Change in Extent of Creditable Purpose

In a recent GST Ruling GSTR 2006/4, the Commissioner outlined his position on the meaning of ‘creditable purpose’ and ‘extent of creditable purpose’ in the context of claiming the correct amount of input tax credits. The ruling also provides further guidance regarding adjustments where there is a later change in extent of creditable purpose.

Broadly, if a taxpayer is registered or required to be registered for GST, it is liable for GST on taxable supplies it makes. The taxpayer is also entitled to input tax credits for creditable acquisitions made in carrying on its business.

Input tax credits can only be claimed for acquisitions or importations which are creditable. An acquisition or importation is undertaken for a creditable purpose to the extent that it is required in carrying on an enterprise and is not of a private nature.

The ruling provides examples where acquisitions and importations are only partly creditable. Under these circumstances, the taxpayer is only entitled to an input tax credit to the extent of the creditable purpose.

Small Business CGT Changes

Readers will remember from our 2006 Federal Budget edition, that the Government was aiming to pass a raft of changes to the small business capital gains tax concessions making it easier for taxpayers to gain access to them.

These amendments received Royal Assent on 12 April 2007, and were largely unchanged from when they were first reported.

Approximately 32 amendments to the legislation have been made, which are all designed to improve accessibility to the concessions and reduce the compliance burden for small business taxpayers.

The concessions allow small business taxpayers crystallising a gain on or after 21 September 1999 to discount that capital gain by 50%, provided they satisfy the relevant conditions and the asset has been held for longer than 12 months.

The amendments, which will apply retrospectively from 1 July 2006, affect the entry criteria to access to the concessions.

The ‘controlling individual’ (50% ownership) test has been replaced with a ‘significant individual’ (20% ownership) test. This test includes an interest in the voting power, and dividends and capital distributions of the entity. Subsequently this test provides more stakeholders in the business the ability to access the concessions.

The maximum net asset value test totalling $5 million now includes the negative asset values of the taxpayer (and a connected entity). This means that where a taxpayer has a company whose liabilities are greater than its assets, this negative value can be included as part of the taxpayer’s net asset value calculation.

A subsequent amendment to the legislation, announced in a recent treasurer’s press release, should also see the maximum net asset value test threshold increase to $6 million from 1 July 2007.