What is the effect where a charity provides vouchers for people in need or pays their bills directly?

In order for an entity to claim input tax credits it must have made a creditable acquisition. A creditable acquisition arises when the following are satisfied:

• there is an acquisition of a thing
• the thing is acquired by an entity that is registered for GST or required to be registered for GST
• there is consideration
• the supply was a taxable supply
• the acquisition of the thing was for a creditable purpose.

The ATO has issued ruling GSTR 200/15 on determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.

What tests will be applied to "tax input credits"?

Entities making taxable or GST-free supplies will be able to claim input tax credits for any purchases that are creditable acquisitions which are made as part of their enterprise. Where the supplies are input taxed the entity is not entitled to input tax credits that relate to that supply.

If you are exempt from income tax, an acquisition that you make that would be a non-deductible expense under the Income Tax Assessment Acts is not a creditable acquisition, for example, entertainment, club and leisure facilities.

Specific Questions and Answers

1. Vouchers are often provided for individuals and families who are in need of emergency assistance. Does the introduction of the GST mean that these vouchers will buy 10% less on some items? Is it better for the charity to purchase the items rather than give vouchers even though there will be an extra cost in areas such as storage, transport and administrative arrangements.

   The introduction of the GST may mean that a voucher will purchase less of some items. Many items will be cheaper after the GST has commenced. Charities will be able to claim input tax credits for the purchase of items as well as the costs associated with the storage, transport and administrative arrangements.

2. When a charity pays for electricity and phone bills for people are they entitled to input tax credits for GST charged on the supplies?

The charity is paying on behalf of the recipient of the supply in either case. The supply of the electricity or phone services is not made directly to the charity. In addition it could not be said that there is an acquisition of these things that is related to the business activities of the charity. On this basis there would be no input tax credit available to the charity.

This issue is also relevant to vouchers and money provided by charities. Where a charity purchases a voucher from a commercial vendor or gives money to an individual for them to purchase goods or services, the Charity will not be entitled to claim an input tax credit for any GST charged on the goods or services that the person acquires using the cash or voucher. The recipient of the goods or services is the individual in this case and the charity has not made a creditable acquisition.

However, where a charity provides an individual with a voucher from their own organisation, the individual goes to a commercial vendor and is provided with goods to the value of the voucher, and the vendor then bills the charity for the goods, the charity will be entitled to claim an input tax credit for any GST paid on those goods. In this case the supply of the goods is made to the individual on the charity's behalf. The voucher the charity provides is an authority for the individual to spend money on their behalf up to a specified amount.