GST and reduced credit acquisition - brokerage services

Is the entity, a trustee of a superannuation fund, making a reduced credit acquisition under subsection 70-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it engages a broker to provide brokerage services relating to the acquisition and disposal of securities?

Yes, the entity is making a reduced credit acquisition under subsection 70-5(1) of the GST Act when it engages a broker to provide brokerage services relating to the acquisition and disposal of securities.

The entity is a trustee of a superannuation fund. The entity, in its capacity as trustee for the superannuation fund, engages a broker to provide brokerage services in relation to the acquisition and disposal of securities.

A broker is a financial supply facilitator for the purposes of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

The entity is not entitled to a full input tax credit on this acquisition, as the acquisition relates to making financial supplies and the entity exceeds the financial acquisitions threshold under Division 189 of the GST Act.

The entity is registered for goods and services tax (GST).

According to subsection 70-5(1) of the GST Act, the GST Regulations may provide that acquisitions of a specific kind, that relate to making financial supplies, can give rise to an entitlement to a reduced input tax credit. These are reduced credit acquisitions.

The table in subregulation 70-5.02(2) of the GST Regulations (the table) sets out those acquisitions that are reduced credit acquisitions.

Item 9 in the table (Item 9) provides that various services relating to the arrangement, by a financial supply facilitator, of the provision, acquisition or disposal of an interest in a security, are reduced credit acquisitions. Order placement and trade execution, clearance and settlement of trades and management of the issue of securities, including rights and bonus issues, are services that are listed under Item 9.

The services acquired by the entity involve the acquisition and disposal of securities. Therefore, the brokerage services acquired by the entity are covered by Item 9.

As such, the entity is making a reduced credit acquisition under subsection 70-5(1) of the GST Act, when it engages a broker to provide brokerage services relating to the acquisition and disposal of securities. [Note: Item 27 in the table (Item 27) lists supplies for which financial supply facilitators are paid commission by financial supply providers. Where the broker is paid a commission, the entity may also be making a reduced credit acquisition under Item 27. Under subregulation 70-5.02(1) of the GST Regulations, an acquisition mentioned in subregulation 70-5.02(2) of the GST Regulations that relates to making financial supplies gives rise to an entitlement to a reduced input tax credit. To be entitled to a reduced input tax credit for a reduced credit acquisition, the entity must still make a creditable acquisition under section 11-5 of the GST Act. To make this possible, section 70-10 of the GST Act extends the meaning of 'creditable purpose' for reduced credit acquisitions. Where the entity makes a creditable acquisition of the reduced credit acquisition the amount of the reduced input tax credit is 75% of the GST payable on the supply of the brokerage services (subsection 70-15(1) and subsection 70-5(2) of the GST Act, and regulation 70-5.03 of the GST Regulations).]