Edited version of private advice

Authorisation Number: 1052235415873

Date of advice: 25 March 2024

Ruling

Subject: GST - costs associated with migration services

Question 1

Are you entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 for costs you incur associated with preparing and applying for an Employer Nomination Scheme Subclass 186 Visa in Australia for your employee?

Answer

Yes.

Question 2

Are you entitled to claim input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for costs you incur associated with preparing and applying for an Employer Nomination Scheme Subclass 186 Visa in Australia for your employee?

Answer

Yes.

This ruling applies for the following periods

1 July 2022 to 30 June 2026

Relevant facts and circumstances

You are a company that is in the business of software development.

You are paying an authorised migration agent, to prepare and apply for an Employer Nomination Scheme Subclass 186 Visa for your employee. The costs include the application costs for the Visa and for your employee to undertake a skills assessment by the relevant Australian industry body.

The Employer Nomination Scheme Subclass 186 Visa is a permanent residence visa that allows the applicant (your employee), and any included family members, to live, work and study in Australia indefinitely: https://immi.homeaffairs.gov.au/visas/getting-a-visa/visa-listing/employer-nomination-scheme-186/direct-entry-stream#Overview

You are the nominating employer. There are certain requirements that your employee must meet to be granted a Subclass 186 Visa and meeting these requirements may require other costs to be paid e.g. health checks.

Further issues for you to consider

We understand that the fees associated with applying for a Subclass 186 Visa are payable by the applicant, your employee. By paying these costs on your employee's behalf, you could be liable to Fringe Benefits Tax. Further information regarding fringe benefits tax can be found here: https://www.ato.gov.au/Business/Fringe-benefits-tax/

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

A New Tax System (Goods and Services Tax) Act 1999 division 11

Reasons for decision

Question 1

You are entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in applying for the Visa in Australia for your employee.

Subsection 8-1(1) of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that:

(a)  it is incurred in gaining or producing your assessable income; or

(b)  it is necessarily incurred in carrying on a ^*business for the purpose of gaining or producing your assessable income.

However, subsection 8-1(2) of the ITAA 1997 states that you cannot deduct a loss or outgoing under this section to the extent that:

(a)  it is a loss or outgoing of capital, or of a capital nature; or

(b)  it is a loss or outgoing of a private or domestic nature; or

(c)   it is incurred in relation to gaining or producing your ^*exempt income or your ^*non-assessable non-exempt income; or

(d)  a provision of this Act prevents you from deducting it.

The first limb in section 8-1 is available to all taxpayers, whether in business or not. To be deductible under the first limb, a loss or outgoing must be relevant and incidental to gaining or producing assessable income (Ronpibon Tin NL v FCT; Tongkah Compound NL v FCT (1949) 78 CLR 47 at 56-57 per Latham CJ, Rich, Dixon, McTiernan and Webb JJ).

The second limb applies only where the taxpayer is carrying on a business. The two limbs are not mutually exclusive and a business expense is frequently deductible under either. To be deductible under the second limb, a loss or outgoing must be part of the cost of trading operations (John Fairfax & Sons Pty Ltd v FCT (1959) 101 CLR 30 at 49 per Menzies J).

A common business expense is the cost of obtaining, retaining and remunerating employees. Such costs are incurred by a business in gaining or producing their assessable income and are generally deductible. The expenditure in question, the costs payable for preparing and applying for a Subclass 186 Visa paid on behalf of the employee so that the employee can live and work in Australia, is considered an expense incurred in obtaining or retaining an employee and is part of your overall costs of remunerating the employee. Therefore, it is deductible under subsection 8-1(1) of the ITAA 1997.

The expenditure is not capital in nature or of a private or domestic nature and it is not incurred in gaining or producing exempt income or prevented from being deducted by another provision. Therefore, it is not prevented from being deducted under subsection 8-1(2) of the ITAA 1997.

Question 2

You are entitled to claim input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for expenses incurred in applying for the Visa in Australia for your employee.

Section 11-20 of the GST Act provides that you are entitled to the input tax 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.

(*denotes a term defined in section 195-1 of the GST Act)

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, pursuant to subsection 11-15(2) of the GST Act, 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.

You acquired the services for a creditable purpose

You engaged the services of a migration agent to assist in obtaining a visa for a non-resident to come to Australia to be employed by you. No part of the acquisition relates to making input taxed supplies, nor were the services acquired to any extent for private or domestic purposes. Accordingly, you acquired the services solely for a creditable purpose. Therefore, the requirement of paragraph 11-5(a) of the GST Act is met.

The supply of services to you is a taxable supply

The supply of the services to you is a taxable supply if the vendor meets all the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a)  you make the supply for *consideration; and

(b)  the supply is made in the course or furtherance of an

*enterprise that you *carry on; and

(c) the supply is connected with the indirect tax zone; and

(d) you are *registered, or*required to be registered.

However, the supply is not a *taxable supply to the extent that it is:

*GST-free or *input taxed.

The indirect tax zone includes mainland Australia, Tasmania and certain other areas.

All the requirements of section 9-5 of the GST Act are met. That is:

• the supplier provided services to you for consideration (the price)(paragraph 9-5(a)); and
• the supplier made the services in the course or furtherance of its enterprise (paragraph 9-5(b)); and
• the supply of the services was connected with the indirect tax zone (paragraph 9-5(c)); and
• the vendor is registered for GST (paragraph 9-5(d)); and
• there are no provisions of the GST Act under which the supply of those services to you is GST-free or input taxed.

Therefore, the supply of services to you is a taxable supply.

Paragraphs 11-5(c) and 11-5(d)

You provided consideration for the supply of the services made to you. Therefore, you meet the requirement of paragraph 11-5(c) of the GST Act.

You are registered for GST. Therefore, you meet the requirement of paragraph 11-5(d) of the GST Act.

As you meet all of the requirements of section 11-5 of the GST Act, your acquisition of the services is a creditable acquisition. Therefore, you are entitled to an input tax credit for the purchase.

Amount of the input tax credit

Section 11-25 of the GST Act states:

The amount of the input tax credit for a *creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

The supply of services to you is fully creditable. Therefore, you are entitled to claim the full amount of the GST payable on the supplies.

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