Are the acquisitions of the specified services (the Services) by the entity creditable acquisitions for the purposes of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
No. This ruling applies for the following period : 4 December 2025 to 31 December 2029 The scheme commenced on: 1 December 2016
The entity is a government agency for the purposes of a specified Act (the relevant Act). The entity provided details of its operating structure. The entity holds interest in specified government assets. The entity is responsible for protecting the value of the interest and seeking to maximise returns to the government. Since acquiring the interest, the entity has not made any other financial supplies. Any returns on investments are paid into the fund established under the relevant Act and subsequently transferred to the consolidated revenue less costs. In order to perform its obligations, the entity acquires the Services and incurs costs on an ongoing basis in the course of fulfilling its obligations. The acquisitions of the Services by the entity also provide benefit to other government entities. The entity provided samples of the service agreements with the suppliers of the Services. The Services supplied to the entity are taxable supplies and the entity provides consideration for the Services. The entity does not make any supplies. The entity is registered for GST.
A New Tax System (Goods and Services Tax) Act 1999 section 9-20 A New Tax System (Goods and Services Tax) Act 1999 section 11-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-15 A New Tax System (Goods and Services Tax) Act 1999 section 11-20 A New Tax System (Goods and Services Tax) Act 1999 section 40-5 A New Tax System (Goods and Services Tax) Act 1999 section 189-5 A New Tax System (Goods and Services Tax) Act 1999 section 189-10 A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Question Are the acquisitions of the Services by the entity creditable acquisitions for the purposes of section 11-5 of the GST Act? Summary The Services acquired by the entity relate solely to input taxed financial supplies. As the entity exceeds the financial acquisitions threshold under Division 189 of the GST Act, the acquisitions of the Services by the entity are not for a creditable purpose pursuant to paragraph 11-15(2)(a) of the GST Act. It follows that the acquisitions of the Services by the entity are not for a creditable purpose under paragraph 11-5(a) of the GST and are not creditable acquisitions under section 11-5 of the GST Act. Hence, the entity is not entitled to input tax credits under section 11-20 of the GST Act for the acquisitions of the Services. Detailed reasoning Entitlement to input tax credits Section 11-20 of the GST Act states that 'You are entitled to the input tax credit for any *creditable acquisition that you make'. (* Denotes a term defined in section 195-1 of the GST Act the GST Act.) The term 'creditable acquisition' has the meaning given by section 11-5 of the GST Act, which states: You make a creditable acquisition if:
(a) you acquire the thing 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. In this case the Services supplied to the entity are taxable supplies, the entity provides consideration for the Services and is registered for GST. Therefore, the acquisitions of the Services by the entity meet the requirements of paragraphs 11-5(b), 11-5(c) and 11-5(d) of the GST Act. What is left to consider is whether the acquisitions of the Services by the entity satisfy the requirement of paragraph 11-5(a) of the GST Act. That is, whether the entity acquires the Services either solely or party for a creditable purpose. Section 11-15 of the GST Act outlines when something is acquired for a creditable purpose. It 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. Subsection 11-15(4) provides that: (4) An acquisition is not treated, for the purpose of paragraph (2)(a), as relating to making supplies that would be *input taxed if: (a) the only reason it would be (apart from this subsection) be so treated is because it relates to making *financial supplies; and (b) you do not *exceed the financial acquisitions threshold. Under sections 189-5 and 189-10 of the GST Act, an entity exceeds the financial acquisitions threshold at a time in a particular month if, assuming that all the financial acquisitions it has made, or is likely to make, during the 12 months ending at the end of that month, or during that month and the next 11 months, were made solely for a creditable purpose, either or both of the following would apply: the amount of all the input tax credits to which the entity would be entitled for its financial acquisitions would exceed $150,000 or such other amount specified in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations);
the amount of the input tax credits to which the entity would be entitled for its financial acquisitions would be more than 10% of the total amount of the input tax credits to which the entity would be entitled for all its acquisitions and importations during that 12 months (including the financial acquisitions). Whether the entity is carrying on an enterprise Subsection 11-15(1) of the GST provides that and entity acquires a thing for a creditable purpose to the extent that they acquire it in carrying on their enterprise. The entity has submitted that they have been established for a public purpose and satisfy the definition of an enterprise per paragraph 9-20(1)(g) of the GST Act. Enterprise is defined in subsection 9-20(1) of the GST Act to include, among other things, an activity, or series of activities done: (g) by the Commonwealth, a State or a Territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, State or Territory Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of 'Commonwealth, a State or a Territory',
at paragraphs 8 to 12, sets out the principles that should be considered when determining whether a corporation in which the Commonwealth or a State or Territory has an interest is part of the Commonwealth or the State or Territory. The relevant Act provides that the entity is a government entity. Therefore, amongst other relevant features, we accept that the entity is a corporation within the principles of GSTR 2006/5. However, to satisfy paragraph 9-20(1)(g) of the GST Act, the entity needs to have been established for a 'public purpose'. Paragraphs 323 to 328 of Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number , discuss paragraph 9-20(1)(g) of the GST Act including the term 'public purpose'. Paragraphs 323 to 328 state: The Commonwealth, a State or Territory, or a body corporate, or corporation sole, established for a public purpose 323. Paragraph 9-20(1)(g) of the GST Act includes as an enterprise any activity or series of activities done by the Crown in the right of the Commonwealth, a State or a Territory.
324. Paragraph 9-20(1)(g) of the GST Act also includes as an enterprise any activity or series of activities by either a body corporate or a corporation sole, established for a public purpose. The public purpose test is limited to bodies corporate or corporations sole established under a law of the Commonwealth, a State or a Territory. 325. The term 'public purpose' is not defined in the ABN Act. However, in the Butterworths Australian Legal Dictionary the term is defined as: Purposes relating to the public interest or for the public benefit. The term 'public purposes' is wider than 'government purposes': Australian Tape Manufacturers Assn Ltd v. Commonwealth (1993) 176 CLR 480; 112 ALR 53 at 61. Accordingly, it is sufficient if the purpose is one which benefits a select group or groups in the public interest such as the relief of necessitous farmers ( Attorney-General (NSW) v. Homebush Flour Mills Ltd (1937) 56 CLR 390), or the compensation of relevant copyright owners ( Australian Tape Manufacturers Assn Ltd v. Commonwealth (1993) 176 CLR 480 at 505; 112 ALR 53), rather than the public generally.
326. Thus, the activities done by the entity must be for the benefit of the public generally or an identifiable section of the public. 327. However, it is necessary that the body corporate or corporation sole must be established with the requisite purpose in mind. If the entity is established for the requisite purpose, any activity by the entity is sufficient to satisfy the terms of the provision. 328. If the body corporate or corporation sole is not established for a public purpose, it may still be carrying on an enterprise by satisfying one of the other criteria for being an enterprise in subsection 9-20(1) of the GST Act. We consider that the entity is established for a public purpose. Any returns on investments are paid into the fund established under the relevant Act and subsequently transferred to the government's consolidated revenue less costs.
Accordingly, we accept the submission that the entity is carrying on an enterprise for the purposes of section 9-20 of the GST Act, namely their activities fall within the scope of paragraph 9-20(1)(g) of the GST Act. Further we accept that for the purpose of subsection 11-15(1) of the GST Act, the Services are acquired in carrying on the entity's enterprise. This applies notwithstanding that the acquisitions by the entity may also benefit other entities. However, we do not accept the view that the acquisitions do not relate to input taxed supplies. Our reasons are as follows. Whether the acquisitions of the Services relate to making supplies that would be input taxed financial supplies - paragraph 11-15(2)(a) The entity has submitted that the Services acquired by them are acquired for the purpose of fulfilling their obligations under the relevant Act, and should therefore constitute enterprise costs. Further in respect of the acquisitions of the Services the submission states: • the entity does not acquire the Services for the purpose, or with the intention, of making future input taxed supplies;
• the ongoing Services acquired by the entity do not specifically relate to their initial acquisition of their interest; and • ... the ongoing Services do not relate to this particular transaction, and are made solely to fulfil the entity's obligations under the relevant Act (i.e. they are not financial acquisitions and the entity should therefore not exceed the financial acquisitions threshold as defined in Division 189 of the GST Act). Accordingly, we submit that the Services acquired by the entity are merely enterprise costs and do not relate to making supplies that would be input taxed. Consequently, the entity's acquisitions of the Services should constitute creditable acquisitions for the purposes of section 11-5 of the GST Act. In relation to the definition of 'financial acquisitions threshold', the entity further submitted that:
The definition of a 'financial acquisition' per section 189-15 of the GST Act is "an acquisition that relates to the making of a financial supply". Per paragraph 57 of GSTR 2003/9 Goods and Services Tax: financial acquisitions threshold (GSTR 2003/9), 'making a financial supply' means "the provision, acquisition or disposal of an interest mentioned as a financial supply in section 40-5.09" of the GST Regulations. Relevantly, the continued holding of an interest is not a financial supply. Per paragraph 28 of GSTR 2003/9, there must be a sufficient connection where an acquisition is used or intended to be used for the making of a financial supply for the acquisition to be a financial acquisition. Paragraph 34 further states an acquisition relates to the making of a financial supply if it relates either to the making of an actual financial supply or to a financial supply that the entity intends to make or is considering making.
There is no direct connection between the acquisitions made by the entity and the initial financial supplies made in acquiring their interest, that is, the ongoing acquisitions were not used or intended to be used to make the initial financial acquisition-supply. Further, the acquisitions are not made for the purpose/with the intention of making a future financial supply (e.g. disposing of the interest). The acquisitions are made with respect to the continued holding of the interest, which as noted above is not a financial supply itself. Therefore, the acquisitions should not be considered financial acquisitions. On this basis, the entity cannot exceed the financial acquisitions threshold and should be entitled to recover the GST incurred on the acquisitions in full. We disagree with the above submissions.
Before considering the financial acquisitions threshold in Div 189 of the GST Act, it is necessary to determine whether the acquisitions of the Services relate to making input taxed supply under paragraph 11-15(2)(a) of the GST Act. If a relationship to an input taxed financial supply is not established under paragraph 11-15(2)(a), then Division 189 is not relevant for consideration. However, once a relationship is established under 11-15(2)(a) then the acquisitions would be taken into account to determine whether the entity exceeds the financial acquisitions threshold. The term 'relates to' is used in both paragraph 11-15(2)(a) and section 189-15 of the GST Act. In both provisions a relationship must be established between the acquisition and the relevant supply. In the case of section 189-15, the necessary relationship is with 'the making of a financial supply'. The use of the term 'making' does not suggest that an ongoing acquisition cannot relate to the making a financial supply. Goods and Services Tax Ruling GSTR 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose?
, explains, among other things, when an acquisition or importation relates to making supplies that would be input taxed. Paragraph 4 of GSTR 2008/1 provides that although the ruling deals primarily with entities carrying on an enterprise that results in the entities making supplies, the principles outlined are also applicable to entities carrying on an enterprise where the entities do not make supplies. GSTR 2008/1 provides that an entity does not acquire a thing for a creditable purpose if the acquisition relates directly or indirectly to making supplies that would be input taxed. Part B of GSTR 2008/1 provides guidance in determining whether an acquisition relates to making supplies that would be input taxed. Paragraphs 101 to 108 of GSTR 2008/1 state:
101. In this section we explain the Commissioner's approach to determining whether an acquisition relates to the making of supplies that would be input taxed. If it is established that an acquisition is made in carrying on an enterprise, paragraph 11-15(2)(a) will preclude it being for a creditable purpose to the extent that it 'relates to' making supplies that would be input taxed. In this section of the Ruling, all of the examples assume that the acquisitions have been made in carrying on an enterprise. 102. ... if an entity does not make, has never made, and does not intend to make, supplies that would be input taxed, there is no need to consider whether paragraph 11-15(2)(a) applies. Instead, to establish whether an acquisition is for a creditable purpose, it is only necessary to ascertain whether the acquisition is made in carrying on the enterprise (see Part A at paragraph 54 of this Ruling). 103. If an entity makes, has made, or intends to make, input taxed supplies, it needs to consider whether paragraph 11-15(2)(a) applies to its acquisitions...
104. Unlike subsection 11-15(1), paragraph 11-15(2)(a) specifically focuses on the relationship between an acquisition and the making of supplies. The purpose of subsection 11-15(2) can be ascertained by its relationship with the other provisions of the GST Act. When viewed in the context of the adjustment provisions such as Division 129, it can be seen that the purpose of subsection 11-15(2) is to focus on the intended usage of an acquisition in so far as the acquisition relates to supplies that are to be made in the future. 105. If the acquisition relates to supplies that would be input taxed, paragraph 11-15(2)(a) precludes it from being for a creditable purpose. Division 129 then focuses on the actual usage of the acquisition and adjusts accordingly, depending on whether the actual usage relates to input taxed supplies. 106. Paragraph 11-15(2)(a) does not require tracing to a specific supply. Nevertheless, unlike subsection 11-15(1), it requires some form of connection to the supplies that the entity makes, made or intends to make. 107. Sometimes, the future supplies that the entity intends to make never eventuate. In HP Mercantile
Hill J said that if this occurs that, 'it does not follow that an entity which has embarked on an enterprise which consists of the making of input taxed supplies, but in fact makes no supplies, will be entitled to obtain input tax credits. Whether it is will depend on whether the acquisitions are related to supplies which, if made, would be input taxed'. 108. The operation of paragraph 11-15(2)(a) is not dependent on the sequence in which an acquisition and supply occur. In many instances the input taxed supply will precede the acquisition. GSTR 2008/1 also discusses the decision in HP Mercantile Pty Limited v. Commissioner of Taxation [2005] FCAFC (HP Mercantile ), in which Hill J considered the application of paragraph 11-15(2)(a) of the GST Act and the connection required between an acquisition and the making of supplies that would be input taxed. In HP Mercantile, HP Mercantile Pty Ltd (as trustee) acquired certain debts by way of legal assignment and set about recovering those debts. For GST purposes, the acquisition of the debts by HP Mercantile Pty Ltd was both an acquisition and a financial supply by HP Mercantile Pty Ltd and is referred to as an acquisition-supply.
Before acquiring the debts, HP Mercantile Pty Ltd acquired advice by way of a feasibility study as to whether it should acquire the debts. Once HP Mercantile Pty Ltd acquired the debts, it also acquired debt collection services. As the recovery of the debts is not itself a supply, the only supply made by HP Mercantile Pty Ltd to which the acquisitions could relate was the earlier single acquisition-supply of the debts. At [49] Hill J noted that: ... the activities of the Trust in acquiring the debts and then collecting them were closely connected as one continuous course of conduct...To say that fees paid for assistance to collect the debts had no real relationship with the acquisition of the debts would, in this context, be remarkable. Thus, the Court held that the acquisition of the debt collection services related to making supplies that would be input taxed even though the relevant supply (the acquisition-supply of the debts) was made before the acquisition of the debt collection services. Paragraph 118 of GSTR 2008/1 lists the principles established by HP Mercantile as follows: The decision in HP Mercantile
established the following principles that should be applied in determining whether an acquisition relates to making supplies that would be input taxed: • The language of section 11-15 suggests that it was not intended that there be a tracing between the acquisition and the actual supply. However, it does not follow that an entity which has embarked on an enterprise which consists of the making of input taxed supplies, but in fact makes no supplies, is entitled to input tax credits. Whether it is depends on whether the acquisitions are related to supplies which, if made, would be input taxed. • There is no requirement for an acquisition to precede a supply before it can be said that the acquisition is connected to the making of that supply. Therefore an acquisition can relate to the entity making past, current or future supplies.
• The words 'relates to' are wide words signifying some connection between two subject matters. There must be a connection between an acquisition and the making of input taxed supplies. The connection or association signified by the words may be direct, or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. • The requirement of apportionment can be found in the words 'to the extent that' which indicate that an acquisition may relate to the making of supplies that are input taxed as well as supplies that are taxable as would be the case with undifferentiated general overhead outgoings of an entity making both input taxed and taxable supplies (Ronpibon Tin NL & Tongkah Compound NL v. FC of T (1949) 78 CLR 47 at 55-56 (Ronpibon)). Further, paragraph 119 of GSTR 2008/1 goes on to state: For the purposes of paragraph 11-15(2)(a) a sufficient connection is established if, on an objective assessment of the surrounding facts and circumstances, the acquisition is used, or intended to be used, solely or to some extent for the making of supplies that would be input taxed.
In relation to overheads and enterprise costs, GSTR 2008/1 states: (4) Acquisitions that are overheads or enterprise costs 136. Some acquisitions have a direct relationship to a particular supply. Examples of these types of acquisition are repair services and letting services acquired for leased residential premises. Other acquisitions can relate to more than one supply or type of supply. For example, a company that has a number of pawn broker shops makes input taxed supplies of loans and taxable supplies of goods. Some of its acquisitions relate to both types of supplies. 137. Similarly, acquisitions such as contracted information technology services may relate to more than one division of a bank, and require apportionment if only some of the divisions make taxable supplies.
138. Other acquisitions do not directly relate to any specific type of supplies. Instead, they have an indirect relationship to all the supplies that the entity makes in carrying on its enterprise. If an entity makes both taxable and input taxed supplies, paragraph 11-15(2)(a) precludes these types of acquisitions from being for a creditable purpose to the extent that they relate to making supplies that would be input taxed. ... 143. Enterprise costs may be apportioned on the basis of current supplies that are made by the entity in carrying on its enterprise, although this may not always be the case. The overarching principle is that apportionment should be applied on a fair and reasonable basis, having regard to the factual circumstances. GSTR 2006/3 and GSTR 2006/4 provide guidance on fair and reasonable bases for apportionment. A consistent view to the above can be found in paragraphs 63 to 66 in Goods and Services Tax Ruling GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose
and paragraph 30 in GSTR 2003/9. Additionally, Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies , at paragraphs 53 to 56 discusses acquisitions made in carrying on an enterprise, that are not directly linked to making particular supplies, as follows:
53. Carrying on an enterprise includes those activities that you undertake in actually managing or conducting that enterprise. Certain acquisitions or importations relate to the carrying on of the enterprise as a whole and are not directly linked to the making of supplies but nonetheless they relate indirectly to all activities of the enterprise. These may be referred to as enterprise costs and may include costs such as compliance costs for meeting Australian Securities and Investments Commission (ASIC), GST or income tax obligations, directors' fees or maintaining a register of shareholders. These may still be creditable acquisitions provided you made them in carrying on your enterprise. However, if you make input taxed supplies as well as taxable supplies or GST-free supplies, you will still need to establish the extent of creditable purpose relating to these acquisitions and importations.
54. An alternative view has been raised that this approach to enterprise costs is not consistent with the provisions of section 11-15. The alternative view requires that the words in subsection 11-15(2), '...to the extent that... the acquisition relates to making supplies that would be input taxed', are to be interpreted as requiring some direct connection between the acquisition and the supply. It follows from this view that if the acquisitions cannot be directly linked to making supplies or carrying out other activities (including input taxed supplies) the extent of creditable purpose is 100%.
55. One possible consequence of the alternative view is that all indirect and overhead costs of an enterprise that makes only input taxed supplies would arguably be creditable acquisitions. This is clearly not the intention of the legislation.In the context of section 11-15 the Commissioner's view is that if acquisitions are made in carrying on an enterprise that involves making input taxed supplies, even if those acquisitions are not directly related to making particular supplies they are still indirectly related to making all supplies. For the purpose of section 11-15, acquisitions can relate indirectly to making input taxed supplies, and the extent of creditable purpose will need to be established accordingly. 56. In a different context, the High Court has interpreted the words 'relating to' as being 'extremely wide' and stated that the meaning must be sought 'in the context in which the expression is used'. The Court in Ronpibon Tin NL v. FC of T indicated that in the income tax context, if a certain expense has a 'double aspect', it will need to be apportioned if it 'cannot be dissected'. The High Court used directors' fees as an example of an expense having a 'double aspect'.
As stated in GSTR 2006/3, carrying on an enterprise includes those activities that an entity undertakes in actually managing or conducting that enterprise. Certain acquisitions or importations relate to the carrying on of the enterprise as a whole and are not directly linked to the making of supplies but nonetheless they relate indirectly to all activities of the enterprise. Further, if the acquisitions are made in carrying on an enterprise that involves making input taxed supplies, even if those acquisitions are not directly related to making particular supplies, they are still indirectly related to making all supplies. Additionally, as outlined in paragraph 118 of GSTR 2008/1, there is no requirement for an acquisition to precede a supply before it can be said that the acquisition is connected to the making of that supply. An acquisition can relate to the entity making past, current or future supplies.
In this case on an objective assessment of the facts and circumstances we consider the acquisitions of the Service relate either directly or indirectly to making supplies that would be input taxed even though the relevant supply (the acquisition-supply of the shares) was made before the acquisitions. Namely the entity's enterprise activity is to protect the value of their interest and seek to maximise returns to the government with each acquisition related to the ongoing obligations associated with the acquisition-supply of the interest. As each acquisition is related to this financial supply, for the purposes of section 189-15 of the GST Act this relationship does not cease, and each acquisition is a financial acquisition. Conclusion We consider that the entity's acquisitions of the Services relate solely to managing the interest which is an input taxed financial supply. On the basis that there are no other acquisitions, the entity exceeds the financial acquisitions threshold as defined in Division 189 of the GST Act.
As the acquisition of the Services by the entity relate solely to input taxed supplies, the acquisitions meet the requirement of paragraph 11-15(2)(a) of the GST Act and therefore are not for a creditable purpose under section 11-15 of the GST Act. It follows that paragraph 11-5(a) of the GST Act is not met and the acquisitions of the Services by the entity are not creditable acquisitions under section 11-5 of the GST Act. Hence the entity is not entitled to input tax credits for the acquisitions of the Services under section 11-20 of the GST Act.