Tribunal decision on creditable acquisitions; final GST Determination issued

Last week the Tribunal handed down its decision in Confidential and Commissioner of Taxation [2013] AATA 701 where the Tribunal affirmed the Commissioner’s decision that the applicant was not entitled to input tax credits as she had not demonstrated that an enterprise was being carried on and that the acquisitions were creditable acquisitions. Also last week the Commissioner published GSTD 2013/4 ‘Goods and Services tax: where capital assets that diminish in value over time are utilised in making a supply, can the consideration provided by the supplier to acquire those assets be taken into account in determining whether the supply is GST-free under subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999?’

Confidential and Commissioner of Taxation 

The applicant claimed input tax credits in respect of purchases made in the conduct of a services businesses. The credits were claimed in various tax periods between March 2009 and March 2012 and totalled $73,946 – no taxable supplies were recorded in these activity statements.

The evidence relied on by the applicant to substantiate the acquisitions and the activities which were said to constitute a business was limited to oral testimony and letters to the Tribunal. The applicant did not produce any documentary evidence to substantiate the claims, nor any corroborating evidence from another person. Between the date of the objection and the hearing, the applicant was requested on five occasions to substantiate the claims and to provide substantiating documents. Given these circumstances, the applicant clearly faced a difficult task of discharging the onus of proof of establishing that an enterprise was being carried on, that the acquisitions were made and that tax invoices were held.

The Tribunal came to the following conclusions:

  • There had not been sufficient evidence led for the Tribunal to undertake the examination required and/or to form the requisite views as to a reasonable expectation of profit or gain. This was so whether the enquiry was as to whether the steps taken were in commencing an enterprise or in carrying on the enterprise after commencement. This lack of evidence also precluded any inferences being made.
  • There is insufficient evidence that the purchases leading to the ITCs claimed by the Applicant were taxable supplies made by the vendors of the goods (although the Applicant asserted that she purchased and/or she held tax invoices in the periods in which the ITCs were claimed)

GSTD 2013/4

The Commissioner has issued GSTD 2013/4 ‘Goods and Services tax: where capital assets that diminish in value over time are utilised in making a supply, can the consideration provided by the supplier to acquire those assets be taken into account in determining whether the supply is GST-free under subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999?’

Subparagraph 38-250(2)(b)(ii) provides that a supply (that is not a supply of accommodation) made by an endorsed charitable institution is GST-free if the supply is for consideration that is less than 75% of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

In the Determination the Commissioner takes the view that the consideration the supplier provided for acquiring assets that diminish in value over time can be taken into account in determining whether a supply in that period is GST-free – to the extent that the consideration provided reasonably relates to that supply. The Commissioner also considers that the supplier should apply any reasonable methodology that reflects the proportion of the consideration that relates to each supply made.

The Commissioner takes a broad approach to the construction of subparagraph 38-250(2)(b)(ii), noting that a narrow construction would result in the provision applying only where the thing acquired is identical to the thing supplied. As noted by the Commissioner:

The purpose of section 38-250, expressed in the most general terms, is to make non-commercial supplies by charities GST-free. There is nothing in this purpose which would suggest a restriction on the class of supplies to which subsection 38-250(2) applies. A narrower interpretation of subparagraph 38-250(2)(b)(ii) would restrict the operation of the provision substantially and would not include most supplies by charities. However, there is nothing in the legislation or extrinsic materials that evidences an intent that the provision has such narrow scope.

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