- GST Update: GSTR 2019/D1 Creditable purpose of acquisitions in relation to transaction accounts
The ATO has recently released GSTR 2019/D1 Goods and services tax: determining the creditable purpose of acquisitions in relation to transaction accounts (“GSTR 2019/D1” or “Draft Ruling”) with comments on the Draft Ruling due by August 9 2019.
The Draft Ruling applies to ADIs such as banks and credit unions and considers the GST recoverability of acquisitions related to the supply of transaction accounts to consumers / businesses such as everyday, savings, cheque, deposits and accounts which have overdraft facilities.
Essentially, the Draft Ruling narrows the assessment of ‘creditable acquisition’ to an objective assessment of the ‘relevant connection’ to non-input taxed supplies. That is, at least in the Commissioner’s view, the actual cause or principal purpose behind the acquisition, as well as the relationship between the acquisition and the broader commercial objective of the enterprise, are not relevant.
Consequently, GST recoverability will be significantly restricted for ADIs.
This Draft Ruling follows on from the ATO’s position in GSTD 2018/D1 Goods and services tax: determining the creditable purpose of acquisitions in a credit card issuing business (“GSTD 2018/D1” or “Draft Determination”) in that an objective assessment is also required in a four-party payment system as opposed to considering the relationship between the acquisition and the broader enterprise.
Whilst the Commissioner accepts the operation of an interrelated four-party payment system, the Commissioner does not accept that all acquisitions in the relevant business operating these accounts will necessarily have a ‘relevant connection’ to both the supply of the account to a customer and the revenue from the account.
With the issuance of the Draft Ruling and Draft Determination, it is evident the ATO is focusing on the banking and finance industry. It is therefore critical to review how your business determines GST recovery on the provision of transactions accounts, credit card facilities and associated financial supplies to customers.
If you would like to comment on the Draft Ruling to the ATO or would like further information on its application to your business, please contact Andrew Barrah using the details below.