. For example, legal services in relation to a borrowing and the borrowing relates to refurbishing commercial properties. Input tax credits for these acquisitions or importations will be included in the calculation under paragraphs 189-5(1)(b) and 189-10(1)(b).

However, if the borrowing relates to making input taxed supplies, then acquisitions or importations that relate to that borrowing will not be for a creditable purpose. Input tax credits that relate to these acquisitions or importations will not be included in the calculation under paragraphs 189-5(1)(b) and 189-10(1)(b).

Example 4 - assessing whether the FAT is exceeded in a tax period after 1 July 2012

Financial acquisitions threshold

1st test under paragraph 189-5(1)(a):

The amount of GST incurred on financial acquisitions is $145,000. This amount does not exceed $150,000 (on or after 1 July 2012). Hence, the first limb of the financial acquisition threshold is not exceeded.

Financial acquisitions threshold

2nd test under paragraph 189-5(1)(b):

The amount of GST incurred on financial acquisitions is $145,000.

For the purposes of paragraphs 189-5(1)(b) and 189-10(b), the total amount of input tax credits to which you would be entitled for all your acquisitions and importations during the stated periods (including the financial acquisitions) would include items A, C and E. This amounts to $1,000,000 ($145,000 + $500,000 + $355,000).

Item B is excluded as it is an acquisition in relation to borrowings (in relation to making input taxed supplies) and this is specifically excluded from the definition of financial acquisition under section 189-15.

Item D is excluded as it is not an input tax credit which you would be entitled to under sections 11-20 or 15-15. Similarly, this reasoning also applies to item F.

Expressed as a percentage, 145,000 ÷ 1,000,000 amounts to 14.5%. Therefore, as this exceeds 10%, the entity has exceeded the financial acquisitions threshold.

7.6. How often should a test on whether the financial acquisitions threshold is exceeded be conducted?

For source of ATO view, refer to paragraphs 192 to 197 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold

The test on whether the financial acquisitions threshold is exceeded should be conducted each month.

An entity is denied input tax credits for financial acquisitions for the entire month if it exceeds the financial acquisitions threshold irrespective of when this occurs during the month. An entity may be below the financial acquisitions threshold during a particular period in the month, but exceeds the threshold when another acquisition is made in the same month. This would result in the entity being denied input tax credits for financial acquisitions for the entire month.

7.7. How can I claim input tax credits if I exceed the financial acquisitions threshold?

Non-interpretative - straight application of the law

Even if you exceed the financial acquisitions threshold, a reduced input tax credit is still available to the extent that the acquisition is a reduced credit acquisition.

Certain specified acquisitions that relate to making financial supplies can give rise to an entitlement to a reduced input tax credit. These specific acquisitions are called reduced credit acquisitions. The GST Regulations contain the complete list of reduced credit acquisitions.

7.8. If I am a member of a GST group, when does the group exceed the financial acquisitions threshold?

For source of ATO view, refer to paragraphs 107 to 146 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold

For members of a GST group, the financial acquisitions threshold is a combined threshold. That is, the threshold for the whole group is the same as if they were a single entity.

If you are a member of a GST group, the GST group as a whole will exceed the financial acquisitions threshold when you or any one of the other members of the group makes financial acquisitions exceeding the threshold.

Subsection 189-5 (2) of the GST Act sets out when a member of a GST group will exceed the financial acquisitions threshold in regard to current acquisitions.

You exceed the financial acquisitions threshold at a time during a particular month if, assuming that all the financial acquisitions you or any other members of the group have made - or are likely to make - during the 12 months ending at the end of that month were made solely for a creditable purpose, either or both of the following would apply:

(a)

the amount of all the input tax credits to which you or any one of the other members of the group would be entitled for those acquisitions would exceed $50,000 (before 1 July 2012) or $150,000 (on or after 1 July 2012) or such other amount specified in the Regulations, and/or

(b)

the amount of the input tax credits referred to in paragraph (a) would be more than 10% of the total amount of the input tax credits to which you or any other member of the group would be entitled for all acquisitions and importations of any member of the group during that 12 months (including the financial acquisitions).

If either or both of these levels are met, you as a member of a GST group will have exceeded the financial acquisitions threshold.

You will determine whether you exceed the financial acquisitions threshold in a given month based on your acquisitions in:

•

that month and the previous 11 months, and

•

that month and the next 11 months.

Example 5

Entities A, B and C are members of a GST group. They have incurred the following amounts of input tax credits in relation to financial acquisitions for the period 1 July 2012 to 30 June 2013.

The total input tax credits in relation to financial acquisitions for the GST group exceeds $150,000 (on or after 1 July 2012). Therefore, the GST group as a whole exceeds the financial acquisitions threshold.

There is no need to consider the 10% test as the GST group has already exceeded the financial acquisitions threshold.

Example 6

Entities A, B and C are members of a GST group. They have incurred the following amounts of input tax credits in relation to financial acquisitions and acquisitions that relate to making taxable supplies for the period 1 July 2012 to 30 June 2013.

The total input tax credits in relation to financial acquisitions for the GST group amounts to $123,500 and it does not exceed $150,000.

Expressed as a percentage, the input tax credits in relation to financial acquisitions amount to 24.7% of the total amount of input tax credits entitlement for all acquisitions and importations during the 12 months (including the financial acquisitions). The calculation is as follows:

($120,000 + $1,000 + $2,500) ÷ ($120,000 + $1,000 + $2,500 + $300,000 + $70,000 + $6,500)
= 24.7%


As this exceeds 10%, the GST group as a whole has exceeded the financial acquisitions threshold.

7.9. Do the financial acquisitions threshold provisions that relate to GST groups apply to GST religious groups?

For source of ATO view, refer to paragraphs 147 to 151 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold.

Subsections 189-5(2) and 189-10(2) of the GST Act set out when a member of a GST group exceeds the financial acquisitions threshold.

Section 195-1 states that the GST group has the meaning given by section 48-5 of the GST Act, whilst a GST religious group is defined separately under section 49-5 of the GST Act.

Hence, the financial acquisitions threshold provisions that relate to GST groups do not apply to GST religious groups.

7.10. How do the financial acquisitions threshold provisions apply to a GST religious group?

For source of ATO view, refer to paragraphs 152 to 163 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold

Subsections 189-5(1) and 189-10(1) of the GST Act will apply to a GST religious group.

You exceed the financial acquisitions threshold if you make, or are likely to make, financial acquisitions where the input tax credits related to making those acquisitions would exceed the lesser of either:

•

$50,000 (before 1 July 2012) or $150,000 (on or after 1 July 2012), or such other amount specified in the Regulations (1st limb test), or

•

10% of the total amount of input tax credits to which you would be entitled (2nd limb test).

If either or both of these levels are exceeded, an entity will have exceeded the financial acquisitions threshold.

You will determine whether you exceed the financial acquisitions threshold in a given month based on your acquisitions in:

•

that month and the previous 11 months, and

•

that month and the next 11 months.

The financial acquisitions threshold provisions will apply to each individual member of the GST religious group. That is, the individual member of the GST religious group is required to ascertain whether it exceeds the financial acquisitions threshold.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).