A Guide to the Law of Securitisation in Australia - Clayton Utz

Entities that make GST-free supplies will be entitled to input taxcredits for the GST components included in the cost of theiracquisitions that relate to the making of those supplies.Input taxed suppliesGST is not payable on supplies that are input taxed. Thedistinction between input taxed supplies and GST-free supplies(discussed above) is that an entity may be restricted in its abilityto claim input tax credits because of the input taxed suppliesmade by that entity.There are two main types of input taxed supplies, namely inputtaxed financial supplies and other input taxed supplies (such asthe leasing of residential premises). Generally, an entity will beunable to claim any input tax credits for acquisitions, to theextent they relate to the making of input taxed supplies.However, there are three important exceptions in relation toinput taxed financial supplies.First, a reduced input tax credit may be claimed for reduced creditacquisitions which relate to making financial supplies.The reduced input tax credit is a credit equal to 75 percent of theGST included in the consideration provided by the entity for thatacquisition. Reduced input tax credits are only available for thereduced credit acquisitions that are exhaustively listed in the GSTlaw.Secondly, an entity will not be precluded from claiming an inputtax credit for an acquisition to the extent the acquisition relatesto the making of financial supplies and the entity making theacquisition does not exceed the financial acquisitions threshold.An entity will exceed the financial acquisitions threshold ifeither:“(a) the amount of all input tax credits to which that entity wouldbe entitled for ‘financial acquisitions’ would exceed $50,000; or(b) the amount of input tax credits to which that entity would beentitled for ‘financial acquisitions’ would exceed 10% of thetotal amount of the input tax credits to which the entitywould be entitled for acquisitions and importations duringthat 12 month period.”Therefore, the question of whether or not an entity exceeds thefinancial acquisitions threshold turns not on the value of financialsupplies made by that entity but rather, the value of theacquisitions made by that entity that are attributable to thosefinancial supplies.Finally, an entity will not be denied an input tax credit foracquisitions that are made in the course of making a financialsupply consisting of a borrowing, provided that the borrowing isnot for the purpose of making input taxed financial supplies.Further, such acquisitions will not be counted in determiningwhether or not the entity making the acquisition exceeds thefinancial acquisitions threshold.Financial suppliesOf the categories of input taxed supplies, the most significant inthe context of securitisations are the input taxed financialsupplies. The Australian GST system only provides input taxedtreatment for financial supplies that involve the provision,acquisition or disposal of various interests. Services relating tothe making of financial supplies, such as arranging services, arenot provided with input taxed treatment and will generally betaxable.Regulation 40-5.09 of the A New Tax System (Goods andServices Tax) Regulations 1999 (the “GST Regulations”) definesthe scope of financial supplies. Pursuant to subparagraph (1) ofthat regulation, the provision, acquisition or disposal of aninterest mentioned in subparagraph (3) or (4) is a financial supplyif:“(a) the provision, acquisition or disposal [of the interest] is:(i) for consideration;(ii) in the course or furtherance of an enterprise; and(iii) connected with Australia; and(b) the supplier is:(i) registered or required to be registered; and(ii) a financial supply provider in relation to the supply of theinterest.”Because financial supplies are input taxed, entities that makefinancial supplies are not liable to remit GST on the value ofthose supplies. Subject to the exceptions identified above,entities will be restricted in their ability to claim input tax creditsfor acquisitions relating to the making of financial supplies.Regulation 40-5.12 of the GST Regulations sets out a table ofsupplies that are specifically identified as not being input taxedfinancial supplies. These supplies will be taxable provided thatthey are not incidental financial supplies (discussed below) andprovided that the general requirements of a taxable supply aresatisfied.In the event of any conflict between regulations 40-5.09 and 40-5.12, regulation 40-5.12 will prevail – that is, the supply not bean input taxed financial supply.38