Edited version of private advice

Authorisation Number: 1051681591212

Date of advice: 19 May 2020

Ruling

Subject: GST input tax credits

Question

Is the entity entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 for purchases made for 1 January 2015 - 31 December 2017?

Answer

The entity is entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 for the purchases on or after 1 June 2016 and is entitled to decreasing adjustments under section 133-5 of the A New Tax System (Goods and Services Tax) Act 1999 for purchases made from 1 January 2015 - 31 May 2016.

This ruling applies for the following period:

Tax periods ending on or after 31 July 2018.

Relevant facts and circumstances

The entity is registered for GST and made purchases during the period 1 January 2015 - 31 December 2017. The purchases were treated as GST-free by the supplier however, it was later determined that the supplies were in fact taxable supplies.

The supplier issued tax invoices to the entity for the relevant transactions on 31 July 2018.

The acquisitions were made by the entity in the course of carrying on its enterprise and do not relate to making supplies that would be input taxed, nor are the acquisitions of a private or domestic nature.

The entity is liable to provide the consideration for the acquisitions and the agreement with the supplier has the effect that the entity is required to provide additional consideration in respect of the GST on the supplies.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-20.

A New Tax System (Goods and Services Tax) Act 1999 section 133-5.

Reasons for decision

Generally, section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to input tax credits on any creditable acquisition that you make. You make a creditable acquisition under section 11-5 of the GST Act if:

·   the acquisition is made for a creditable purpose (that is made in carrying on an enterprise, is not of a private or domestic nature and doesn't relate to making input taxed supplies); and

·   the supply is a taxable supply; and

·   you provide, or are liable to provide consideration; and

·   you are registered or required to be registered for GST.

The purchases by the entity satisfied the requirements of section 11-5 of the GST Act and were therefore creditable acquisitions. That is, the acquisitions were made in the course of the entity carrying on its business; the supplies were taxable supplies made by the supplier (even though the supplier did not recognise that fact at the time of the transactions); the entity was liable to provide (and did provide) payment for the purchases and the entity is registered for GST.

However, Division 93 of the GST Act places a four-year time limit on claiming input tax credits on a creditable acquisition. Section 93-5 of the GST Act states:

(1) You cease to be entitled to an input tax credit for a creditable acquisition to the extent that the input tax credit has not been taken into account, in an assessment of a net amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a GST return for the tax period to which the input tax credit would be attributable under subsection 29-10(1) or (2).

Consequently, the entity is entitled to input tax credits on purchases that occurred on or after 1 June 2016 as these acquisitions are not impacted by section 93-5 of the GST Act.

Purchases that were made by the entity prior to 1 June 2016 are outside of the four year time limit and, if the input tax credits have not been claimed previously, are no longer available because of section 93-5 of the GST Act. However, section 133-5 of the GST Act provides that an entity will have a decreasing adjustment equal to the amount of the full input tax credit in certain circumstances. Subsection 133-5(1) states:

(1) You have a decreasing adjustment if:

(a)  you made an acquisition on the basis that:

(i)            it was not a creditable acquisition because the supply to which the acquisition relates was not a taxable supply; or

(ii)   ...; and

(b)  you provided additional consideration for the acquisition in compliance with a contractual obligation that required you, or had the effect of requiring you, to provide additional consideration if:

(i)    in a case where subparagraph (a)(i) applies - the supply was later found to be a taxable supply, or to be partly a taxable supply; or

(ii)   ...; and

(c)   GST on the supply has not ceased to be payable (other than as a result of its payment); and

(d)  at the time you provided the additional consideration, you were no longer entitled to an input tax credit for the acquisition.

Purchases made by the entity from the supplier prior to 1 June 2016 satisfy subsection 133-5(1) of the GST Act as:

·         the purchases were made on the basis that they were not taxable supplies (because they were treated as being GST-free); and

·         the entity will provide additional consideration (in respect of the GST amounts) in accordance with the contract with the supplier; and

·         the GST on the supply has been paid by the supplier; and

·         the entity is no longer entitled to the input tax credits on the purchases because of the operation of section 93-5 of GST Act.

Subsection 133-5(2) of the GST Act explains that the amount of the decreasing adjustment is the difference between the amount of input tax credit previously attributable and the amount of the input tax credit that would have been attributable if the additional consideration had been paid as part of the original payment of the consideration and a tax invoice was held. For purchases made by the entity, the difference as determined by subsection 133-5(2) of the GST Act is the full amount of the GST payable. That is, 1/11^th of the total consideration for the taxable supplies.

The decreasing adjustments for the purchases made from the supplier are attributable to the July 2018 tax period which is the period in which the supplier issued the tax invoices to the entity.