1 Is the transaction-based GST apportionment methodology formula considered by the Commissioner of Taxation to be a fair and reasonable basis for calculating the extent of creditable purpose your acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 Yes.
You are registered for GST. You are an Authorised Deposit taking Institution. You provide banking service overseas and in Australia. You have both resident and non-resident customers. Apportionment methodology You make financial supplies to both resident customers and non-resident customers. The financial supplies made to non-resident customers are GST-free supplies and therefore acquisitions which relate to making such GST-free supplies are for a creditable purpose under section 11-5 of the GST Act. Financial supplies made to resident customers would be treated as input taxed supplies and would prima facie not be eligible for input tax credits. The calculation of the percentage extent of creditable purpose is to be undertaken based on a particular period. Your internal processing systems can distinguish between resident and non-resident customers. Calculation of apportionment In calculating the appropriate apportionment rate based on the transaction count methodology, you would undertake the following steps: • Identify the split of customers located onshore and offshore from data available for each tax period and obtain the apportionment ratio. Detailed reasoning
Under section 11-5 of the GST Act, 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. Section 11-15 provides when something is acquired for a creditable purpose. The section states (in part): (1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. (2) However, 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. Generally, an entity is entitled to an input tax credit on any creditable acquisition that it makes. Subsection 11-30(3) of the GST Act specifies that the amount of input tax credit on an acquisition that is partly creditable is determined as: Full input tax credit × Extent of creditable purpose × Extent of consideration In Goods and Services Tax RulingGSTR 2006/3 Goods and
services tax: determining the extent of creditable purpose for providers of financial supplies (GSTR 2006/3), the Commissioner provides guidance on methods that can be used for determining the extent of creditable purpose by providers of financial supplies.Relevantly paragraph 26 in GSTR 2006/3 states: 26. ... The fundamental requirement is that whatever method you adopt to calculate your input tax credits must be fair and reasonable, and appropriately reflect the intended use of your acquisitions (or in the case of an adjustment, the actual use) in calculating the net amount. Paragraph 33 in GSTR 2006/3 goes on to state: 33. Following the principles set out by the High Court, the method you choose to allocate or apportion acquisitions between creditable and non-creditable purposes needs to: • be fair and reasonable[8A]; • reflect the intended use of that acquisition (or in the case of an adjustment, the actual use); and • be appropriately documented in your individual circumstances.
Paragraph 75 in GSTR 2006/3 explains that any apportionment method should aim to achieve an accurate reflection of the input tax credits available for acquisitions or importations acquired in carrying on your enterprise. The criteria used in relation to any expense must therefore recognise the nature of the underlying supply to be made. Paragraph 94 in GSTR 2006/3 advises that the use of such characteristics or factors provides an estimation of a direct link between the acquisition or importation and its (or its intended) application. Examples of these factors and characteristics include volume (for example, numbers of financial transactions of particular types). The method chosen as fair and reasonable would express the relevant use of the acquisition or importation as a percentage of total application (or intended application). Applying the principles set out in GSTR 2006/3 to your circumstances, we consider the transaction count apportionment method as set out in the facts is a fair and reasonable apportionment methodology for calculating the extent of creditable purpose of your local and offshore acquisitions between those creditable and non-creditable activities.